ANN ARBOR, Mich., Nov. 7, 2012 /PRNewswire/ -- Tecumseh
Products Company (Nasdaq: TECUA, TECUB), a leading global
manufacturer of compressors and related products, today reported a
net loss of $3.8 million, or
$0.21 per diluted share, on net sales
of $208.6 million for the quarter
ended September 30, 2012. This compares with a net loss of
$21.8 million, or $1.18 per diluted share, on net sales of
$198.3 million for the third quarter
of 2011.
REVIEW OF OPERATIONS
Net sales in the third quarter of 2012 increased $10.3 million, or 5.2%, versus the same period of
2011. Excluding the decrease in sales due to the effect of
unfavorable changes in foreign currency translation of $22.6 million, net sales increased by 16.6%
compared to the third quarter of 2011, primarily due to net volume
and mix increases and net price increases.
Sales of compressors used in commercial refrigeration and
aftermarket applications represented 59% of our total sales and
increased 1.7% compared to the third quarter of 2011 to
$123.0 million. This increase
was primarily driven by higher volumes and favorable changes in
sales mix of $10.1 million and price
increases of $0.7 million, partially
offset by unfavorable changes in currency exchange rates of
$8.8 million. We have acquired new
customers in the European market as a result of a European
competitor that ceased production earlier in 2012.
Sales of compressors used in household refrigeration and freezer
("R&F") applications represented 20% of our total sales and
increased 13.2% compared to the third quarter of 2011 to
$41.2 million. This increase is
primarily due to higher volumes and favorable changes in sales mix
of $13.4 million, partially offset by
unfavorable changes in currency exchange rates of $7.3 million and price decreases of $1.2 million. Volume increases are primarily
the result of new business with one major customer at our Indian
operations.
Sales of compressors for air conditioning applications and all
other applications represented 21% of our total sales and increased
8.6% compared to the third quarter of 2011 to $44.4 million. This increase is primarily
due to higher volumes and favorable changes in sales mix of
$8.7 million and price increases of
$1.2 million, partially offset by
unfavorable currency exchange rate changes of $6.5 million. Volume increases are primarily
the result of increased demand by one of our major Brazilian
customers, which had shut down one of its plants in March 2012 and has resumed its operations in the
second half of the third quarter, as well as increased demand in
the Middle East, partially offset
by reduced sales due to increased competition and soft market
conditions in North
America.
Gross profit increased $13.2
million, from $5.0 million in
the third quarter of 2011 to $18.2
million. Our gross profit margin increased from 2.5%
to 8.7% in the third quarter of 2011 and 2012, respectively. The
increase in gross profit in 2012 was primarily attributable to
favorable changes in other material and manufacturing costs of
$5.7 million, favorable changes in
commodity costs of $5.3 million,
favorable changes in currency exchange effects of $2.4 million and price increases of $0.7 million. These increases were partially
offset by unfavorable changes in other expenses of $0.7 million and unfavorable changes in volume
and sales mix of $0.2 million.
Selling and administrative ("S&A") expenses decreased by
$1.1 million from $26.7 million in the third quarter of 2011 to
$25.6 million in the third quarter of
2012. As a percentage of net sales, S&A expenses were
12.3% in the third quarter of 2012 compared to 13.5% in the third
quarter of 2011. This decrease was due to declines of $0.8 million for other payroll expenses,
$0.5 million for professional
services and $0.2 in other
miscellaneous expenses, partially offset by an increase of
$0.4 million for our incentive plan.
We record expense related to our incentive plan when we estimate
that it is more likely than not that we will achieve the threshold
level of performance as outlined by the incentive plan awards. As
of September 30, 2012, we estimate
that it is more likely than not that we will achieve the threshold
level of performance. As a result, during the third quarter of
2012, we recorded $0.2 million of
compensation expense for phantom share awards and $0.2 million compensation expense for the cash
portion of the plan.
Other income, net, increased $0.3
million from $4.4 million in
the third quarter of 2011 to $4.7
million in the third quarter of 2012. This increase is
primarily due to $1.2 million for net
amortization of gains for our postretirement benefits primarily due
to the curtailment of these benefits, $1.3
million favorable change in foreign currency exchange rates,
$0.6 million increase in
miscellaneous other income and $0.2
million from an Indian government incentive, partially
offset by a non-recurring gain on sales of assets of $3.0 million which occurred in the third quarter
of 2011.
We recorded $0.6 million of
expense in impairments, restructuring charges, and other items in
the third quarter of 2012 compared to $0.3
million of expense in the same period of 2011. In the third
quarter of 2012, this expense included $0.6
million related to severance costs associated with a
reduction in force at our Brazilian ($0.5
million) and French ($0.1
million) locations.
Interest expense was $2.5 million
in the third quarter of 2012 compared to $2.4 million in the same period of 2011.
Interest income was $0.3 million
in the third quarter of 2012 compared to $1.0 million in the third quarter of 2011,
primarily due to a decline in the interest rate on a judicial
deposit in Brazil related to
recoverable non-income taxes that is being held in an interest
bearing court appointed cash account.
For the third quarter of 2012, we recorded a tax benefit of
$1.6 million from continuing
operations. This tax benefit is comprised of a U.S. federal
tax benefit of $1.4 million and
$0.2 million in foreign tax
benefit. The $1.7 million income
tax expense from continuing operations for the third quarter of
2011 is comprised of $2.1 million in
foreign tax expense, partially offset by a U.S. federal tax benefit
of $0.4 million.
Net loss from continuing operations for the quarter ended
September 30, 2012 was $3.9
million, or $0.22 per share,
as compared to a net loss of $20.7
million, or $1.12 per share,
in the same period of 2011. The change was primarily related to the
sales and gross profit increases as well as other factors discussed
above.
CASH AND LIQUIDITY
We ended the third quarter of 2012 with unrestricted cash and
cash equivalents of $53.2 million, up
from $49.6 million at the end of
2011. In the first nine months of 2012, cash provided by operations
was $4.3 million as compared to
$17.6 million of cash used in
operations in the first nine months of 2011. The cash flows
from operations for the nine months ended September 30, 2012 included our net income of
$33.1 million and depreciation and
amortization of $27.4 million,
partially offset by a non cash gain on curtailment of
postretirement benefits of $45.0
million, a non cash gain regarding employee retirement
benefits of $6.4 million (relating to
gains from changes in actuarial assumptions), and a $1.1 million increase in deferred tax
assets. Net income included a non-recurring $4.4 million refund from the IRS related to a
previously unrecognized tax benefit, a non-recurring $2.9 million of income due to the sale of
proceeds from a future potential settlement of a lawsuit involving
our Brazilian location and a non-recurring $1.7 million payment received from a mutual
release agreement that we signed in the second quarter of
2012. During the first nine months of 2012, we also received
$4.3 million relating to recoverable
non-income taxes at our Brazilian location.
With respect to working capital, increased inventory levels were
primarily due to our seasonal needs in Brazil, which resulted in a use of cash of
$2.7 million for the nine months
ended September 30, 2012. We reduced
inventory days on hand by 19 days from 90 days at December 31,
2011 to 71 days at September 30, 2012, primarily due to
increased sales for the three months ended September 30, 2012
as compared to the three months ended December 31, 2011 and
continued cost containment measures.
Accounts receivable changes resulted in a use of cash of
$14.8 million during the first nine
months of 2012 primarily as a result of our increased sales in the
third quarter of 2012 compared to the sales level in the fourth
quarter of 2011, partially offset by an improvement in days sales
outstanding of 1 day to 53 days at September 30, 2012 compared
to December 31, 2011. The improvement in days sales
outstanding is primarily due to our new European facility,
partially offset by decreased factoring of our receivables in our
Brazilian facility.
Payables and accrued expenses generated $17.1 million of cash flows from operations for
the nine months ended September 30,
2012, mainly as a result of an increase in purchases of
inventories and the timing of those purchases, as well as an
increase in accrued expenses due to our incentive plan, partially
offset by a decrease in days outstanding by 3 days to 60 days at
September 30, 2012 compared to December 31, 2011.
Cash used in investing activities was $4.4 million in the first nine months of 2012 as
compared to cash used in investing activities of $5.0 million for the same period of 2011.
The 2012 cash used in investing activities is primarily related to
capital expenditures of $10.9
million, partially offset by the release of restricted cash
of $6.4 million and proceeds on sale
of assets of $0.1 million. The
release of restricted cash consisted of a $4.4 million decrease in cash pledged on our
commodity derivatives and $2.0
million of restricted cash that became available to fund our
401(k) matching contributions.
Cash provided by financing activities was $4.2 million in the first nine months of 2012
compared to $2.2 million provided by
financing activities for the same period of 2011. The
increase in borrowings in the first nine months of 2012 is mainly
due to financing our regional operational needs, partially offset
by our cash management strategy to increase our usage of accounts
receivable discounting programs from December 31, 2011
levels.
Borrowings under current credit facilities totaled $61.2 million at September 30, 2012, with an
uncommitted additional borrowing capacity of $10.5 million.
BUSINESS OUTLOOK
The outlook for 2012 is subject to many of the same variables
that negatively impacted us in 2011 and in recent years, which have
had significant impacts on our results of operations. The condition
of the global economy, commodity costs, key currency rates and
weather are all important to future performance, as is our ability
to match our hedging activity with actual levels of transactions.
The extent to which adverse trends in the first nine months of 2012
continue will ultimately determine our full year 2012 results. We
can give no guarantees regarding what impact future exchange rates,
commodity prices and other economic changes will have on our 2012
results.
We expect the full year change in the average cost of our key
commodities, especially copper and steel, including the impact of
our hedging activities, to have minimal impact in 2012 when
compared to 2011, depending on commodity cost levels and the level
of our hedging over the course of the year. We expect to continue
our approach of mitigating the effect of short term price swings
through the appropriate use of hedging instruments, price
increases, and modified pricing structures.
The Brazilian Real, the Euro and the Indian Rupee continue to be
volatile against the U.S. Dollar. We have considerable forward
purchase contracts to cover a portion of our exposure to additional
fluctuations in value during 2012. In the aggregate, we
expect the changes in foreign currency exchange rates, after giving
consideration to our hedging contracts and the impact of balance
sheet transactions, to have favorable impact on our net income in
2012 when compared to 2011.
We expect to see continued demand volatility, especially in
Europe for the remainder of 2012,
as a result of uncertainties and current events around the world.
For full year 2012, we expect the change in our net sales to be a
decline of approximately 2-5% over 2011 levels. The decline
in our outlook is based on our internal projections about the
market and related economic conditions in the last quarter of the
year and is primarily due to continued economic uncertainties in
our major markets, particularly the European market. We cannot
currently project whether market conditions will improve on a
sustained or significant basis and if economic conditions in our
key markets do not occur as expected, this could have an adverse
impact on our current outlook. As we look to the fourth quarter of
2012, we expect our sales to be slightly higher than the fourth
quarter of 2011, reflecting both our price increases and potential
improvement in the economy compared to 2011. Due to favorable
pricing and foreign governmental incentives, we expect an
improvement in operating results in the fourth quarter of 2012
compared to the fourth quarter of 2011. We expect cash flows from
operations to be minimal in the fourth quarter of 2012.
After giving recognition to the factors discussed above, we
expect that the full year 2012 operating profit could improve
compared to 2011, exclusive of the $45.0 curtailment gain recognized in second
quarter 2012 relating to the curtailment of our postretirement
benefits, if we are successful at offsetting volatility in
commodity costs, price increases, restructuring activities and
other cost reductions.
We also expect that our operating cash flow could be sufficient
to fund ongoing business requirements if we are successful at
achieving the improved operating profit discussed above and
Brazilian authorities do not significantly change their pattern of
payments or past practices for the expected outstanding refundable
Brazilian non-income taxes. Furthermore, we expect capital
spending for the full year of 2012 to be approximately $16 million to $18 million, which is lower than
our average yearly capital expenditures of $20 million to $25 million.
Based on our assessment of ongoing economic activity, we realize
that we may not generate cash flow from operating activities unless
further restructuring activities are implemented or sales or
economic conditions improve. Additional restructuring actions may
be necessary and might include changing our current footprint,
consolidation of facilities, other reductions in manufacturing
capacity, reductions in our workforce, sales of assets, and other
restructuring activities. These actions could result in significant
restructuring or asset impairment charges, severance costs, losses
on asset sales and use of cash. Accordingly, these restructuring
activities could have a significant effect on our consolidated
financial position, operating profit, cash flows and future
operating results. Cash required by these restructuring activities
might be provided by our cash balances and the cash proceeds from
the sale of assets. If such restructuring activities are
undertaken, there is a risk that the costs of the restructuring and
cash required will exceed the benefits received from such
activities.
NON-GAAP FINANCIAL MEASURES
While the Generally Accepted Accounting Principles in
the United States of America
("U.S. GAAP") results provide significant insight into our
operations and financial position, Tecumseh management supplements its analysis
of the business using Earnings Before Interest, Taxes, Depreciation
and Amortization from Continuing Operations ("EBITDA") and Earnings
Before Interest, Taxes, Depreciation, Amortization, and
Impairments, restructuring charges, and other items from Continuing
Operations ("EBITDAR"); both of these are non-GAAP financial
measures. Management believes that these non-GAAP financial
measures, when taken together with the corresponding GAAP measure,
provide incremental insight into the underlying factors and trends
affecting our performance. However, EBITDA from Continuing
Operations and EBITDAR from Continuing Operations, as defined
below, should be viewed as supplemental data, rather than as a
substitute or an alternative to the comparable GAAP measure. The
table below presents a reconciliation of EBITDA from Continuing
Operations and EBITDAR from Continuing Operations from our Net
income/(loss).
RECONCILIATION OF EBITDA FROM CONTINUING
OPERATIONS AND EBITDAR FROM CONTINUING
|
OPERATIONS FROM NET INCOME/ (LOSS)
|
(In
Millions)
|
|
|
|
Three
Months Ended
|
|
September 30,
2012
|
|
September 30,
2011
|
Net
income/ (loss)
|
$
|
(3.8)
|
|
|
$
|
(21.8)
|
|
(Income) loss from discontinued
operations, net of tax
|
(0.1)
|
|
|
1.1
|
|
Tax benefit
|
(1.6)
|
|
|
1.7
|
|
Interest expense
|
2.5
|
|
|
2.4
|
|
Interest income
|
(0.3)
|
|
|
(1.0)
|
|
Operating
(loss)
|
(3.3)
|
|
|
(17.6)
|
|
Depreciation and
amortization
|
8.8
|
|
|
10.0
|
|
EBITDA
FROM CONTINUING OPERATIONS
|
$
|
5.5
|
|
|
$
|
(7.6)
|
|
Impairments, restructuring
charges, and other items
|
0.6
|
|
|
0.3
|
|
EBITDAR
FROM CONTINUING OPERATIONS
|
$
|
6.1
|
|
|
$
|
(7.3)
|
|
Conference Call
Tecumseh will broadcast its
financial results conference call live over the Internet on
Thursday, November 8, 2012, at 11:00
a.m. eastern time. Webcast information can be found in the
Investor Relations section of www.tecumseh.com.
About Tecumseh Products Company
Tecumseh Products Company is a global manufacturer of
hermetically sealed compressors for residential and specialty air
conditioning, household refrigerators and freezers, and commercial
refrigeration applications, including air conditioning and
refrigeration compressors, as well as condensing units, heat pumps
and complete refrigeration systems. Press releases and other
investor information can be accessed via the Investor Relations
section of Tecumseh Products Company's Website at
www.tecumseh.com.
Cautionary Statements Relating to Forward-Looking
Statements
This release 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 us. 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, or by the fact that they appear under
the caption "Business Outlook." Our forward-looking statements
generally relate to our future performance, including our
anticipated operating results and liquidity sources and
requirements, our business strategies and goals, and the effect of
laws, rules, regulations, new accounting pronouncements and
outstanding litigation, on our business, operating results, and
financial condition.
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) current and future
global or regional economic conditions, including housing starts,
and the condition of credit markets, which may magnify other risk
factors; ii) loss of, or substantial decline in sales to, any of
our key customers; iii) our ability to maintain adequate liquidity
in total and within each foreign operation; iv) our ability to
restructure or reduce our costs and increase productivity and
quality and develop successful new products in a timely manner; v)
actions of competitors in highly competitive markets with intense
competition; vi) the ultimate cost of defending and resolving legal
and environmental matters, including any liabilities resulting from
the regulatory antitrust investigations commenced by the United
States Department of Justice Antitrust Division and the Secretariat
of Economic Law of the Ministry of Justice of Brazil both of which could preclude
commercialization of products or adversely affect profitability
and/or civil litigation related to such investigations; vii)
availability and volatility in the cost of materials, particularly
commodities, including steel and copper, whose cost can be subject
to significant variation; viii) financial market changes, including
fluctuations in foreign currency exchange rates and interest rates;
ix) significant supply interruptions or cost increases; x)
potential political and economic adversities that could adversely
affect anticipated sales and production in Brazil; xi) potential political and economic
adversities that could adversely affect anticipated sales and
production in India, including
potential military conflict with neighboring countries; xii) local
governmental, environmental, trade and energy regulations; xiii)
increased or unexpected warranty claims; xiv) the extent of any
business disruption caused by work stoppages initiated by organized
labor unions; xv) the extent of any business disruption that may
result from the restructuring and realignment of our manufacturing
operations and personnel or system implementations, the ultimate
cost of those initiatives and the amount of savings actually
realized; xvi) the success of our ongoing effort to bring costs in
line with projected production levels and product mix; xvii)
weather conditions affecting demand for replacement products;
xviii) the effect of terrorist activity and armed conflict. These
forward-looking statements are made only as of the date of this
press release, and we undertake no obligation to update or revise
the forward-looking statements, whether as a result of new
information, future events or otherwise.
Contact:
Janice Stipp
Tecumseh Products
734-585-9507
Investor.relations@tecumseh.com
SOURCE Tecumseh Products Company