Products Company announced its 2002 fourth quarter and full year consolidated results.Consolidated net income for the fourth quarter of 2002 amounted to U.S. $9.3 million, or $0.50 per share, compared to net income of $6.1 million, or $0.33 per share in the fourth quarter of 2001. Included in 2002's fourth quarter results are nonrecurring charges of $5.8 million ($3.7 million net of tax or $0.20 per share) related to the movement of certain engine component manufacturing and for environmental costs. Fourth quarter 2001 nonrecurring charges were also related to a realignment of certain engine and engine component manufacturing and had the effect of reducing 2001 fourth quarter earnings by $3.9 million net of tax or $0.21 per share.
Full year 2002 consolidated net income amounted to $51.0 million or $2.76 per share, compared to $42.8 million or $2.30 per share in the same period of 2001. Included in the full year 2002 reported results are several one-time items such as nonrecurring charges of $10.3 million ($6.6 million net of tax or $0.36 per share), and the cumulative effect of a change in accounting for goodwill ($3.1 million net of tax or $0.17 per share) related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets." On a proforma basis (excluding one-time items), full year results would have been $60.7 million or $3.28 per share.
Full year 2001 results also included several one-time items such as nonrecurring charges of $35.4 million ($22.8 million or $1.23 per share), a $5.2 million ($0.28 per share) tax credit resulting from a refund of prior years' federal income taxes, and $2.0 million net of tax ($0.11 per share) for interest income associated with the tax credit. For comparative purposes, proforma results for the 2001 full year would have been $58.4 million or $3.14 per share.
The improvement in proforma results for the full year is attributable to better results from the Compressor and Pumps Groups, mostly offset by a substantial decline in profitability at the Engine & Power Train Group.
Fourth quarter 2002 sales in the company's Compressor Business increased to $169.4 million from $156.7 million in the fourth quarter of 2001. Sales for the year ended Dec. 31, 2002 amounted to $790.9 million compared to $804.6 million in 2001. The increase in sales in the fourth quarter is due to improved sales in almost all of the Compressor Group market segments, particularly the residential refrigeration market where sales have improved year over year for the past three consecutive quarters. Foreign currency translation reduced sales by $1.8 million in the quarter. Excluding the full year effect from currency on sales of $8.5 million, full year sales declined less than 1%. Increases in sales of compressors used in household refrigeration and commercial applications nearly offset losses of share in the unitary and room air-conditioning markets.
The company's Brazilian operations contributed approximately 67 percent of the compressor business' operating profit for the year. Operating margins have benefited from the effects of the weak Brazilian currency as approximately two-thirds of its full year sales were exported and denominated in other currencies.
The company's Indian Compressor operations continue to improve. Results for the fourth quarter and full year 2002 were profitable compared to losses for the respective 2001 comparable periods.
On Dec. 30, 2002, the company acquired FASCO Motors from Invensys Plc for cash of $396.6 million and the assumption of approximately $14.5 million in debt. FASCO is a leading manufacturer in the U.S. of fractional horsepower motors. FASCO manufactures AC motors, DC motors, blowers, gear motors and linear actuators, all of which are used in a wide variety of applications within the HVAC, automotive, healthcare and appliance industries. The acquisition was financed with proceeds from $325 million in new bank borrowings and internal cash flows. Of $325 million in new borrowings, $250 million was from a 6-month bridge loan and $75 million was from a new 3-year $125 million revolving credit facility. As the bridge loan is expected to be replaced with permanent long-term financing, it has been presented as long-term debt in the Dec. 31, 2002 balance sheet.
The company does not expect worldwide market conditions in its Compressor and Engine Businesses to be much improved over 2002. Conditions in these markets will continue to suffer from over-capacity and deflationary pricing. However, actions to improve profitability in these segments, as well as the addition of FASCO should improve earnings in 2003, excluding any restructuring charges, if cost reduction efforts are sustained.
Full year 2003 results in the Compressor segment are expected to continue to improve, as they did in 2002, as a result of past actions to consolidate operations in the U.S. and move production to low-cost locations like India and Brazil. In addition, the Group will be looking at ways to revitalize U.S. operations by reversing the negative growth pattern demonstrated over the past several years. Until this can be accomplished, the Group's reliance on Brazilian operations for growth and profitability will represent a significant concentration of risk. Profits from the Brazilian and Indian compressor operations are expected to grow in 2003 as a result of their additional productive capacities.
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