Tecumseh Products Company Exhibit 99.1
100 E. Patterson Street
Tecumseh, MI 49286
PRESS RELEASE
TECUMSEH PRODUCTS COMPANY REPORTS SECOND QUARTER 2005 RESULTS
Tecumseh, Michigan, August 8, 2005 . . . . Tecumseh Products Company
(NASDAQ-TECUA, TECUB) announced today its 2005 second quarter consolidated
results as summarized in the following Consolidated Condensed Statements of
Operations.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Six Months Ended
(Dollars in millions except per share amounts) June 30, June 30,
-------------------------- ---------------------------
2005 2004 2005 2004
===============================================================================================================================
NET SALES $ 461.9 $ 484.2 $ 926.3 $ 961.2
Cost of sales and operating expenses 422.7 421.6 853.5 843.1
Selling and administrative expenses 46.5 51.1 94.5 95.8
Impairments, restructuring charges and other items 109.8 3.6 109.9 3.6
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OPERATING INCOME (LOSS) (117.1) 7.9 (131.6) 18.7
Interest expense (6.8) (5.6) (14.3) (11.2)
Interest income and other, net 1.7 3.8 5.0 8.4
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INCOME (LOSS) BEFORE TAXES (122.2) 6.1 (140.9) 15.9
Tax provision (benefit) 0.3 2.1 (6.1) 5.5
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NET INCOME (LOSS) $(122.5) $ 4.0 $(134.8) $ 10.4
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BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (6.63) $ 0.22 $ (7.30) $ 0.56
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WEIGHTED AVERAGE SHARES (in thousands of shares) 18,480 18,480 18,480 18,480
===============================================================================================================================
Consolidated net sales in the second quarter of 2005 decreased to $461.9
million from $484.2 million in 2004. Consolidated net sales for the first half
of 2005 amounted to $926.3 million compared to $961.2 million in the first half
of 2004. Excluding an increase in sales of $18.3 million for the quarter and
$36.3 million year to date resulting from the effect of changes in foreign
currency exchange rates, sales decreased $40.6 million versus the same quarter
in the prior year and $71.2 million year to date. The lower sales were primarily
due to lower volumes in the Engine & Power Train segment in both North America
and Europe. Sales declines were also experienced in the Electrical Components
and Pump segments.
Consolidated results for the second quarter of 2005 amounted to net loss
of $122.5 million or $6.63 per share compared to net income of $4.0 million or
$0.22 per share in the second quarter of 2004. Reported results for the second
quarter 2005 included a goodwill impairment charge related to the Electrical
Components business of $108.0 million $(5.84 per share) and restructuring and
asset impairment charges of $1.8 million $(1.6 million net of tax or $0.09 per
share) related to a new action in the Engine & Power Train business $(1.1
million) and the continuation of previously announced actions in both the
Compressor $(0.2 million) and Electrical Components $(0.5 million) segments.
Reported results for the second quarter 2004 included restructuring and asset
impairment charges of $3.6 million $(2.3 million net of tax or $0.13 per share)
involving the Compressor and Electrical Components businesses.
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Consolidated net loss for the six months ended June 30, 2005 amounted to
$134.8 million or $7.30 per share compared to net income of $10.4 million $0.56
per share for the same period in 2004. Excluding the impairment and
restructuring charges, operating results were lower than the prior year second
quarter across all business segments, with the most substantial declines in the
Compressor and Engine & Power Train segments.
COMPRESSOR BUSINESS
Second quarter 2005 sales in the Company's compressor business increased
to $247.6 million from $234.1 million in the second quarter of 2004. Compressor
business sales in the first six months of 2005 increased to $488.6 million from
$446.0 million in the first six months of 2004. The increase for both the
quarter and year to date from the prior year was mainly attributable to the
effect of foreign currency translation that increased sales by $17.1 million and
$33.4 million, respectively. Volume increases of compressor products that are
primarily manufactured by the Company in its Brazilian and Indian facilities and
sold into the original equipment markets for residential refrigerators and
freezers and volume increases in compressor products for commercial applications
were largely offset by declines in sales of compressors utilized in room air
conditioners.
Compressor business operating income for the second quarter of 2005
amounted to $7.4 million compared to $18.8 million in the second quarter of
2004. Operating income for the six months ended June 30, 2005 amounted to $16.0
million compared to $30.7 million for the first six months of 2004. The decrease
in operating income for the second quarter and year to date versus the
comparable 2004 periods reflected the effects of a weaker U.S. Dollar and an
unfavorable mix of sales. During the second quarter, the U.S. Dollar was on
average 17% weaker versus the Brazilian Real and 4% weaker versus the Euro.
ELECTRICAL COMPONENTS BUSINESS
Electrical Components business sales were $102.4 million in the second
quarter of 2005 compared to $105.2 million in the second quarter of 2004. The
$2.8 million reduction in sales was primarily attributable to volume declines in
the automotive seat actuator, small engine starter and mobile HVAC businesses.
First half 2005 sales amounted to $202.6 million compared to $212.2 million in
the first half of 2004. In addition to the volume declines from the second
quarter mentioned above, the Company experienced volume declines in residential
and commercial aftermarket, blowers and gear motors during the first quarter to
bring the year to date decline in comparative sales to $9.6 million.
Electrical Components operating income for the second quarter of 2005
amounted to $0.2 million compared to $4.0 million in the second quarter of 2004.
Segment operating loss for the first half of the year was $0.8 million compared
to operating income of $7.4 million for the same period in 2004. The decline in
operating income in both the quarter and year to date 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 $78.7 million in the
second quarter of 2005 compared to $104.0 million in the second quarter of 2004.
Sales in the first half of 2005 were $173.6 million compared to $228.3 million
in the first half of 2004. The decline in sales for the second quarter and year
to date was primarily the result of the loss of business on walk behind rotary
lawn applications
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with a single customer during the first quarter and other reductions in walk
behind volume. Additionally, volumes were lower in the transaxle business and in
other engine lines utilized on various utility products.
Engine & Power Train business operating loss in the second quarter of 2005
amounted to $15.5 million compared to a loss of $10.7 million in the second
quarter of 2004. For the first half of 2005, the business incurred an operating
loss of $36.4 million compared to an operating loss of $13.6 million in 2004.
The decline in quarter and year to date results reflects losses in volume and
increases in commodity, transportation and tooling costs. Additionally, during
the first quarter, the Company experienced increased warranty response and
expediting costs related to a quality issue at a transmission business customer.
Continued reductions in profitability in Europe also contributed to the increase
in the quarter and year to date loss.
Engine & Power Train losses were substantially due to the significant
costs associated with excess capacities in the U.S. and Europe. The excess
capacity situation was exacerbated by the 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. AlixPartners' involvement commenced as of July 31, 2005.
PUMP BUSINESS
Pump business sales in the second quarter of 2005 amounted to $32.7
million compared to $40.6 million in same period in 2004. First half sales
amounted to $60.6 million in 2005 compared to $74.0 million the previous year.
The 18.1% reduction in year to date sales was primarily attributable to the loss
of water gardening business at one mass market retailer.
Operating income amounted to $4.2 million in the second quarter of 2005
compared to $4.8 million in the same period in 2004. Operating income in the
first half of 2005 was $6.5 million compared to $8.1 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 administration
costs.
IMPAIRMENTS, RESTRUCTURING CHARGES AND OTHER ITEMS
Second quarter 2005 results include an impairment charge of $108.0 million
related to the goodwill associated with the 2002 acquisition of FASCO (which is
included in the Electrical Components segment). As previously disclosed, the
failure to achieve the business plan, coupled with expected future market
conditions, has caused the Company to revisit the assumptions utilized to
determine FASCO's estimated fair value in the impairment assessment performed at
December 31, 2004. The deterioration of volumes and the Company's inability to
recover higher commodity and transportation costs through price increases has
resulted in revised expected cash flows for FASCO. Based on the revised
estimates of cash flow, FASCO's fair value has deteriorated from the previous
assessment and, as a result, a goodwill impairment of $108.0 million was
recognized representing approximately half of the goodwill associated with this
segment.
The Company also recognized restructuring costs of $1.8 million in the
second quarter of 2005. These costs included $0.2 million of facility
consolidation costs in the North American Compressor business and a $0.5 million
additional impairment charge related to the St. Clair, Missouri Electrical
Components facility, both ongoing programs nearing or at completion. The
remaining $1.1 million of
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restructuring costs relate to the first step in the Company's efforts to reduce
its excess capacity in the European Engine & Power Train operations. Included in
the Company's plans for this operation is a workforce reduction of 100
personnel, which is expected to be completed this year at a cost of $2.5
million.
Second quarter 2004 results include impairment and restructuring charges
totaling $3.6 million related to facility consolidation actions affecting
several of the Company's facilities in its North American Compressor and
Electrical Components businesses.
OUTLOOK
Information in this "Outlook" section should be read in conjunction with
the cautionary language and discussion of risks included below.
The outlook for the remainder of the year is subject to the same variables
that have negatively impacted the Company's year to date results. Commodity
costs, key currency rates, particularly the Brazilian Real, and weather will
remain key factors to any rebound in the second half of the year. Recent
indicators provide some encouragement that the effect of these factors may
moderate. While weather in North and South America has not been conducive to
either OEM or aftermarket sales during the first half of the year, the recent
heat wave in the U.S. should help aftermarket operations in the Compressor and
Electrical Components businesses over the rest of the summer. In addition, there
has been some improvement in steel prices, although slight in comparison to the
increases experienced over the last 18 months. Additionally, the Company has
been aggressively executing cost cutting actions. Global headcounts have been
reduced by 1,600 since March 31, 2005, and the Company has changed retiree and
healthcare benefits in the U.S. with an expected annual benefit of $4.0 million.
The Company has engaged AlixPartners to assist in the completion of the Engine &
Power Train Group restructuring, where substantial cost reductions, associated
with the elimination of duplicate capacities, are expected to benefit future
periods. Accordingly, the Company expects second half results to be better than
those of the first half of the year, but to lag comparable 2004 results.
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.
LIQUIDITY AND CAPITAL RESOURCES
The negative results for the first half of the year, as well as investment
in various components of working capital, including accounts receivable and
inventory, resulted in using $55.5 million in cash to fund operations. The
Company also used existing cash balances to prepay $50 million of the Company's
Guaranteed Senior Notes, pay dividends, and fund capital expenditures related to
new product expansions in Brazil and India.
The negative results experienced over the last nine months and recognition
of the goodwill impairment charge also required that the Company seek amendments
to its debt covenants related to both its Senior Guaranteed Notes and Revolving
Credit Facility. New terms of the agreements provide for security interests in
certain of the Company's assets and specific covenants related to EBITDA and
capital expenditures through December 2006. In addition, the terms of the
agreement permit the payment of dividends, presuming continued compliance with
these temporary covenants and subject to minimum levels of EBITDA, beginning
with the fourth quarter of 2005 through the first quarter of 2007.
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RESULTS BY BUSINESS SEGMENTS (UNAUDITED)
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Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
--------------------------- ------------------------
2005 2004 2005 2004
=================================================================================================================
NET SALES:
Compressor Products $ 247.6 $ 234.1 $ 488.6 $ 446.0
Electrical Components 102.4 105.2 202.6 212.2
Engine & Power Train Products 78.7 104.0 173.6 228.3
Pump Products 32.7 40.6 60.6 74.0
Other (a) 0.5 0.3 0.9 0.7
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Total net sales $ 461.9 $ 484.2 $ 926.3 $ 961.2
=================================================================================================================
OPERATING INCOME (LOSS):
Compressor Products $ 7.4 $ 18.8 $ 16.0 $ 30.7
Electrical Components 0.2 4.0 (0.8) 7.4
Engine & Power Train Products (15.5) (10.7) (36.4) (13.6)
Pump Products 4.2 4.8 6.5 8.1
Other (a) (1.0) (0.9) (1.9) (1.8)
Corporate expenses (2.6) (4.5) (5.1) (8.5)
Impairments, restructuring charges and other items (109.8) (3.6) (109.9) (3.6)
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Total operating income (loss) (117.1) 7.9 (131.6) 18.7
Interest expense (6.8) (5.6) (14.3) (11.2)
Interest income and other, net 1.7 3.8 5.0 8.4
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INCOME (LOSS) BEFORE TAXES $(122.2) $ 6.1 $(140.9) $ 15.9
================================================================================================================
(a) "Other" consists of non-reportable business segments.
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CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
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JUNE 30, December 31,
(Dollars in millions) 2005 2004
================================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75.0 $ 227.9
Accounts receivable, net 254.2 220.4
Inventories 417.9 394.2
Deferred income taxes and other 134.4 84.7
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Total current assets 881.5 927.2
PROPERTY, PLANT AND EQUIPMENT -- NET 584.9 554.8
GOODWILL AND OTHER INTANGIBLES 193.8 305.9
OTHER ASSETS 284.3 274.9
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TOTAL ASSETS $1,944.5 $2,062.8
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 180.8 $ 178.1
Short-term borrowings 93.1 68.8
Accrued liabilities 146.7 174.6
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Total current liabilities 420.6 421.5
LONG-TERM DEBT 282.6 317.3
DEFERRED INCOME TAXES 7.0 8.0
PENSION AND POSTRETIREMENT BENEFITS 231.9 235.2
PRODUCT WARRANTY AND SELF-INSURED RISKS 20.0 21.2
ACCRUAL FOR ENVIRONMENTAL MATTERS 40.6 41.3
OTHER NON-CURRENT LIABILITIES 33.7 ---
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Total Liabilities 1,036.4 1,044.5
STOCKHOLDERS' EQUITY 908.1 1,018.3
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,944.5 $2,062.8
================================================================================================
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
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Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
-------------------------- ---------------------------
2005 2004 2005 2004
===========================================================================================================
TOTAL STOCKHOLDERS' EQUITY
BEGINNING BALANCE $1,001.2 $1,002.9 $1,018.3 $1,004.8
Comprehensive income (loss):
Net income (loss) (122.5) 4.0 (134.8) 10.4
Other comprehensive income (loss) 35.3 (11.2) 36.4 (13.6)
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Total comprehensive loss (87.2) (7.2) (98.4) (3.2)
Cash dividends declared (5.9) (5.9) (11.8) (11.8)
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TOTAL STOCKHOLDERS' EQUITY
ENDING BALANCE $ 908.1 $ 989.8 $ 908.1 $ 989.8
===========================================================================================================
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Six Months Ended
(Dollars in millions) June 30,
------------------------
2005 2004
======================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
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Cash provided by (used in) operating activities $ (55.5) $ 27.9
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59.4) (37.7)
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Cash used in investing activities (59.4) (37.7)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (11.8) (11.8)
Increase (Decrease) in borrowings, net 35.8 (29.8)
Repayments of long term debt (50.0) ---
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Cash used in financing activities (26.0) (41.6)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (12.0) (10.1)
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DECREASE IN CASH AND CASH EQUIVALENTS (152.9) (61.5)
CASH AND CASH EQUIVALENTS:
Beginning of period 227.9 344.6
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End of period $ 75.0 $283.1
======================================================================================
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.
Tecumseh Products Company will host a conference call to report on the
second quarter 2005 results on Monday, August 8, 2005 at 11:00 a.m. ET. The call
will be broadcast live over the Internet and then
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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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