EXHIBIT 99.1
TECUMSEH PRODUCTS COMPANY
100 E. PATTERSON STREET
TECUMSEH, MI 49286
PRESS RELEASE
TECUMSEH PRODUCTS COMPANY REPORTS THIRD QUARTER 2004 NET INCOME OF $0.67 PER
SHARE
Tecumseh, Michigan, October 28, 2004 .... Tecumseh Products Company
(NASDAQ-TECUA, TECUB) announced today its 2004 third quarter consolidated
results as summarized in the following Consolidated Condensed Statements of
Operations.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
(Dollars in millions except per share amounts) September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ------- -------- ---------
NET SALES $478.6 $438.5 $1,439.8 $1,394.7
Cost of sales and operating expenses 403.4 379.7 1,245.3 1,212.7
Selling and administrative expenses 49.6 37.2 145.4 123.3
Restructuring charges, impairments and other items 2.0 (3.3) 5.6 38.8
---------- ------- -------- ---------
OPERATING INCOME 23.6 24.9 43.5 19.9
Interest expense (5.3) (6.8) (16.5) (18.3)
Interest income and other, net 2.3 6.6 10.6 16.7
---------- ------- -------- ---------
INCOME BEFORE TAXES 20.6 24.7 37.6 18.3
Tax provision 8.3 5.7 14.3 3.4
---------- ------- -------- ---------
NET INCOME $12.3 $19.0 $23.3 $14.9
---------- ------- -------- ---------
BASIC AND DILUTED EARNINGS PER SHARE $0.67 $1.03 $1.26 $0.81
---------- ------- -------- ---------
WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,480
========== ======= ======== ==========
Consolidated net sales in the third quarter of 2004 increased to $478.6
million from $438.5 million in 2003. Consolidated net sales year-to-date 2004
amounted to $1,439.8 million compared to $1,394.7 million in the same period of
2003. The effects of foreign currency translation increased sales by $7.6
million in comparison to the third quarter 2003 and $24.7 million in comparison
to the first nine months of 2003. Excluding the effects of currency translation,
sales in the third quarter and year-to-date 2004 increased primarily due to
increased sales in the Company's Compressor and Engine & Power Train businesses.
Consolidated net income for the third quarter of 2004 amounted to net
income of $12.3 million or $0.67 per share compared to net income of $19.0
million or $1.03 per share in the third quarter of 2003. Reported results for
the third quarter 2004 included restructuring charges of $2.0 million ($1.3
million net of tax or $0.07 per share) resulting from the continuation of the
previously announced program related to the North American Compressor and
Electrical Components businesses, as well as a new program related to the
Company's Indian compressor operations. During the quarter, the Company also
gave recognition to the benefits created by the Medical Prescription Drug,
Improvement and Modernization Act of 2003. The effect of adoption increased
three month and nine month earnings by $0.7 million and $1.4 million or $0.04
and $0.08 per share, respectively. Third quarter 2004 net income also reflected
a higher effective tax rate which resulted from changes in the full year
estimate of the
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relationship of losses in foreign jurisdictions, where the Company does not
recognize a related tax benefit, to worldwide pretax income as compared to the
previous quarter's estimates.
Included in reported results for the third quarter of 2003 was a net gain
of $3.3 million ($2.1 million net of tax or $0.11 per share) resulting from the
restructuring actions in the Engine & Power Train business announced in the
second quarter of 2003. Third quarter results were also favorably impacted by
several income tax related items. The resolution of prior years' federal income
tax audits reduced the Company's currently payable provision for income taxes by
$1.9 million or $0.10 per share. The Company's effective federal income tax rate
was further reduced by adjustments to the provision for deferred taxes
pertaining to unremitted earnings of foreign subsidiaries.
Consolidated net income for the nine months ended September 30, 2004
amounted to $23.3 million or $1.26 per share compared to a $14.9 million or
$0.81 per share for the same period in 2003. In addition to the 2004 third
quarter charges noted above, reported results for the first nine months of 2004
included restructuring and asset impairment charges of $3.6 million ($2.3
million net of tax or $0.13 per share) from the previously announced actions
involving the Compressor and Electrical Components businesses. In addition to
the 2003 third quarter net gains from restructuring actions and the federal
income tax-related items mentioned above, results for the first nine months of
2003 included a charge of $28.5 million ($18.2 million net of tax or $0.99 per
share) related to the consolidation of operations in the Engine & Power Train
business and a charge of $13.6 million ($8.7 million net of tax or $0.47 per
share) recorded in the first quarter, related to environmental costs at the
Company's Sheboygan Falls, Wisconsin facility.
Exclusive of these respective restructuring charges, impairments and other
items, third quarter 2004 operating results improved from the respective 2003
period, primarily due to better results in the Compressor business offset by
lower results in the Company's other businesses and higher corporate expenses,
reflecting costs incurred in order to comply with the Sarbanes-Oxley Act of
2002. Nine month 2004 results were lower than the respective prior year period
in all business segments.
COMPRESSOR BUSINESS
Third quarter 2004 sales in the Company's compressor business increased by
$25.1 million to $218.9 million from $193.8 million in the third quarter of
2003. The increase over the comparable quarter from the prior year was
attributable to a favorable global market for compressor products sold into the
original equipment markets of residential refrigerators and freezers and room
air conditioners. Strong worldwide demand for small, high efficiency compressors
used in refrigerators and freezers, such as those manufactured by the Company in
Brazil and India, had a positive effect on volumes and pricing. Sales of
compressors utilized in room air conditioning also increased, due in part to
growth in exports from the Company's Indian operations. Alternatively,
aftermarket volumes in North America were down from the prior year due to a
mostly mild cooling season. The effect of foreign translation increased sales by
$6.3 million.
Compressor business sales in the first nine months of 2004 increased by
$44.3 million, or approximately 7.1%, from the first nine months of 2003. The
effects of foreign currency translation accounted for $16.6 million of the
increase. In addition, declines in sales of compressors used in unitary air
conditioning applications and aftermarket distribution in the U.S. were more
than offset by higher levels of sales of compressors used in refrigeration and
room air conditioning due to strong global demands.
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Compressor business operating income for the third quarter of 2004
amounted to $22.5 million compared to $15.5 million in the third quarter of
2003. The increase in operating income in 2004 versus the comparable 2003
quarter reflected the overall higher sales volumes in the quarter and cost
cutting initiatives in North America, partially offset by increases in commodity
costs that were not fully recovered through pricing actions. Operating income
for the first nine months of 2004 amounted to $53.7 million compared to $55.9
million for the first nine months of 2003. The decrease in operating income for
the first nine months of 2004 versus the comparable 2003 period reflected the
impact of commodity price increases, an unfavorable exchange rate in Brazil, and
rapidly falling prices in India from lower import duties.
ELECTRICAL COMPONENTS BUSINESS
Electrical Components business sales were $102.1 million in the third
quarter of 2004 compared to $101.5 million in the third quarter of 2003.
Year-to-date 2004 sales amounted to $314.3 million compared to $315.8 million in
the same period of 2003. Third quarter and year-to-date volume declines in gear
motor and actuator sales were partially offset by higher sales to the automotive
market and foreign currency-related increases in the Asian region.
Electrical Components operating income for the third quarter of 2004
amounted to $3.5 million compared to $3.9 million in the third quarter of 2003.
Segment operating profit year-to-date was $11.2 million compared to $11.5
million for the same period in 2003. The decline in third quarter operating
income largely resulted from commodity cost increases. Year-to-date results were
also impacted by warranty, response and expediting costs, incurred as a result
of a product design change for an automotive segment customer. These costs were
partially offset by the absence in 2004 of the $4.2 million write-up of FASCO
inventory, recorded at December 31, 2002 in connection with purchase accounting
that was subsequently recognized in cost of sales during the first quarter of
2003.
ENGINE & POWER TRAIN BUSINESS
Engine & Power Train business sales amounted to $128.6 million in the
third quarter of 2004 compared to $113.2 million in the third quarter of 2003.
Sales year-to-date in 2004 were $356.9 million compared to $357.1 million in the
same period of 2003. The increase in sales for the third quarter reflected
strong, early season demand of engines used in snow blowers and an extended
season for engines used in walk behind rotary lawn mowers. This third quarter
improvement was offset by the year-to-date decline of sales volume in Europe.
Engine & Power Train business operating income in the third quarter of
2004 amounted to $2.2 million compared to $3.3 million in the third quarter of
2003. Despite the increase in sales, higher commodity and freight costs
negatively impacted quarter results. For the first nine months of 2004, the
Engine & Power Train business incurred an operating loss of $11.2 million
compared to an operating loss of $7.1 million in 2003. The decline in third
quarter and year-to-date results reflected many factors including currency
losses of $1.6 million on dollar-dominated borrowings in Brazil, start up costs
and ramp up inefficiencies at the Curitiba, Brazil facility, the impact of
increased commodity costs, reduced profitability at the European operations due
to the lower sales volumes, and product rework involving engines produced in the
Company's facility in the Czech Republic that was necessitated by defective
parts received from a supplier. The declines were partially offset by the
improvement in the operating results of the North American engine operations due
to the cost reductions achieved with the closure of the Douglas, Georgia and
Sheboygan Falls, Wisconsin facilities last year.
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PUMP BUSINESS
Pump business sales in the third quarter of 2004 amounted to $28.5 million
compared to $29.7 million in third quarter of 2003. Year-to-date sales amounted
to $102.5 million in 2004 compared to $100.6 million the previous year. The 4.4%
decrease in third quarter sales was primarily attributed to lower sales of water
gardening products as retailers worked down inventories. Year-to-date increases
reflected robust sales in the plumbing markets due to wet spring weather and
strong OEM demand in the HVAC market.
Operating income amounted to $3.1 million in the third quarter of 2004
compared to $3.3 million in the same period in 2003. Operating income in the
first nine months of 2004 was $11.3 million compared to $11.7 million in 2003.
The slight decrease in operating income was primarily attributable to higher
engineering, administrative and promotional costs.
RESTRUCTURING CHARGES, IMPAIRMENTS AND OTHER ITEMS
Third quarter 2004 results included a reduction in workforce at one of the
Company's Indian compressor facilities. The action affected approximately 100
employees at the cost of $1.0 million. Year-to-date 2004 results also included
restructuring and impairment charges totaling $4.6 million related to previously
announced facility consolidation actions affecting several of the Company's
facilities in its North American Compressor and Electrical Components
businesses.
The consolidation actions within the Compressor business include a move of
compressor machining and assembly operations from its Tecumseh, Michigan
facility to its existing compressor facility located in Tupelo, Mississippi. In
conjunction, aftermarket distribution operations located in Clinton, Michigan
will be relocated to the Tecumseh facility. Charges related to the Compressor
business action recognized during the third quarter included relocation costs of
$0.3 million. With the asset impairment charges of $1.6 million recognized in
the second quarter, year-to-date charges totaled $1.9 million. Additional
severance and relocation costs, estimated to be approximately $1.2 million to
$1.9 million, will be recognized during the fourth quarter of 2004 as the
consolidation action is completed.
Actions in the Electrical Components business include the closure of the
Company's manufacturing facility in St. Clair, Missouri. Gear machining
operations will be consolidated into the Company's Salem, Indiana facility and
motor assembly operations will be consolidated into the Company's Piedras Negras
and Juarez, Mexico facilities. Charges related to the Electrical Components
business action recognized during the third quarter totaled $0.7 million and
included $0.4 million of relocation costs incurred and employment related
charges of $0.3 million. Total year-to-date costs of $2.7 million included asset
impairment charges of $1.7 million and employment-related charges of $0.3
million recognized in the second quarter. Additional restructuring and
impairment charges, estimated to be approximately $2.0 million to $3.1 million,
will be recognized during the fourth quarter of 2004 as the plant closure and
consolidation action is completed.
Third quarter 2003 results were favorably affected by $3.3 million ($2.1
million net of tax or $0.11 per share) for net gains recognized pursuant to the
restructuring actions announced in the second quarter involving the Engine &
Power Train business. These actions included the closure of the Company's
Douglas, Georgia and Sheboygan Falls, Wisconsin production facilities and the
relocation of certain production capacities to the new Curitiba, Brazil facility
and other existing U.S. locations. As a result of these actions, the Company
incurred both charges and gains, which were recognized over the second and third
quarters of 2003 in accordance with SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities,"
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and SFAS No. 88 "Employer's Accounting for Settlements & Curtailments of Defined
Benefit Pension Plans and Termination Benefits."
As of September 30, 2003, the Company recognized $31.0 million in charges
and $5.8 million in gains with respect to these restructuring actions. Included
in the charges were approximately $7.5 million in earned severance pay and
future benefit costs relating to manpower reductions, $3.2 million in plant
closing and exit costs incurred through September 30, 2003, and $20.3 million in
asset impairment charges for idled equipment and facilities. The amount of
severance pay and future benefit costs mentioned above included $0.8 million in
curtailment losses related to the pension plan at the Sheboygan Falls, Wisconsin
facility. The gains represented curtailment gains associated with other
post-employment benefits. Under U.S. GAAP, such gains were not recognizable
until the affected employees were severed and, accordingly, were recorded in the
third quarter of 2003.
Under SFAS No. 146, severance payments that require future service to be
received is accrued as earned and other costs are only recognized to the extent
a liability has been incurred. Accordingly, $28.5 million and $2.5 million of
the charges were recognized in the second and third quarters, respectively.
OUTLOOK
The outlook for the balance of the year is subject to many variables which
could significantly impact the Company's results. While the general economic
climate is improving and past restructuring actions are providing positive
contributions, the high level of commodity costs, weakness in the U.S. Dollar,
and pricing pressures from Asian-based competition will challenge each of the
Company's businesses in various ways making any predictions difficult. The
Company mitigates only a portion of its exposure to future material price
increases through forward contracts. Given the competitive nature of the
industries in which the Company competes, the Company most likely will not be
able to fully recover such cost increases through product pricing actions. The
Company expects overall fourth quarter 2004 operating results to be lower than
those of the fourth quarter 2003, excluding restructuring charges. Compressor
segment results are expected to be improved over the prior year while other
segments are expected to deteriorate.
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RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
Three Months Ended Nine Months Ended
(Dollars in millions) September 30, September 30,
-------------------- --------------------
2004 2003 2004 2003
------- -------- ------ ------
NET SALES:
Compressor Products $218.9 $193.8 $664.9 $620.6
Electrical Components 102.1 101.5 314.3 315.8
Engine & Power Train Products 128.6 113.2 356.9 357.1
Pump Products 28.5 29.7 102.5 100.6
Other (a) 0.5 0.3 1.2 0.6
------ ------ -------- --------
Total net sales $478.6 $438.5 $1,439.8 $1,394.7
====== ====== ======== ========
OPERATING INCOME:
Compressor Products $22.5 $15.5 $53.7 $55.9
Electrical Components 3.5 3.9 11.2 11.5
Engine & Power Train Products 2.2 3.3 (11.2) (7.1)
Pump Products 3.1 3.3 11.3 11.7
Other (a) (0.9) (0.8) (2.7) (2.9)
Corporate expenses (4.8) (3.6) (13.2) (10.4)
Restructuring charges, impairments and other items (2.0) 3.3 (5.6) (38.8)
------ ------ -------- --------
Total operating income 23.6 24.9 43.5 19.9
Interest expense (5.3) (6.8) (16.5) (18.3)
Interest income and other, net 2.3 6.6 10.6 16.7
------ ------ -------- --------
INCOME BEFORE TAXES $20.6 $24.7 $37.6 $18.3
====== ====== ======== ========
(a) "Other" consists of non-reportable business segments.
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CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, December 31,
(Dollars in millions) 2004 2003
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 272.9 $ 344.6
Accounts receivable, net 245.6 235.0
Inventories 344.1 298.2
Deferred income taxes and other 123.9 102.3
-------- --------
Total current assets 986.5 980.1
PROPERTY, PLANT AND EQUIPMENT -- NET 536.7 554.6
GOODWILL AND OTHER INTANGIBLES 308.1 317.5
OTHER ASSETS 262.8 253.6
-------- --------
TOTAL ASSETS $2,094.1 $2,105.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 177.4 $ 172.4
Short-term borrowings 53.1 89.6
Accrued liabilities 193.0 172.6
-------- --------
Total current liabilities 423.5 434.6
LONG-TERM DEBT 326.3 327.6
DEFERRED INCOME TAXES 31.5 36.5
PENSION AND POSTRETIREMENT BENEFITS 231.3 233.3
PRODUCT WARRANTY AND SELF-INSURED RISKS 25.4 24.4
ACCRUAL FOR ENVIRONMENTAL MATTERS 43.6 44.6
-------- --------
Total liabilities 1,081.6 1,101.0
STOCKHOLDERS' EQUITY 1,012.5 1,004.8
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,094.1 $2,105.8
======== ========
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Nine Months Ended
(Dollars in millions) September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- -------
TOTAL STOCKHOLDERS' EQUITY
BEGINNING BALANCE (B) $ 990.5 $1,000.6 $1,004.8 $ 978.9
Comprehensive income:
Net income 12.3 19.0 23.3 14.9
Other comprehensive income 15.6 2.2 2.1 39.8
-------- -------- -------- -------
Total comprehensive income 27.9 21.2 25.4 54.7
Cash dividends declared (5.9) (5.9) (17.7) (17.7)
-------- -------- -------- -------
TOTAL STOCKHOLDERS' EQUITY
ENDING BALANCE $1,012.5 $1,015.9 $1,012.5 $1,015.9
======== ======== ======== ========
(b) The June 30, 2004 Stockholder's Equity balance has been increased by $0.7
million from that previously reported to reflect the retroactive recognition of
the effects of the Medical Prescription Drug, Improvement and Modernization Act
of 2003, as permitted by the FASB Staff Position FAS 106-2.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
(Dollars in millions) September 30,
------------------------
2004 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 34.5 $ 43.1
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition, net of cash acquired --- 10.6
Capital expenditures (55.6) (66.0)
------ ------
Cash used in investing activities (55.6) (55.4)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (17.7) (17.7)
Decrease in borrowings, net (35.4) (36.2)
------ ------
Cash used in financing activities (53.1) (53.9)
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2.5 13.6
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (71.7) (52.6)
CASH AND CASH EQUIVALENTS:
Beginning of period 344.6 333.1
------ ------
End of period $272.9 $280.5
====== ======
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
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, particularly commodities, including
steel, copper and aluminum, whose cost can be subject to significant variation;
ix) actions of competitors; x) the ultimate cost of resolving environmental and
legal 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; xiii) potential political and economic adversities
that could adversely affect anticipated sales and production in Brazil; and xiv)
potential political and economic adversities that could adversely affect
anticipated sales and production in India, including potential military conflict
with neighboring countries. 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.
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Tecumseh Products Company will host a conference call to report on the
third quarter 2004 results on Thursday, October 28, 2004 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
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