<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from______to______
COMMISSION FILE NUMBER: 0-452
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1093240
(State of Incorporation) (IRS Employer Identification Number)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of Principal Executive Offices)
Telephone Number: (517) 423-8411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Stock Outstanding at April 30, 1998
- --------------------------------------------------------------------------------
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,122,438
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
(Dollars in millions) MARCH 31, December 31,
1998 1997
================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 271.7 $ 304.1
Accounts receivable, trade, less allowance for doubtful
accounts of $5.8 million in 1998 and $5.7 million in 1997 308.3 207.7
Inventories 244.4 259.4
Deferred income taxes 38.3 38.2
Other current assets 11.0 8.7
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 873.7 818.1
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $476.4 million in 1998
and $469.2 million in 1997 560.6 569.7
EXCESS OF COST OVER ACQUIRED NET ASSETS 54.5 56.7
DEFERRED INCOME TAXES 10.0 10.8
PREPAID PENSION EXPENSE 60.9 58.4
OTHER ASSETS 25.7 23.7
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,585.4 $ 1,537.4
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 135.7 $ 110.6
Income taxes payable 19.4 9.3
Short-term borrowings 26.1 29.0
Accrued liabilities 127.7 114.4
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 308.9 263.3
LONG-TERM DEBT 17.8 17.5
NON-PENSION POSTRETIREMENT BENEFITS 183.9 182.7
PRODUCT WARRANTY AND SELF-INSURED RISKS 29.1 28.9
ACCRUAL FOR ENVIRONMENTAL MATTERS 31.1 31.6
PENSION LIABILITIES 12.8 13.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 583.6 537.2
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 16,152,438 shares 16.2 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued and outstanding 5,470,146 shares 5.5 5.5
Capital in excess of par value 17.4 28.0
Retained earnings 976.4 958.0
Accumulated other comprehensive income:
Foreign currency translation adjustment (13.7) (7.7)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,001.8 1,000.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,585.4 $ 1,537.4
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE> 3
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
Dollars in millions except per share Three Months Ended
amounts March 31,
----------------------------
1998 1997
====================================================================================================================
<S> <C> <C>
NET SALES $ 459.9 $ 479.6
COSTS AND EXPENSES
Cost of sales and operating expense 397.4 407.3
Selling and administrative expense 28.2 27.0
- --------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 34.3 45.3
OTHER INCOME (EXPENSE)
Interest expense (2.4) (1.4)
Interest income and other, net 7.5 4.9
- --------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 39.4 48.8
Taxes on income 14.5 17.3
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 24.9 $ 31.5
====================================================================================================================
BASIC AND DILUTED EARNINGS PER SHARE $ 1.15 $ 1.44
====================================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.30 $ 0.30
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions) March 31,
-------------------------------
1998 1997
==================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24.9 $ 31.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 19.1 17.2
Accounts receivable (102.2) (92.7)
Inventories 13.3 15.0
Payables and accrued expenses 53.3 39.8
Other (6.2) (7.3)
- ------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 2.2 3.5
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12.7) (22.0)
Business acquisition, net of cash acquired --- (5.6)
- ------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (12.7) (27.6)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (6.5) (6.6)
Decrease in borrowings, net (1.9) (2.8)
Repurchases of common stock (10.9) ---
- ------------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (19.3) (9.4)
- ------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2.6) (4.6)
- ------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (32.4) (38.1)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 304.1 277.7
- ------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 271.7 $ 239.6
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The December 31, 1997 condensed balance sheet data
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. The
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report for the fiscal year
ended December 31, 1997. Due to the seasonal nature of the Company's
business, the results of operations for the interim period are not
necessarily indicative of the results for the entire fiscal year.
The financial data required in this Form 10-Q by Rule 10.01 of
Regulation S-X have been reviewed by Ciulla, Smith & Dale, LLP, the
Company's independent certified public accountants, as described in
their report contained elsewhere herein.
<TABLE>
<CAPTION>
2. Inventories consisted of:
(Dollars in Millions) MARCH 31, December 31,
1998 1997
========================================================================================================
<S> <C> <C>
Raw material and work in process $ 150.5 $ 154.7
Finished goods 78.1 89.1
Supplies 15.8 15.6
- --------------------------------------------------------------------------------------------------------
$ 244.4 $ 259.4
========================================================================================================
</TABLE>
3. Effective January 1, 1998, the Company adopted the Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components. The following table reports
comprehensive income for the three months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in Millions) March 31,
-----------------------------------
1998 1997
==========================================================================================================
<S> <C> <C>
Net income $ 24.9 $ 31.5
Other comprehensive income (expense)
Foreign currency translation adjustments (6.0) (11.6)
- ----------------------------------------------------------------------------------------------------------
$ 18.9 $ 19.9
==========================================================================================================
</TABLE>
4. Basic and diluted earnings per share are equivalent. Earnings per share
is computed based on the weighted average number of common shares
outstanding for the periods reported. The weighted average number of
common shares used in the computations were 21,742,062 at March 31,
1998 and 21,880,584 at March 31, 1997.
5. During the first quarter of 1998, Tecumseh Products Company repurchased
218,000 shares of its Class A common stock at a cost of $10.9 million.
Page 5
<PAGE> 6
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
6. The Company has been named by the EPA as a potentially responsible
party in connection with the Sheboygan River and Harbor Superfund Site
in Wisconsin. At March 31, 1998, the Company had an accrual of $28.6
million ($29.0 million at December 31, 1997) for estimated costs
associated with the cleanup of certain polychlorinated biphenyl (PCB)
contamination at this Superfund Site. The Company has based the
estimated cost of cleanup on ongoing engineering studies, including
samples taken in the Sheboygan River, and on assumptions as to the
nature, extent and areas that will have to be remediated.
Significant assumptions underlying the estimated costs are that
remediation will involve innovative technologies, including (but not
limited to) bioremediation near the Company's plant site and along the
upper river, and only natural armoring and bioremediation in the lower
river and harbor. The EPA has indicated it expects to issue a record of
decision on the cleanup of the Sheboygan River and Harbor Site in 1998,
but the ultimate resolution of the matter may take much longer. The
ultimate costs to the Company will be dependent upon factors beyond its
control. These factors include the scope and methodology of the
remedial action requirements to be established by the EPA (in
consultation with the Wisconsin Department of Natural Resources
(WDNR)), rapidly changing technology, and the outcome of any related
litigation.
The Company, in cooperation with the WDNR, is conducting an
investigation of soil and groundwater contamination at the Company's
Grafton, Wisconsin plant. Certain test procedures are underway to
assess the extent of contamination and to develop remedial options for
the site. While the Company has provided for estimated investigation
and on-site remediation costs, the extent and timing of future off-site
remediation requirements, if any, are not presently determinable.
The WDNR has requested that the Company and other interested parties
join it in a cooperative effort to clean up PCB contamination in the
watershed of the south branch of the Manitowoc River, downstream of the
Company's New Holstein, Wisconsin facility. The Company has cooperated
to date with the WDNR in investigating the scope and range of the
contamination. The WDNR has not identified the parties it believes are
responsible for such contamination. The Company has provided for
preliminary investigation expenses. Although participation in a
cooperative remediation effort is under consideration, it is not
possible at this time to reasonably estimate the cost of any such
participation.
In addition to the above mentioned sites, the Company is also currently
participating with the EPA and various state agencies at certain other
sites to determine the nature and extent of any remedial action which
may be necessary with regard to such other sites. Based on limited
preliminary data and other information currently available, the Company
has no reason to believe that the level of expenditures for potential
remedial action necessary at these other sites will have a material
effect on its financial position.
Page 6
<PAGE> 7
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
7. Various lawsuits and claims, including those involving ordinary routine
litigation incidental to its business, to which the Company is a party,
are pending, or have been asserted, against the Company. Although the
outcome of these matters cannot be predicted with certainty, and some
may be disposed of unfavorably to the Company, management has no reason
to believe that their disposition will have a materially adverse effect
on the consolidated financial position of the Company.
Page 7
<PAGE> 8
May 12, 1998
INDEPENDENT ACCOUNTANTS' REPORT
Tecumseh Products Company
Tecumseh, Michigan
We have reviewed the consolidated condensed balance sheet of Tecumseh
Products Company and Subsidiaries as of March 31, 1998, and the related
consolidated condensed statements of income and cash flows for the three months
ended March 31, 1998 and 1997. These financial statements are the responsibility
of the Company's management.
We have conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 30, 1998, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1997, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
CIULLA, SMITH & DALE, LLP
Certified Public Accountants
Southfield, Michigan
Page 8
<PAGE> 9
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First quarter sales of $459.9 million were 4% lower as compared to $479.6
million in the first quarter of 1997. Consolidated earnings for the first
quarter of 1998 were $24.9 million, or $1.15 per share, compared to $31.5
million or $1.44 per share in the first quarter of 1997.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions) March 31,
-------------------------------
1998 1997
=================================================================================================================
<S> <C> <C>
NET SALES:
Compressor Products $ 262.8 $ 278.9
Engine and Power Train Products 164.0 169.6
Pump Products 33.1 31.1
- -----------------------------------------------------------------------------------------------------------------
TOTAL NET SALES $ 459.9 $ 479.6
=================================================================================================================
OPERATING INCOME:
Compressor Products $ 19.2 $ 26.7
Engine and Power Train Products 13.7 17.1
Pump Products 3.8 3.9
Corporate Expenses (2.4) (2.4)
- -----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 34.3 45.3
Interest expense (2.4) (1.4)
Interest income and other, net 7.5 4.9
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME $ 39.4 $ 48.8
=================================================================================================================
</TABLE>
Page 9
<PAGE> 10
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Compressor Products
Worldwide Compressor Products sales for the first quarter of 1998 were $262.8
million, down 6% as compared to the first quarter of 1997. A decline in exports
to Asian customers and lower sales of products into the domestic air
conditioning market resulted in sales of compressors produced in North America
falling 15% as compared to the first quarter of 1997. In addition, a general
economic slowdown in Brazil as well as competition from imports dampened demand
for our Brazilian-produced compressors. These negative factors were offset, in
part, by increased sales by our European subsidiary and new sales from our
recently acquired compressor businesses in India.
First quarter Compressor Products operating margins declined to 7.3% as compared
to 9.6% in the first quarter of 1997. Substantially lower profitability in
Brazil, lower sales volume in North American operations and price competition
from Asian imports all contributed to the decline in results. Tecumseh Europe
continued its trend of improved profitability.
Engine and Power Train Products
Worldwide Engine and Power Train Products sales for the first quarter were
$164.0 million, a decrease of 3% as compared to the first quarter of 1997. First
quarter Engine and Power Train Products operating margins declined to 8.4% from
10.1% in the first quarter of 1997. Reduced sales volume, increased raw material
costs and a less favorable sales mix all contributed to the decline in results.
Pump Products
Pump Products sales for the first quarter increased 6% as compared to the first
quarter of 1997. Sales gains were due to strong demand for our Little Giant Pump
Company's newly introduced water-gardening program.
Outlook
Our view that 1998 would be a challenging year has not changed appreciably since
our year-end reporting. Currency devaluations in Asia have expanded Asian
exports of low-priced compressors and related products. Air conditioning
compressor sales are expected to be weak due to Asian competition in room air
conditioning and the loss of market share in unitary air conditioning. Also, the
light snowfall of last winter will significantly reduce the demand for snow
thrower engines later this year.
Page 10
<PAGE> 11
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
LIQUIDITY, CAPITAL RESOURCES AND RISKS
The Company continued to maintain a strong and liquid financial position.
Working capital of $564.8 million at March 31, 1998 was up from $554.8 million
at the end of 1997, and the ratio of current assets to current liabilities was
2.8. First quarter capital spending was $12.7 million. Total capital spending
for 1998 should approximate $80-100 million and will be spent on maintenance and
capacity expansion in India and Brazil. Working capital requirements and planned
capital, investment and stock repurchase expenditures for 1998 and early 1999
are expected to be financed primarily through internally available funds.
However, the Company may also utilize long-term financing arrangements in
connection with state investment incentives and may from time to time utilize
short-term borrowings to hedge currency risk and to finance foreign working
capital requirements. The Company maintains a $100 million revolving credit
facility that is available for general corporate purposes.
The Company purchased approximately 200,000 shares of class A common stock
during the first quarter of 1998, as part of the previously announced share
repurchase program. Existing authority covers the purchase of an additional
750,000 shares through the end of this year.
The Company has reviewed its manufacturing, financial and administrative
information systems and has determined that some of them are not year 2000
compliant. The Company has developed plans for the timely completion of
modifications related to the year 2000. The financial impact of making the
required systems changes is not expected to be material to the Company's
consolidated financial position, results of operations or cash flows. However,
if modifications of the Company's systems, and those of its customers and
suppliers, are not successfully completed on a timely basis, the year 2000 issue
could have a materially adverse impact on the operations of the Company.
UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
securities laws. 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.
Investors are cautioned that forward-looking statements involve risks and
uncertainties, including, but not limited to, changes in business conditions and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand for air conditioners, lawn and garden products and snow
throwers; financial market changes, including interest rates and foreign
exchange rates; economic trend factors such as housing starts; governmental
regulations; availability of materials; actions of competitors; and the
Company's ability to profitably develop, manufacture and sell both new and
existing products.
Page 11
<PAGE> 12
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Company did not file any reports on Form 8-K during the three
months ended March 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
TECUMSEH PRODUCTS COMPANY
-------------------------
(Registrant)
Dated: May 13, 1998 BY: /s/ JOHN H. FOSS
------------------------------- ----------------------------------
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 12
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 271,700
<SECURITIES> 0
<RECEIVABLES> 314,100
<ALLOWANCES> 5,800
<INVENTORY> 244,400
<CURRENT-ASSETS> 873,700
<PP&E> 1,037,000
<DEPRECIATION> 476,400
<TOTAL-ASSETS> 1,585,400
<CURRENT-LIABILITIES> 308,900
<BONDS> 0
0
0
<COMMON> 21,700
<OTHER-SE> 980,100
<TOTAL-LIABILITY-AND-EQUITY> 1,585,400
<SALES> 459,900
<TOTAL-REVENUES> 467,400
<CGS> 397,400
<TOTAL-COSTS> 425,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,400
<INCOME-PRETAX> 39,400
<INCOME-TAX> 14,500
<INCOME-CONTINUING> 24,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,900
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
