Tecumseh Products Company Exhibit 99.1
100 E. Patterson Street
Tecumseh, MI 49285
PRESS RELEASE
TECUMSEH PRODUCTS COMPANY REPORTS FIRST QUARTER 2005 NET LOSS OF $0.67 PER SHARE
Tecumseh, Michigan, May 5, 2005 . . . . Tecumseh Products Company (NASDAQ-TECUA,
TECUB) announced today its 2005 first quarter consolidated results as summarized
in the following Consolidated Condensed Statements of Operations.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended
(Dollars in millions, except per share amounts) March 31,
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2005 2004
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NET SALES $ 464.4 $ 477.0
Cost of sales and operating expenses 430.6 421.5
Selling and administrative expenses 48.1 44.7
Restructuring charges, impairments and other items 0.1 --
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OPERATING INCOME (LOSS) (14.4) 10.8
Interest expense (7.7) (5.6)
Interest income and other, net 3.3 4.6
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INCOME (LOSS) BEFORE TAXES (18.8) 9.8
Tax provision (benefit) (6.4) 3.4
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NET INCOME (LOSS) $ (12.4) $ 6.4
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BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.67) $ 0.34
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WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480
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Consolidated net loss for the first quarter of 2005 amounted to $12.4
million or $0.67 per share compared to income of $6.4 million or $0.34 per share
in the first quarter of 2004. Operating results were lower than the prior year
period across all business segments, with the most substantial decline in the
Company's Engine & Power Train business. In general, lower operating results
were attributable to lower sales, higher commodity and other input costs in
excess of price increases, and unfavorable foreign currency exchange rate
changes.
Consolidated net sales in the first quarter of 2005 decreased to $464.4
million from $477.0 million in 2004. Excluding an increase in sales due to the
effects of currency fluctuation of $13.3 million, sales in the first quarter of
2005 declined by $25.9 million primarily due to the Engine & Power Train
business, where sales volumes were lower in North America, and to a lesser
extent, Europe. Sales volume declines were also experienced in the Electrical
Components and Pumps segments.
COMPRESSOR BUSINESS
First quarter 2005 sales in the Company's compressor business increased to
$241.0 million from $211.9 million in the first quarter of 2004. The increase
over the comparable quarter from the prior year was mainly attributable to
higher sales of compressor products sold into the original equipment markets for
residential refrigerators and freezers, that are primarily manufactured by the
Company in its Brazilian and Indian facilities. Additional sales improvements
came from continued growth in Indian
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export sales of compressors used in room air conditioning. The effects of
foreign currency translation increased sales by $11.4 million.
Compressor business operating income for the first quarter of 2005 amounted
to $8.6 million compared to $11.9 million in the first quarter of 2004. The
decrease in operating income for the first quarter of 2005 versus the comparable
2004 quarter reflected higher commodity and other input costs in excess of
pricing recoveries and the effects of a weaker U.S. Dollar.
ELECTRICAL COMPONENTS BUSINESS
Electrical Components business sales were $100.2 million in the first
quarter of 2005 compared to $107.0 million in the first quarter of 2004. Volume
declines in residential and commercial aftermarket, blower, gear motor and
actuator sales were slightly offset by higher sales in the Asian region, mostly
attributable to the effects of foreign currency translation. Most of the volume
declines were due to fourth quarter purchases ahead of the January price
increase and reduced customer demand in response to the price increase.
Electrical Components operating loss for the first quarter of 2005 amounted
to $1.1 million compared to income of $3.4 million in the first quarter of 2004.
The decline in operating income largely resulted from lower sales volumes,
higher commodity costs in excess of pricing recoveries, and unanticipated
operational inefficiencies related to the closure of the St. Clair facility,
partially offset by lower amortization of intangible assets.
ENGINE & POWER TRAIN BUSINESS
Engine & Power Train business sales amounted to $94.9 million in the first
quarter of 2005 compared to $124.3 million in the first quarter of 2004. The
decline in sales for the first quarter was primarily the result of the loss of
business on walk behind rotary lawn applications with a single customer and
other reductions in walk behind volume. The loss of business on applications
with the single customer was related to activity largely planned for delivery in
the first quarter and should not have an impact on the remainder of the year.
Engine & Power Train business operating loss in the first quarter of 2005
amounted to $20.9 million compared to a loss of $2.9 million in the first
quarter of 2004. The decline in first quarter results reflected losses in
volume, increases in commodity, transportation and tooling costs, and additional
warranty response and expediting costs primarily due to a quality issue at a
transmission business customer. Continued reductions in profitability in Europe
also contributed to the increase in the first quarter loss.
Engine & Power Train losses in the first quarter were substantially due to
the significant costs associated with excess capacities in the U.S. and Europe.
The excess capacity situation is exacerbated by the current shift of production
to the Company's Brazilian manufacturing facility resulting in duplicate
capacities. While the favorable impact of the normal seasonal snow
thrower-related business should improve results in the second half of the year
compared to the first half, substantial cost reductions and volume improvements
will be necessary for sustained improvement. The Company intends to complete
these cost reductions throughout 2005.
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PUMP BUSINESS
Pump business sales in the first quarter of 2005 amounted to $27.9 million
compared to $33.4 million in 2004. The 16.5% decrease in first quarter sales was
primarily attributable to the loss of water gardening business at one mass
market retailer.
Operating income amounted to $2.3 million in the first quarter of 2005
compared to $3.3 million in 2004. The decrease in operating income was primarily
attributable to the reductions in sales volumes offset by reductions in
engineering and selling and administrative costs.
OUTLOOK
Information in this "Outlook" section should be read in conjunction with
the cautionary language and discussion of risks included below.
Previously, the Company indicated that 2005 results would depend on
commodity cost, currency movements, the Company's ability to obtain price
increases from its customers to offset the increased cost of product inputs, and
global weather. Experience in the first quarter confirms that all these factors
negatively impacted results. The Company has not fully recovered higher
commodity costs. Key currency rates, particularly the Brazilian Real, were much
worse than expected over the quarter. Weather in North and South America has not
been conducive to either OEM or aftermarket sales. In addition, the Company has
become more pessimistic about worldwide demand, as the factors such as the high
cost of energy and high interest rates in Brazil slow growth. Accordingly, the
Company now expects full year results, before nonrecurring items, to lag prior
year results, particularly in the first half of the year. Second quarter results
are expected to be a net loss. Improvements are expected in the second half of
the year compared to the prior year based upon more aggressive cost cutting,
particularly in the Engine & Power Train and Electrical Components businesses.
The Company will continue to focus its efforts on improving the
profitability and competitiveness of its worldwide operations. It is likely that
additional production relocation and consolidation initiatives will take place
during 2005 that could have an effect on the consolidated financial position and
future results of operations of the Company.
The results for the quarter within certain of our businesses were below the
forecasts utilized in testing goodwill for impairment at December 31, 2004.
While the Company expects results in the second quarter to continue to lag those
forecasts, it is the forecasted results for the second half of the year and
subsequent years that remain key to the Company's impairment test. While
management does not believe the business decline experienced during the first
quarter will have a permanence which would represent a triggering event for
interim evaluation of the recoverability of goodwill, further deterioration of
results below revised forecasts for the second quarter may require the Company
to conduct an impairment test during the second quarter 2005 (outside of the
annual testing date of December 31) with a better view of the impact of the
Company's cost cutting activities, pricing actions, and possibly revised
discount rates. While the Company has not begun any further impairment testing
at this time, an impairment loss could result during the second quarter of 2005,
if such an analysis is warranted. It is not reasonably possible to estimate the
amount of impairment, if any; however, such loss could be material.
Losses in the second quarter, including any impairment losses, could affect
the Company's ability to meet certain of its debt covenants. See the discussion
below under "Liquidity and Capital Resources."
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LIQUIDITY AND CAPITAL RESOURCES
The negative results for the quarter, as well as investment in various
components of working capital, especially inventory, resulted in using $67.4
million in cash to fund operations. The Company also used existing cash balances
to repay debt to maintain compliance with current debt covenants related to
earnings, to better optimize the capital structure of the business, and to
reduce borrowing costs in excess of earnings on idle cash. The Company plans to
continue its efforts to reduce debt through both the deployment of remaining
available cash and reducing the investment in various components of working
capital. The Company also intends to explore more flexible financing
arrangements with less restrictive covenants. Given the Company's expectation of
losses in the second quarter, the Company anticipates that further action will
be necessary to maintain compliance with current debt covenants. Higher capital
expenditures related to new product expansions in Brazil and India also
contributed to the use of cash.
RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
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Three Months Ended
(Dollars in millions) March 31,
------------------------
2005 2004
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NET SALES:
Compressor Products $241.0 $211.9
Electrical Components 100.2 107.0
Engine & Power Train Products 94.9 124.3
Pump Products 27.9 33.4
Other (a) 0.4 0.4
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Total net sales $464.4 $477.0
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OPERATING INCOME (LOSS):
Compressor Products $ 8.6 $ 11.9
Electrical Components (1.1) 3.4
Engine & Power Train Products (20.9) (2.9)
Pump Products 2.3 3.3
Other (a) (0.9) (0.9)
Corporate expenses (2.3) (4.0)
Restructuring charges, impairments and other items (0.1) --
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Total operating income (loss) (14.4) 10.8
Interest expense (7.7) (5.6)
Interest income and other, net 3.3 4.6
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INCOME (LOSS) BEFORE TAXES $(18.8) $ 9.8
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(a) "Other" consists of non-reportable business segments, primarily
Manufacturing Data Systems, Inc.
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CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
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MARCH 31, December 31,
(Dollars in millions) 2005 2004
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85.5 $ 227.9
Accounts receivable, net 246.1 220.4
Inventories 431.4 394.2
Deferred income taxes and other 112.6 84.7
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Total Current Assets 875.6 927.2
PROPERTY, PLANT AND EQUIPMENT - NET 553.1 554.8
GOODWILL AND OTHER INTANGIBLES 304.0 305.9
OTHER ASSETS 284.5 274.9
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TOTAL ASSETS $2,017.2 $2,062.8
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 194.5 $ 178.1
Short-term borrowings 89.2 68.8
Accrued liabilities 139.4 174.6
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Total current liabilities 423.1 421.5
LONG-TERM DEBT 251.8 317.3
DEFERRED INCOME TAXES 7.5 8.0
PENSION AND POSTRETIREMENT BENEFITS 234.3 235.2
PRODUCT WARRANTY AND SELF-INSURED RISKS 20.2 21.2
ACCRUAL FOR ENVIRONMENTAL MATTERS 40.7 41.3
OTHER NON-CURRENT LIABILITIES 38.4 --
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Total Liabilities 1,016.0 1,044.5
STOCKHOLDERS' EQUITY 1,001.2 1,018.3
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,017.2 $2,062.8
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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
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Three Months Ended
(Dollars in millions) March 31,
---------------------------
2005 2004
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TOTAL STOCKHOLDERS' EQUITY
BEGINNING BALANCE $1,018.3 $1,004.8
Comprehensive Income (Loss):
Net income (loss) (12.4) 6.4
Other comprehensive income (loss) 1.2 (2.4)
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Total comprehensive income (loss) (11.2) 4.0
Cash dividends declared (5.9) (5.9)
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TOTAL STOCKHOLDERS' EQUITY
ENDING BALANCE $1,001.2 $1,002.9
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended
(Dollars in millions) March 31,
-------------------------------
2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash used in operating activities $(67.4) $ (3.8)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (28.7) (12.1)
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Cash used in investing activities (28.7) (12.1)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (5.9) (5.9)
Proceeds from borrowings, net 8.5 0.8
Repayments of long term debt (50.0) --
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Cash used in financing activities (47.4) (5.1)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 1.1 (1.5)
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DECREASE IN CASH AND CASH EQUIVALENTS (142.4) (22.5)
CASH AND CASH EQUIVALENTS:
Beginning of period 227.9 344.6
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End of period $ 85.5 $322.1
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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 or system implementations, 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; xiv) potential political and economic adversities that
could adversely affect anticipated sales and production in India, including
potential military conflict with neighboring countries, xv) the Company's
ability to reduce a substantial amount of costs in the Engine & Power Train
group associated with excess capacity, and xvi) the ongoing financial health of
major customers. 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
first quarter 2005 results on Thursday, May 5, 2005 at 11:00 a.m. ET. The call
will be broadcast live over the Internet and then available for replay through
the Investor Relations section of Tecumseh Products Company's website at
www.tecumseh.com.
Press releases and other investor information can be accessed via the
Investor Relations section of 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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