<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 September 30, 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.
<TABLE>
<CAPTION>
Class of Stock Outstanding at October 31, 1998
- ------------------------------------------------------------------------------
<S> <C>
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 15,524,438
</TABLE>
<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) SEPTEMBER 30, December 31,
1998 1997
=================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 306.0 $ 304.1
Accounts receivable, trade, less allowance for doubtful
accounts of $5.7 million in 1998 and in 1997 263.6 207.7
Inventories 255.0 259.4
Deferred income taxes 38.1 38.2
Other current assets 9.3 8.7
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 872.0 818.1
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $513.1 million in 1998
and $469.2 million in 1997 554.0 569.7
EXCESS OF COST OVER ACQUIRED NET ASSETS 57.5 56.7
DEFERRED INCOME TAXES 9.0 10.8
PREPAID PENSION EXPENSE 65.9 58.4
OTHER ASSETS 25.8 23.7
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,584.2 $1,537.4
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 132.7 $ 110.6
Income taxes payable 7.1 9.3
Short-term borrowings 4.7 29.0
Accrued liabilities 138.4 114.4
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 282.9 263.3
LONG-TERM DEBT 17.0 17.5
NON-PENSION POSTRETIREMENT BENEFITS 186.1 182.7
PRODUCT WARRANTY AND SELF-INSURED RISKS 32.2 28.9
ACCRUAL FOR ENVIRONMENTAL MATTERS 35.7 31.6
PENSION LIABILITIES 14.1 13.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 568.0 537.2
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 15,607,738 shares in 1998
and 16,370,438 shares in 1997 15.6 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 -- 28.0
Retained earnings 1,006.4 958.0
Foreign currency translation adjustment (11.3) (7.7)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,016.2 1,000.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,584.2 $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 Three Months Ended Nine Months Ended
except per share amounts) September 30, September 30,
----------------------------- ----------------------------
1998 1997 1998 1997
================================================================================================================
<S> <C> <C> <C> <C>
NET SALES $ 397.1 $ 89.0 $ 1,357.4 $ 1,349.2
COSTS AND EXPENSES
Cost of sales and operating expense 343.7 33.4 1,164.1 1,148.8
Selling and administrative expense 27.6 24.4 85.8 76.6
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 25.8 31.2 107.5 123.8
OTHER INCOME (EXPENSE)
Interest expense (1.6) (1.6) (5.8) (4.5)
Interest income and other, net 6.8 5.7 21.5 15.0
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 31.0 35.3 123.2 134.3
Taxes on income 11.8 13.4 45.2 49.1
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 19.2 $ 21.9 $ 78.0 $ 85.2
================================================================================================================
BASIC AND DILUTED EARNINGS
PER SHARE $ 0.90 $ 1.00 $ 3.63 $ 3.89
================================================================================================================
CASH DIVIDENDS DECLARED
PER SHARE $ 0.30 $ 0.30 $ 0.90 $ 0.90
================================================================================================================
</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>
Nine Months Ended
(Dollars in millions) September 30,
-----------------------------
1998 1997
=================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 78.0 $ 85.2
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 57.4 52.4
Accounts receivable (51.3) (44.2)
Inventories 5.8 20.1
Payables and accrued expenses 34.9 24.9
Other 2.6 (2.4)
- -----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 127.4 136.0
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (46.4) (72.1)
Business acquisitions, net of cash acquired -- (45.2)
- -----------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (46.4) (117.3)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (19.3) (19.7)
Decrease in borrowings, net (24.4) (2.3)
Repurchases of common stock (38.7) --
- -----------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (82.4) (22.0)
- -----------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3.3 (8.3)
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1.9 (11.6)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 304.1 277.7
- ---------------------------------------------------------------------------------------------- ------------------
END OF PERIOD $ 306.0 $ 266.1
=================================================================================================================
</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.
2. Inventories consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31
(Dollars in millions) 1998 1997
==========================================================================================================
<S> <C> <C>
Raw material and work in process $149.5 $154.7
Finished goods 87.8 89.1
Supplies 17.7 15.6
----------------------------------------------------------------------------------------------------------
$255.0 $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 (expense) and its components. The following table
reports comprehensive income (expense):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
(Dollars in millions) 1998 1997 1998 1997
============================================================================================================
<S> <C> <C> <C> <C>
Net Income $ 19.2 $ 21.9 $ 78.0 $ 85.2
Other comprehensive income
(expense):
Foreign currency
translation adjustments 6.7 (5.5) (3.6) (21.4)
------------------------------------------------------------------------------------------------------------
$ 25.9 $ 16.4 $ 74.4 $ 63.8
============================================================================================================
</TABLE>
Page 5
<PAGE> 6
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
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 for the three months ended
September 30, 1998 and 1997, were 21,252,754 and 21,880,584,
respectively. The weighted average number of common shares used in the
computations for the nine months ended September 30, 1998 and 1997,
were 21,502,268 and 21,880,584, respectively.
5. During the third quarter of 1998, the Company repurchased 314,700
shares of its Class A common stock at a cost of $16.1 million. For
the nine months ended September 30, 1998, the Company has repurchased
762,700 shares at a cost of $38.7 million.
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 September 30, 1998, the Company had an accrual of
$33.8 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 increase in the accrual during 1998 reflects updated cost
factors offset by insurance settlements received during the year.
The EPA has indicated it expects to issue a record of decision on the
cleanup of the Sheboygan River and Harbor Site in 1999, 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
Page 6
<PAGE> 7
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
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.
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
November 9, 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 September 30, 1998, and the related
consolidated condensed statements of income and cash flows for the three months
and nine months ended September 30, 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
Sales of $397.1 million for the third quarter of 1998 were 2% higher than the
same quarter of 1997. Consolidated earnings of $19.2 million, or $.90 per share,
were 12% lower than 1997 third quarter earnings of $21.9 million. Year-to-date
sales of $1,357.4 million increased 1% as compared to the first nine months of
1997, while earnings for the same period decreased 8%. Third quarter and
year-to-date operating income was unfavorably impacted by substantially lower
profitability in the Company's Engine and Power Train business largely caused by
a weak snow thrower market. On a year-to-year basis the lower operating income
was offset by increased interest income earned.
The following table presents results by business segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
(Dollars in millions) 1998 1997 1998 1997
================================================================================================================
<S> <C> <C> <C> <C>
NET SALES:
Compressor Products $ 256.2 $ 231.6 $ 829.7 $ 812.2
Engine and Power Train Products 118.2 134.9 436.0 454.5
Pump Products 22.7 22.5 91.7 82.5
- ----------------------------------------------------------------------------------------------------------------
TOTAL NET SALES $ 397.1 $ 389.0 $1,357.4 $1,349.2
================================================================================================================
OPERATING INCOME:
Compressor Products $ 17.1 $ 14.2 $ 69.0 $ 73.3
Engine and Power Train Products 9.8 17.9 36.8 49.0
Pump Products 1.3 2.0 9.3 9.6
Corporate Expenses (2.4) (2.9) (7.6) (8.1)
- ----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 25.8 31.2 107.5 123.8
Interest expense (1.6) (1.6) (5.8) (4.5)
Interest income and other, net 6.8 5.7 21.5 15.0
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME $ 31.0 $ 35.3 $ 123.2 $ 134.3
================================================================================================================
</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 third quarter of 1998 were
$256.2 million, 11% higher than the third quarter of 1997. The Company
recorded double-digit sales gains over third quarter 1997 in North
America and Europe and single-digit sales gains in South and Latin
America. These gains were focused primarily in the commercial
refrigeration market. On the other hand, industry over-capacity for
room air conditioning compressors, caused by the Asian economic crisis,
depressed export sales to the Middle and Far East and also caused
selling price erosion in North America. On a year-to-date basis,
worldwide Compressor Products sales were $829.7 million or an increase
of 2% as compared to the first nine months of 1997. Increased sales
into North America and Europe and new sales at the Company's Indian
operations offset year-to-date sales erosion in the Far East and South
and Latin America.
Third quarter compressor margins improved slightly to 6.7% as compared
to 6.1% in 1997 on the basis of better capacity utilization despite
lower prices. Year-to-date operating margins were 8.3% compared to 9.0%
in 1997. Continued price competition from Asian imports and reduced
margins earned on new sales into India were the primary contributors to
the lower year-to-date margins.
Engine and Power Train Products
Worldwide Engine and Power Train Products sales for the third quarter
decreased 12% to $118.2 million, as compared to $134.9 million in 1997.
Although the Company recorded strong shipments of its lawn and garden
engines, snow engine shipments in the third quarter were half the
number of engines shipped in 1997. On a year-to-date basis, worldwide
Engine and Power Train Products sales were $436.0 million or a decrease
of 4% as compared to the first nine months of 1997. Increased sales of
walk behind rotary mowers in the United States and Europe were more
than offset by the significant decline of snow engine demand.
Third quarter operating margins declined to 8.3% as compared to 13.3%
in 1997. Nine month operating margins decreased to 8.4% as compared to
10.8% in 1997. Both the quarter and year-to-date margin declines were
attributable to lower volume and the unfavorable product mix.
Pump Products
Pump Products sales for the third quarter were essentially flat with
the prior year, $22.7 million versus $22.5 million in 1997. Nine months
sales increased 11% to $91.7 million. Year-to-date sales gains were due
primarily to continued strong demand for water gardening products.
Pump Products operating margins for the third quarter declined to
5.7% compared to 8.9% in 1997 while year-to-date margins decreased to
10.1% from 11.6% in
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
1997. The reduced margins were the result of expanded marketing costs
associated with new product introductions.
Outlook
The near term forecast data supports a further weakening in all
geographic markets for compressors. In particular the Brazilian
economic indicators signal a recession, and in Europe excess
inventories at the OEMs are destined to slow the compressor market. The
prospects for financial health in the Far East still appear quite
bleak, and the trend of lower priced imports of appliance products and
components into the U.S. is, therefore, likely to continue. On a
brighter note, the forecasted demand for snow engines has improved but
clearly lacks the strength of 1997.
LIQUIDITY, CAPITAL RESOURCES AND RISKS
The Company maintains a strong and liquid financial position. Working
capital of $589.1 million at September 30, 1998 was up from $554.8
million at December 31, 1997, and the ratio of current assets to
current liabilities was 3.1 at both September 30, 1998 and December 31,
1997. Capital spending for the first nine months of 1998 was $46.4
million. Total capital spending for 1998 should approximate $70-80
million and will be spent on maintenance at most manufacturing
facilities and capacity expansion in India and Brazil. Working capital
requirements, capital investments 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 the Company maintains a $100 million revolving credit
facility that is available for general corporate purposes. Further, the
Company may, from time to time, utilize short-term borrowings to hedge
foreign currency risk and to finance foreign working capital
requirements.
The Company purchased 314,700 shares of class A common stock during the
third quarter of 1998, as part of the previously announced share
repurchase program. Existing authority covers the purchase of an
additional 197,300 shares through the end of this year.
Year 2000
The Company has reviewed its manufacturing, financial and
administrative information systems and has determined that it needs to
replace or modify several of its software systems to make them Year
2000 compliant. In addition, the Company believes that a limited number
of non-information technology systems, such as manufacturing machinery,
equipment and test equipment with date-sensitive software and embedded
microprocessors may be affected. The Company has developed a plan for
the timely completion of modifications related to the Year 2000. The
principal phases of the plan are: inventorying affected technology and
Page 11
<PAGE> 12
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
assessing the impact of the Year 2000 issue; developing solution plans;
modification or replacement; testing; and developing contingency plans.
Portions of this plan have been completed but substantial portions
remain and are steadily progressing. The Company's objective is to
become Year 2000 compliant with its critical systems, including
contingency plans, by mid 1999, allowing time for further testing and
verification of these systems as necessary and the conversion of less
critical systems. The Company is also attempting to gain assurances
from its significant suppliers and customers that they are addressing
this issue to ensure there will be no major interruptions.
The costs of making the required systems changes are estimated to be
approximately $10 million. These costs are generally not incremental to
existing information technology budgets but rather relate to internal
resources that were re-assigned and implementation time tables that
were accelerated. As of September 30, 1998 the Company spent
approximately one half of the total projected cost to be compliant.
If the 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. It is the Company's belief that the
greatest potential risk from the Year 2000 could be its ability to meet
commitment dates on delivery of product. Since it is not possible to
anticipate all possible future outcomes, especially when third parties
are involved, the amount of any potential liability or lost revenue
cannot be reasonably estimated at this time.
The Company is developing contingency plans for critical applications.
These contingency plans involve, among other actions, manual work
arounds, increasing inventories and adjusting staffing strategies.
EURO CONVERSION
On January 1, 1999, certain member nations of the European Economic and
Monetary Union ("EMU") will adopt a common currency, the Euro. For a
three-year transition period, both the Euro and individual
participants' currencies will remain in circulation. After January 1,
2002, the Euro will be the sole legal tender for EMU countries. The
adoption of the Euro will affect some of the Company's financial
systems and business applications as the commerce of these nations will
be transacted both in the Euro and the existing national currency.
The Company is currently addressing Euro-related issues and its impact
on information systems, currency exchange rate risk, taxation,
contracts, competition, and pricing. Action plans currently being
implemented are expected to result in compliance with all laws and
regulations; however, there can be no certainty that such plans will be
successfully implemented or that external factors will not have an
adverse effect on the Company's operations. Any costs associated with
the adoption of the Euro will be expensed as incurred. The Company does
not expect
Page 12
<PAGE> 13
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
these costs to be material to its results of operations, financial
condition, or liquidity.
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; the Company's ability to
profitably develop, manufacture and sell both new and existing
products; and the degree to which the Company is able to complete its
Year 2000 plan on time and with the expected results.
Page 13
<PAGE> 14
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) There are no exhibits to this report.
(b) The Company did not file any reports on Form 8-K during the three
months ended September 30, 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: November 12, 1998 /s/ JOHN H. FOSS
------------------------- ----------------------------------
By: John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 14
<PAGE> 15
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 306,000
<SECURITIES> 0
<RECEIVABLES> 269,300
<ALLOWANCES> 5,700
<INVENTORY> 255,000
<CURRENT-ASSETS> 872,000
<PP&E> 1,067,100
<DEPRECIATION> 513,100
<TOTAL-ASSETS> 1,584,200
<CURRENT-LIABILITIES> 282,900
<BONDS> 0
0
0
<COMMON> 21,100
<OTHER-SE> 995,100
<TOTAL-LIABILITY-AND-EQUITY> 1,584,200
<SALES> 397,100
<TOTAL-REVENUES> 403,900
<CGS> 343,700
<TOTAL-COSTS> 371,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 31,000
<INCOME-TAX> 11,800
<INCOME-CONTINUING> 19,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,200
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
