Exhibit 99.1
Tecumseh Products Company 100 E. Patterson Street
Press Release Tecumseh, MI 49286
For Immediate Release
TECUMSEH PRODUCTS COMPANY REPORTS FOURTH QUARTER 2002 NET INCOME BEFORE
NONRECURRING CHARGES OF $0.70 PER SHARE
Tecumseh, Michigan, January 30, 2003 . . . . Tecumseh Products Company
(NASDAQ-TECUA, TECUB) announced today its 2002 fourth quarter and full year
consolidated results as summarized in the following Consolidated Condensed
Statements of Income.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
============================================================================================================================
Three Months Ended Twelve Months Ended
(Dollars in millions except per share amounts) December 31, December 31,
--------------------- ---------------------
2002 2001 2002 2001
============================================================================================================================
NET SALES $304.2 $299.1 $1,343.8 $1,398.9
Cost of sales and operating expenses 259.5 264.0 1,141.6 1,207.2
Selling and administrative expenses 28.5 22.5 117.4 112.1
Nonrecurring charges 5.8 6.1 10.3 35.4
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 10.4 6.5 74.5 44.2
Interest expense (2.3) (0.7) (5.8) (4.1)
Interest income and other, net 6.3 3.7 15.1 20.3
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 14.4 9.5 83.8 60.4
PRINCIPLE
Taxes on income 5.1 3.4 29.7 17.6
- ----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 9.3 6.1 54.1 42.8
Cumulative effect of accounting change for goodwill, net of tax --- --- (3.1) ---
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $9.3 $6.1 $51.0 $42.8
- ----------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting change $0.50 $0.33 $2.93 $2.30
Change in accounting for goodwill --- --- (0.17) ---
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $0.50 $0.33 $2.76 $2.30
============================================================================================================================
WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,607
============================================================================================================================
Consolidated net income for the fourth quarter of 2002 amounted to $9.3
million, or $0.50 per share, compared to net income of $6.1 million, or $0.33
per share in the fourth quarter of 2001. Included in 2002's fourth quarter
results are nonrecurring charges of $5.8 million ($3.7 million net of tax or
$0.20 per share) related to the movement of certain engine component
manufacturing and for environmental costs. Fourth quarter 2001 nonrecurring
charges were also related to a realignment of certain engine and engine
component manufacturing and had the effect of reducing 2001 fourth quarter
earnings by $3.9 million net of tax or $0.21 per share.
Full year 2002 consolidated net income amounted to $51.0 million or $2.76 per
share, compared to $42.8 million or $2.30 per share in the same period of 2001.
Included in the full year 2002 reported results are several one-time items such
as nonrecurring charges of $10.3 million ($6.6 million net of tax
or $0.36 per share), and the cumulative effect of a change in accounting for
goodwill ($3.1 million net of tax or $0.17 per share) related to the adoption of
Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other
Intangible Assets." On a proforma basis (excluding one-time items), full year
results would have been $60.7 million or $3.28 per share.
Full year 2001 results also included several one-time items such as
nonrecurring charges of $35.4 million ($22.8 million or $1.23 per share), a $5.2
million ($0.28 per share) tax credit resulting from a refund of prior years'
federal income taxes, and $2.0 million net of tax ($0.11 per share) for interest
income associated with the tax credit. For comparative purposes, proforma
results for the 2001 full year would have been $58.4 million or $3.14 per share.
The improvement in proforma results for the full year is attributable
to better results from the Compressor and Pumps Groups, mostly offset by a
substantial decline in profitability at the Engine & Power Train Group.
Consolidated net sales for the fourth quarter of 2002 amounted to
$304.2 million compared to sales of $299.1 million in the fourth quarter of
2001. The increase is the result of improved sales in the Compressor and Pump
Groups offset by lower sales in the Engine & Power Train Group. Sales for the
full year ended December 31, 2002 amounted to $1,343.8 million compared to sales
of $1,398.9 million for the comparable period in 2001. Excluding the effects of
foreign currency translation on sales, the lower 2002 sales are attributable to
the Engine & Power Train Group.
COMPRESSOR BUSINESS
Fourth quarter 2002 sales in the Company's Compressor Business
increased to $169.4 million from $156.7 million in the fourth quarter of 2001.
Sales for the year ended December 31, 2002 amounted to $790.9 million compared
to $804.6 million in 2001. The increase in sales in the fourth quarter is due to
improved sales in almost all of the Compressor Group market segments,
particularly the residential refrigeration market where sales have improved year
over year for the past three consecutive quarters. Foreign currency translation
reduced sales by $1.8 million in the quarter. Excluding the full year effect
from currency on sales of $8.5 million, full year sales declined less than 1%.
Increases in sales of compressors used in household refrigeration and commercial
applications nearly offset losses of share in the unitary and room air
conditioning markets.
Compressor Business operating income for the fourth quarter of 2002
amounted to $14.3 million compared to $2.3 million in the fourth quarter of
2001. Operating income for the years ended December 31, 2002 and 2001 amounted
to $77.5 million and $54.3 million, respectively. The improvement in operating
margins is attributable to greater coverage of fixed costs, the positive effects
of restructuring actions implemented over the last 18 months, and the favorable
effects from devaluation of the Brazilian Real. This improvement in operating
margins was partially offset by declining margins on high-volume, commodity-type
compressors and accelerated spending on new products.
The Company's Brazilian operations contributed approximately 67% of the
compressor business' operating profit for the year. Operating margins have
benefited from the effects of the weak Brazilian currency as approximately
two-thirds of its full year sales were exported and denominated in other
currencies.
The Company's Indian Compressor operations continue to improve. Results
for the fourth quarter and full year 2002 were profitable compared to losses for
the respective 2001 comparable periods.
ENGINE & POWER TRAIN BUSINESS
Engine & Power Train sales in the fourth quarter of 2002 declined to
$111.6 million from $123.2 million in the fourth quarter of 2001. Sales in the
year ended December 31, 2002 amounted to $432.3 million compared to $480.9
million in 2001. Operating income for the three months ended December 31, 2002
amounted to $1.4 million (excluding the fourth quarter nonrecurring charge
attributable to the Engine Group) compared to $10.1 million in the fourth
quarter of 2001. For the year ended December 31, 2002, operating income was $1.4
million compared to $20.0 million in 2001. Fourth quarter domestic engine unit
volume increased 10% over the prior year; however, a very unfavorable mix
between engines for snow throwers versus walk behind rotary mowers was
responsible for the decline in profitability. For the full year 2002, domestic
engine unit volume decreased 8% over the prior year, including a 36% decline in
engines for snow throwers. Declines in volume, less profitable mix and declining
contribution margins were responsible for the substantial deterioration in full
year profitability.
PUMP BUSINESS
Sales in the fourth quarter of 2002 increased to $23.2 million from
$19.2 million in the fourth quarter of 2001. Pump Business sales for the year
ended December 31, 2002 increased to $120.6 million compared to $113.4 million
in 2001. Operating income in the fourth quarter of 2002 amounted to $2.4
million, compared to $0.9 million in the same period of 2001. Full year
operating income amounted to $14.8 million in 2002 compared to $11.6 million in
2001. Improvements in sales have been primarily in pumps used in consumer
applications.
NONRECURRING CHARGES
Full year 2002 results were adversely impacted by $10.3 million ($6.6
million net of tax or $0.36 per share) in nonrecurring charges. The fourth
quarter charge of $5.8 million ($3.7 million net of tax or $0.20 per share) is
in the Engine & Power Train business. Included in the charge is $4.1 million for
costs, mostly write-downs of fixed assets, associated with the relocation of
engine component manufacturing, and the discontinuation of production activities
at its Grafton, Wisconsin facility. Also included in the charge is $1.7 million
for additional environmental clean up costs, primarily additional past response
costs levied by the EPA for its Sheboygan, Wisconsin facility. The first quarter
charge of $4.5 million ($2.8 million net of tax or $0.15 per share) is in the
Compressor business. This charge is for costs, primarily the write-off of
certain unusable equipment, related to the relocation of additional rotary
compressor lines from the U.S. to Brazil.
2001 annual results were adversely impacted by $35.4 million ($22.8
million, net of tax, or $1.23 per share) in nonrecurring items. The fourth
quarter charge of $6.1 million ($3.9 million, net of tax, or $0.21 per share) is
in the Engine & Power Train business and relates primarily to the transfer of
certain engine and component part production from domestic facilities to our
facilities in the Czech Republic. The third quarter charge of $29.3 million
($18.9 million, net of tax, or $1.02 per share) is to provide for the cost of an
early retirement program which resulted in the reduction of 250 salaried
employees.
ACQUISITION
On December 30, 2002, the Company acquired FASCO Motors from Invensys
Plc for cash of $396.6 million and the assumption of approximately $14.5 million
in debt. FASCO is a leading manufacturer in the U.S. of fractional horsepower
motors. FASCO manufactures AC motors, DC motors, blowers, gear motors and linear
actuators, all of which are used in a wide variety of applications within the
HVAC, automotive, healthcare and appliance industries. The acquisition was
financed with proceeds from $325 million in new bank borrowings and internal
cash flows. Of $325 million in new borrowings, $250 million was from a six-month
bridge loan and $75 million was from a new three-year $125 million revolving
credit facility. As the bridge loan is expected to be replaced with permanent
long-term financing, it has been presented as long-term debt in the December 31,
2002 balance sheet.
The purchase price allocation has been prepared on a preliminary basis,
and reasonable changes are expected as additional information becomes available.
The following is a summary of the estimated values of the assets acquired and
liabilities assumed as of the date of the acquisition:
(dollars in millions)
Current assets $110.4
Property, plant and equipment 158.2
Intangible assets 55.0
Goodwill 223.2
------
Total assets acquired $546.8
======
Current liabilities $92.2
Other liabilities 53.7
Long-term debt 0.6
------
Total liabilities assumed $146.5
======
ACCOUNTING CHANGES
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets."
Under SFAS No. 142 goodwill is no longer amortized, but is subject to impairment
testing on at least an annual basis. As of December 31, 2001, the net book value
of the Company's goodwill was $45.1 million. However, as required by the
Statement, the Company tested for impairment at the date of adoption and found
that the goodwill associated with the Engine & Power Train European operations
had been impaired. Accordingly, goodwill amounting to $4.8 million ($3.1 million
net of tax) has been written-off and recognized as a cumulative effect from an
accounting change. The net book value of the Company's goodwill at December 31,
2002, was $270.3 million, and includes $223.2 million of goodwill recorded in
connection with the FASCO acquisition. Amortization of goodwill amounted to
approximately $1.5 million for the twelve months ended December 31, 2001.
On January 1, 2002, the Company also adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets." This statement, which
supersedes SFAS No. 121, addresses accounting and financial reporting for the
impairment or disposal of long-lived assets. There was no material effect on the
results of operations or financial position as a result of adopting this
standard. The nonrecurring charges recorded in the first and fourth quarters
were determined in accordance with the provisions of SFAS No. 144.
OUTLOOK
The Company does not expect worldwide market conditions in its
Compressor and Engine Businesses to be much improved over 2002. Conditions in
these markets will continue to suffer from over-capacity and deflationary
pricing. However, actions to improve profitability in these segments, as well as
the addition of FASCO should improve earnings in 2003, excluding any
restructuring charges, if cost reduction efforts are sustained.
Full year 2003 results in the Compressor segment are expected to
continue to improve, as they did in 2002, as a result of past actions to
consolidate operations in the U.S. and move production to low-cost locations
like India and Brazil. In addition, the Group will be looking at ways to
revitalize U.S. operations by reversing the negative growth pattern demonstrated
over the past several years. Until this can be accomplished, the Group's
reliance on Brazilian operations for growth and profitability will represent a
significant concentration of risk. Profits from the Brazilian and Indian
compressor operations are expected to grow in 2003 as a result of their
additional productive capacities.
Results in the Engine Group are expected to deteriorate before they
improve. The restructuring actions recognized in the fourth quarter only
represent an initial step in correcting the overall cost structure of the Group
and further actions are expected in 2003 as the new engine component operations
in Brazil commence and further restructuring actions are defined and
implemented. While improvements are not materializing as quickly as desired, the
slower approach has the benefit of not compromising the supply of quality
product to our customers.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
===========================================================================================================================
Three Months Ended Twelve Months Ended
(Dollars in millions) December 31, December 31,
------------------ --------------------
2002 2001 2002 2001
===========================================================================================================================
NET SALES:
Compressor Products $169.4 $156.7 $790.9 $804.6
Engine & Power Train Products 111.6 123.2 432.3 480.9
Pump Products 23.2 19.2 120.6 113.4
- ---------------------------------------------------------------------------------------------------------------------------
Total Net Sales $304.2 $299.1 $1,343.8 $1,398.9
===========================================================================================================================
OPERATING INCOME:
Compressor Products $14.3 $2.3 $77.5 $54.3
Engine & Power Train Products 1.4 10.1 1.4 20.0
Pump Products 2.4 0.9 14.8 11.6
Corporate expenses (1.9) (0.7) (8.9) (6.3)
Nonrecurring charges (5.8) (6.1) (10.3) (35.4)
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating Income 10.4 6.5 74.5 44.2
Interest expense (2.3) (0.7) (5.8) (4.1)
Interest income and other, net 6.3 3.7 15.1 20.3
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $14.4 $9.5 $83.8 $60.4
===========================================================================================================================
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
==============================================================================================
DECEMBER 31, December 31,
(Dollars in millions) 2002 2001
==============================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $333.1 $317.6
Accounts receivable, net 242.4 207.1
Inventories 304.0 261.9
Deferred income taxes and other 75.6 72.9
- ----------------------------------------------------------------------------------------------
Total Current Assets 955.1 859.5
PROPERTY, PLANT AND EQUIPMENT -- NET 570.5 431.9
OTHER ASSETS 537.4 228.4
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $2,063.0 $1,519.8
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $172.6 $101.3
Short-term borrowings 112.6 11.6
Accrued liabilities 166.2 140.9
- ----------------------------------------------------------------------------------------------
Total Current Liabilities 451.4 253.8
PRODUCT WARRANTY AND SELF-INSURED RISKS 21.3 23.9
LONG-TERM DEBT 298.2 13.7
DEFERRED INCOME TAXES 33.6 3.0
PENSION AND POSTRETIREMENT BENEFITS 250.1 218.3
ACCRUAL FOR ENVIRONMENTAL MATTERS 29.5 29.4
- ----------------------------------------------------------------------------------------------
Total Liabilities 1,084.1 542.1
STOCKHOLDERS' EQUITY 978.9 977.7
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,063.0 $1,519.8
==============================================================================================
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
===========================================================================================================================
Three Months Ended Twelve Months Ended
(Dollars in millions) December 31, December 31,
------------------ --------------------
2002 2001 2002 2001
===========================================================================================================================
TOTAL STOCKHOLDERS' EQUITY
BEGINNING BALANCE $960.6 $965.4 $977.7 $995.4
Comprehensive Income:
Net Income 9.3 6.1 51.0 42.8
Other Comprehensive Income 14.9 12.2 (26.2) (18.6)
- ---------------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income 24.2 18.3 24.8 24.2
Cash Dividends Declared (5.9) (5.9) (23.6) (23.8)
Stock Repurchases --- (0.1) --- (18.1)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY
ENDING BALANCE $978.9 $977.7 $978.9 $977.7
===========================================================================================================================
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
===========================================================================================================================
Twelve Months Ended
(Dollars in millions) December 31,
----------------------
2002 2001
===========================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before cumulative effect of change in accounting principle $54.1 $42.8
Adjustments to reconcile net income before cumulative effect of change in
accounting principle to net cash provided by operating activities:
Depreciation and amortization 65.1 72.0
Nonrecurring charges 10.3 35.4
Accounts receivable 18.4 52.7
Inventories (13.8) 8.7
Payables and accrued expenses 20.0 (23.6)
Prepaid pension expense (25.5) (31.4)
Other 2.9 16.4
- ---------------------------------------------------------------------------------------------------------------------------
Cash Provided By Operating Activities 131.5 173.0
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired (392.9) (13.4)
Capital expenditures (73.9) (65.4)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Used in Investing Activities (466.8) (78.8)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (23.7) (23.8)
Increase in borrowings, net 377.5 4.9
Repurchases of common stock --- (18.1)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Provided By (Used In) Financing Activities 353.8 (37.0)
- ---------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3.0) (7.8)
- ---------------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 15.5 49.4
CASH AND CASH EQUIVALENTS:
Beginning of Period 317.6 268.2
- ---------------------------------------------------------------------------------------------------------------------------
End of Period $333.1 $317.6
===========================================================================================================================
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that are subject to the safe
harbor provisions created by that Act. In addition, forward-looking statements
may be made orally in the future by or on behalf of the Company. Forward-looking
statements can be identified by the use of terms such as "expects", "should",
"may", "believes", "anticipates", "will", and other future tense and
forward-looking terminology.
Readers are cautioned that actual results may differ materially from those
projected as a result of certain risks and uncertainties, including, but not
limited to, i) changes in business conditions and the economy in general in both
foreign and domestic markets; ii) the effect of terrorist activity and armed
conflict; iii) weather conditions affecting demand for air conditioners, lawn
and garden products, portable power generators and snow throwers; iv) the extent
to which the decline in demand for lawn and garden and utility engines will
continue, and the success of the Company's ongoing effort to bring costs in line
with projected production levels and product mix; v) financial market changes,
including fluctuations in interest rates and foreign currency exchange rates;
vi) economic trend factors such as housing starts; vii) emerging governmental
regulations; viii) availability and cost of materials; ix) actions of
competitors; x) the ultimate cost of resolving environmental matters; xi) the
Company's ability to profitably develop, manufacture and sell both new and
existing products; xii) the extent of any business disruption that may result
from the restructuring and realignment of the Company's manufacturing
operations, the ultimate cost of those initiatives and the amount of savings
actually realized; xii) the integration of the FASCO Motors business into the
Company and the issuance of debt in connection with the FASCO Motors
acquisition; and xiii) potential political and economic adversities that could
adversely affect anticipated sales and production in Brazil. These
forward-looking statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
Tecumseh Products Company will host a conference call to report on the
fourth quarter results on Thursday, January 30th at 11:00 a.m. ET. The call will
be broadcast live over the Internet and then available for replay through
Tecumseh Products Company's website at www.tecumseh.com.
Press releases and other investor information can be accessed via Tecumseh
Products Company's Internet web site at http://www.tecumseh.com.
Contact: Pat Walsh
Tecumseh Products Company
517-423-8455