-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EDsGrdDfIIBZ/lEREkl6ylu4mLDmZKRnpSZujxZ5cn/tsJj5IXTRgpZOVv+sR8IK W/0QDqBxo3MSp44rSSnJrg== 0000950124-94-000613.txt : 19940331 0000950124-94-000613.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950124-94-000613 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECUMSEH PRODUCTS CO CENTRAL INDEX KEY: 0000096831 STANDARD INDUSTRIAL CLASSIFICATION: 3585 IRS NUMBER: 381093240 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-00452 FILM NUMBER: 94518206 BUSINESS ADDRESS: STREET 1: 100 E PATTERSON ST CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238411 MAIL ADDRESS: STREET 1: 100 EAST PATTERSON STREET CITY: TECUMSEH STATE: MI ZIP: 49286 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 0-452 TECUMSEH PRODUCTS COMPANY (Exact Name of Registrant as Specified in its Charter) Michigan 38-1093240 (State of Incorporation) (I.R.S. Employer Identification No.) 100 East Patterson Street Tecumseh, Michigan 49286 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (517) 423-8411
Securities Registered Pursuant to Section 12(b) of the Act: Securities Registered Pursuant to Section 12(g) of the Act: Name of Each Exchange Title of Each Class on Which Registered Class B Common Stock, $1.00 Par Value ------------------- ----------------------- Class A Common Stock, $1.00 Par Value None None Class B Common Stock Purchase Rights Class A Common Stock Purchase Rights
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Registrant disclaims the existence of control and, accordingly, believes that as of March 11, 1994, all of the 5,470,146 shares of its Class B Common Stock, $1.00 par value, then issued and outstanding, were held by non-affiliates of Registrant. Certain shareholders, which, as of March 11, 1994, held an aggregate of 2,391,940 shares of Class B Common Stock might be regarded as "affiliates" of Registrant as that word is defined in Rule 405 under the Securities Exchange Act of 1934, as amended. If such persons are "affiliates," the aggregate market value as of March 11, 1994 (based on the closing price of $58.75 per share, as reported on the NASDAQ National Market System on such date) of the 3,078,206 shares then issued and outstanding held by non-affiliates was approximately $180,844,603. Numbers of shares outstanding of each of the Registrant's classes of Common Stock at March 11, 1994: Class B Common Stock, $1.00 Par Value: 5,470,146 Class A Common Stock, $1.00 Par Value: 16,410,438 Certain information contained in the Registrant's Annual Report to Shareholders for the year ended December 31, 1993 has been incorporated herein by reference in Parts I and II hereof. Certain information in the definitive proxy statement to be used in connection with the Registrant's 1994 Annual Meeting of Shareholders has been incorporated herein by reference in Part III hereof. The Exhibit Index is located on page 30. 2 TABLE OF CONTENTS
Item Page - ---- ---- PART I 1. Business 3 Executive Officers of the Registrant 13 2. Properties 14 3. Legal Proceedings 14 4. Submission of Matters to a Vote of Security Holders 15 PART II 5. Market for the Company's Common Equity and Related Stockholder Matters 16 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 8. Financial Statements and Supplementary Data 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III 10. Directors and Executive Officers of the Company 17 11. Executive Compensation 17 12. Security Ownership of Certain Beneficial Owners and Management 17 13. Certain Relationships and Related Transactions 17 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18 Signatures 27 Exhibit Index 30
2 3 PART I ITEM 1. BUSINESS GENERAL Tecumseh Products Company (the Company) is a full-line, independent global manufacturer of hermetic compressors for air conditioning and refrigeration products, gasoline engines and power train components for lawn and garden applications, and pumps. The Company believes it is the largest independent producer of hermetically sealed compressors in the world, as well as one of the world's leading manufacturers of small gasoline engines and power train products used in lawn and garden applications. In 1993, the Company's products were sold in over 100 countries around the world. The Company groups its products into three principal industry segments: Compressor Products, Engine and Power Train Products, and Pump Products. Compressor Products include a broad range of air conditioning and refrigeration compressors and compressor parts as well as refrigeration condensing units. The Company's compressor products range from fractional horsepower units used in small refrigerators and dehumidifiers to large units used in commercial air conditioning applications. The Company sells compressors in four major compressor market segments: household refrigerators and freezers; room air conditioners; commercial and residential unitary central air conditioning systems; and commercial devices including freezers, dehumidifiers and vending machines. The Company sells compressors to original equipment manufacturers ("OEMs") as well as in the aftermarket. Engine and Power Train Products consist of (i) two- and four-cycle gasoline engines for use in a wide variety of lawn and garden applications as well as other consumer and light commercial applications and (ii) transmissions, transaxles and related parts for use principally in lawn and garden tractors and riding lawn mowers. The Company sells engine and power train products to OEMs and aftermarket distributors. Pump Products include (i) small submersible pumps used in a wide variety of industrial, commercial, and consumer applications and (ii) heavy duty centrifugal type pumps used in the construction, mining, agricultural, marine, and transportation industries. FOREIGN OPERATIONS AND SALES In recent years, international operations and sales have become increasingly important to the Company's business as a whole. In 1993, sales to customers outside the United States represented approximately 45% of total consolidated net sales, up from approximately 30% in 1988. Additionally, a substantial portion of the Company's products are manufactured overseas. 3 4 Compressor products are produced by the Company's plants in both Brazil and France, while engines are produced in Italy. Products sold outside the United States are manufactured at both U.S. and foreign plants. The Company's European compressor subsidiary, L'Unite Hermetique, S.A., ("L'Unite Hermetique"), generally sells the compressor products it manufactures in Europe, the Middle East, Africa, Latin America and Asia. Sociedade Intercontinental De Compressores Hermeticos-SICOM, Ltda. ("SICOM"), the Company's Brazilian compressor subsidiary, sells its products principally in Latin America and, to a lesser extent, in North America and Europe. In the engine business, the Company's two principal markets are North America, which is generally served by the Company's U.S. manufacturing operations, and Europe, which is served both by the manufacturing operations of the Company's European engine subsidiary, Tecnamotor, S.r.l. ("Tecnamotor") in Italy and, to a lesser extent, by U.S. export sales. Of the Company's sales to customers outside the United States in 1993, approximately 36% were to customers of compressor and engine products in Europe. Sales of compressors are also significant in markets in Latin America, Asia and the Far East. The Company's dependence on sales in foreign countries entails certain risks, including currency fluctuations, unstable economic or political conditions in some areas and the possibility of U.S. government embargoes on sales to certain countries. The Company's foreign manufacturing operations are subject to the same risks and others as well, including risks of governmental expropriation, governmental regulations which may be disadvantageous to businesses owned by foreign nationals and instabilities in the work force due to changing political and social conditions. These considerations are especially significant in the context of the Company's Brazilian operations given the importance of SICOM's performance to the Company's total operating results. Political, social, and economic conditions in Brazil are less stable than those which prevail in the United States and many other countries, and this instability is reflected in SICOM's operating results, which can vary dramatically from period to period. COMPRESSOR PRODUCTS The Compressor Products segment is the Company's largest industry segment. A compressor is a device which compresses a refrigerant gas. When the gas is later permitted to expand, it absorbs and transfers heat, and the cooling effect thus produced forms the basis for a wide variety of refrigeration products. The Company's compressors range from fractional horsepower units used in small refrigerators and dehumidifiers to large units used in commercial air conditioning applications. All of the compressors produced by the Company are hermetically sealed. The Company's current compressor line includes reciprocating and rotary designs and the Company is in the process of developing a line of scroll compressors. 4 5 The Company's compressors are used in each of four major compressor market segments: household refrigerators and freezers; room air conditioners; residential and commercial unitary central air conditioning systems; and commercial devices, including freezers, dehumidifiers, refrigerated display cases, water coolers and vending machines. The Company believes it is the world's only independent manufacturer of compressor products for all four of these market segments. PRODUCT LINE The Company manufactures and sells a wide variety of traditional, reciprocating compressors suitable for use in all of the market segments described above. The Company also produces rotary compressors for use in room air conditioning applications. Rotary compressors generally provide increased operating efficiency, lower equipment space requirements, and reduced sound levels when compared to reciprocating designs. In November 1993, the Company reached an agreement with General Electric's appliance operations in Columbia, Tennessee to purchase certain rotary compressor manufacturing equipment. After being relocated and retooled, this equipment will be utilized in the production of room air conditioning rotary compressors in smaller sizes that will complement the Company's present product offering. During 1992, the Company introduced its new line of "Quadro-Flex" reciprocating compressors offering improved efficiency for the commercial unitary market. Early production runs of certain Quadro-Flex models resulted in unacceptable failure rates in the field. The Company believes that appropriate corrective actions have been taken to assure the high level of quality expected in this product. In light of the competitive advantages of the Quadro-Flex design, the Company anticipates increasing demand for its current Quadro-Flex products as customers become comfortable that the early problems have been corrected. In addition, the Company plans to use the Quadro-Flex design in a broad range of products for commercial refrigeration applications. Scroll compressors offer energy efficiency and reduced noise levels compared to traditional reciprocating designs and are generally preferred by OEMs for certain products, including unitary central air conditioning systems and certain commercial applications. The Company does not currently offer scroll compressors while some of its competitors do, which the Company believes puts it at a competitive disadvantage. However, the Company has developed a residential unitary air conditioning compressor using scroll technology and is currently evaluating samples of this scroll compressor with key customers. In January 1994, the Company's Board of Directors authorized funding for a scroll compressor manufacturing facility, which is expected to be in limited production by the end of 1994. 5 6 MANUFACTURING OPERATIONS Compressor Products manufactured in the Company's U.S. plants accounted for approximately 55% of 1993 compressor sales. The balance was produced at the Company's manufacturing facilities in Brazil and France. The compressor operations are substantially vertically integrated, and the Company manufactures a significant portion of its component needs internally, including electric motors, metal stampings and glass terminals. Raw materials essential to the conduct of business are purchased from a variety of non-affiliated suppliers. The Company utilizes multiple sources of supply and the required raw materials and purchased components have generally been available in sufficient quantities. SALES AND MARKETING The Company markets its Compressor Products globally under the "Tecumseh" brand, as well as under the "SICOM" brand in Latin America and the "L'Unite Hermetique" brand in Europe. The Company sells its Compressor Products in North America primarily through its own sales staff. Major OEM customers are assigned to sales staff on an account basis. Other customers (aftermarket wholesalers and smaller commercial OEM's) are served by sales personnel assigned to specified geographic regions. Each of the Company's Brazilian and French subsidiaries has its own sales staff. In certain foreign markets, the Company also uses local independent sales representatives. Substantially all of the Company's sales of Compressor Products for room air conditioning applications are to OEMs. Sales of Compressor Products for unitary central air conditioning systems and commercial applications include substantial amounts of both OEM and aftermarket customers. SICOM's Compressor Products are sold primarily in Brazil and other Latin American countries. SICOM also furnishes component parts to the Company's North American plants and finished compressors for resale in North America. L'Unite Hermetique, which does not sell products in North America, sells a majority of its products in Europe but also has substantial sales outside Europe. The Company has over 1,200 customers for Compressor Products, the majority of which are commercial customers. In 1993, the two largest customers for Compressor Products accounted for 9.0% and 4.0%, respectively, of consolidated net sales of the Company's Compressor Products, or 5.5% and 2.5%, respectively, of consolidated net sales. Loss of either of these customers could have a material adverse effect on the results of operations of the Compressor Products segment and, at least temporarily, on the Company's business as a whole. Generally, the Company does not enter into long-term contracts with its customers in this segment. However, the present business relationships with all major customers have existed for a substantial period of time. 6 7 In 1993, approximately 34% of the Compressor Products produced by the Company in its U.S. plants were exported to foreign countries. The Company exports to over 100 countries worldwide. Approximately two-thirds of these exported products were sold in the Far and Middle East. COMPETITION All of the compressor market segments in which the Company operates are highly competitive. Participants compete on the basis of price, efficiency, reliability, noise level, and delivery. The Company competes not only with other independent compressor producers but also with manufacturers of end products which have internal compressor manufacturing operations. The domestic unitary air conditioning compressor market consists of original equipment manufacturers and a significant compressor aftermarket. The Company competes primarily with two U. S. manufacturers, Copeland Corporation, a subsidiary of Emerson Electric, Inc., and Bristol, a division of York International Corporation. Copeland Corporation enjoys a larger volume of the domestic unitary air conditioning compressor business than either Bristol or the Company. Several important OEMs in the unitary air conditioning market have decided to significantly reduce the use of traditional reciprocating compressors in 1994 as part of an industry trend toward the use of scroll compressors. Since the Company does not currently produce scroll compressors in commercial quantities, this accelerating trend will reduce, at least temporarily, the Company's share of this important market and is expected to intensify price competition for the remaining available reciprocating compressor business. In anticipation of this trend, the Company has developed its own scroll compressor, which it is currently sampling with key customers. In January 1994, the Company's Board of Directors authorized funding for a scroll compressor manufacturing facility, which is expected to be in limited production by the end of 1994. In the domestic room air conditioning compressor market, the Company competes primarily with foreign companies, which import compressors to the United States but are also increasing U. S. manufacturing capabilities. The Company also competes to a lesser extent with U. S. manufacturers. In the domestic markets for water coolers, dehumidifiers, vending machines, refrigerated display cases and other commercial refrigeration products, the Company competes primarily with manufacturers from the Far East, Europe and South America, and to a lesser extent, the United States. The non-captive portion of the household refrigerator and freezer segment is substantially dominated by Far Eastern manufacturers, which import compressors to the United States but are also increasing U.S. manufacturing capabilities. In the geographic regions in which the Company supplies a significant portion of its domestically produced export compressors, the primary competitors are Bristol, Copeland Corporation and several Far East manufacturers, most of which are substantially larger and have greater resources than the Company. 7 8 L'Unite Hermetique sells the major portion of its manufactured compressors in Western Europe, and competes in those markets primarily with several large European manufacturers, some of which are captive suppliers, and to a lesser but increasing extent, with manufacturers from the Far East. SICOM sells the major portion of its manufactured compressors in Brazil and other Latin American countries and competes directly with Embraco S.A., an affiliate of Whirlpool Corporation, in Brazil and with Embraco and several other foreign manufacturers in Latin America. The ability to successfully bring new products to market in a timely manner has rapidly become a critical factor in competing in the compressor products business as a result of, among other things, the imposition of energy efficiency standards and environmental regulations. NEW REGULATORY REQUIREMENTS Chloroflourocarbon compounds ("CFCs"), the primary refrigerants used in household refrigerators and freezers and in commercial refrigeration equipment, have been identified as one of the leading factors causing depletion of the Earth's ozone layer. Under a 1992 international agreement, CFCs are scheduled to be phased out by January 1, 1996. Several OEMs have already begun to offer products which do not utilize CFCs. Under current U.S. industry plans, the replacement for CFCs in the refrigerator and freezer market will be a refrigerant known as HFC-134a. The Company has already designed, and tested with customers, and is prepared to begin production of its new TPY line of refrigerator and freezer compressors which use HFC-134a. The U.S. government has not yet determined which refrigerant or refrigerants will be approved as replacements for CFCs in the commercial market segment, but the Company anticipates that one approved replacement will be HFC-134a. The Company has been producing commercial compressors using HFC-134a since late 1992. By the end of 1993 it could cover approximately 75% of its volume in this market segment with compressors using this refrigerant. Pursuant to the National Appliance Energy Conservation Act of 1987 (the "NAECA") the U.S. government requires higher energy efficiency ratings on certain unitary air conditioning products by January 1, 1994 and on room air conditioning products during 1997. The Company's unitary products meet the relevant 1994 standard for unitary products. The standard for room air-conditioning products has not been finalized, but the Company will need to improve the efficiency of its rotary compressors to meet the standard. The NAECA also required higher efficiency ratings for refrigerator and freezer products beginning in 1993, and still higher standards, not yet specified, will be required in 1998. Currently, the Company only participates to a very limited extent in the U.S. refrigerator and freezer market. The Company is pursuing this U.S. market with its new TPY compressor line, which meets the 1993 energy efficiency standards while using the HFC-134a refrigerant. 8 9 ENGINE AND POWER TRAIN PRODUCTS Small gasoline engines account for a majority of the net sales of the Company's Engine and Power Train Products segment. The Company manufactures gasoline engines, both two- and four-cycle types, with aluminum diecast bodies ranging in sizes from 1.6 through 16.5 horsepower and with cast iron bodies ranging in size from 12 through 18 horsepower. These engines are used in a broad variety of consumer products, including lawn mowers (both riding and walk-behind types), snow blowers, small lawn and garden tractors, small power devices used in outdoor chore products, and certain kinds of self-propelled vehicles. The Company's power train products include transmissions, transaxles and related parts used principally in lawn and garden tractors and riding lawn mowers. MANUFACTURING OPERATIONS The Company manufactures engines and related components in its four plants in the United States and one plant in Italy. All of the Company's power train products are manufactured in one facility in the United States. Operations of the Company in this segment are partially vertically integrated as the Company produces most of its plastic parts and carburetors, as well as a substantial portion of the aluminum diecastings used in its engines and power trains. SALES AND MARKETING The Company markets its Engine and Power Train Products worldwide under the "Tecumseh" and "Peerless" brands, and in Europe under the "Tecnamotor" brand. A substantial portion of the Company's engines are incorporated into lawn mowers sold under brand labels, including the "Craftsman" brand of its largest engine products customer, Sears, Roebuck and Co. ("Sears"). A majority of the Company's Engine and Power Train Products are sold directly to OEMs. The Company also sells engines and parts to its authorized dealers and distributors, who service its engines both in the United States and abroad. Marketing of Engine and Power Train Products is handled by the Company's own sales staff and by local sales representatives in certain foreign countries. Sales to Sears and its suppliers in the aggregate accounted for approximately 6% of the Company's 1993 consolidated net sales and approximately 20% of its net sales of Engine and Power Train Products. Sales to the Company's second largest customer in this segment accounted for approximately 16% of the segment's net sales in 1993 and 5% of the Company's 1993 consolidated net sales. Loss of either of the Company's two largest customers would have a material adverse effect on the results of operations of this segment and, at least temporarily, on the Company's business as a whole. There are no long-term contracts between the Company 9 10 and its major customers in this segment, but the present business relationships have existed for a substantial period of time. COMPETITION The Company believes it is the second largest independent producer of small gasoline engines in the United States and that the largest such producer, with a broader product range, is Briggs & Stratton Corporation. The Company competes not only with other engine manufacturers but also with manufacturers of end products which produce their own engines and power transmission components. North America and Europe are the principal markets for lawn and garden products. Foreign competition for sales has been limited in the past but is increasing, particularly as foreign manufacturers have begun establishing U.S. manufacturing facilities. In Europe, the late 1992 devaluation of the Italian lira relative to the U.S. dollar has enabled the Company's Italian-produced products to become more cost-competitive with other products available in the European market. Competition in the Company's engine business is based principally on price, service, product performance and features. As mass merchandisers have captured a larger portion of the sales of lawn and garden products in the United States, price competition and the ability to offer customized styling and feature choices have become even more significant factors. The Company believes that it competes effectively on these bases. The Company's power train business has been under significant competitive pressure over the last several years with certain of its competitors aggressively competing for market share primarily on the basis of price. As a result, the Company's power train sales have been steadily decreasing since 1987. In response to this, the Company executed a plan to reduce product cost and increase efficiency, by consolidating its power train production operations into one plant. In addition, the Company has recently introduced a new line of affordable hydrostatic, fluid-type transmissions aimed at volume segments of the market. NEW EMISSION STANDARDS The California Air Resources Board ("CARB") has promulgated exhaust emission standards for off-road utility engines which cover the two- and four-cycle engine products manufactured by the Company. The Clean Air Act Amendments of 1990 require EPA approval of the CARB regulations prior to implementation. The approval from the EPA is pending. The California regulations require certain emission reductions by January 1, 1995 and additional, more stringent reductions by 1999. A portion of the Company's engine products, as presently designed and manufactured, do not meet all the 1995 CARB standards; however, engineering efforts have resulted in select engine certification to CARB requirements, and an adequate cross section of the Company's current four-cycle products will be modified to meet the 1995 requirements. The Clean Air Act Amendments of 1990 also allow other states either to adopt 10 11 the California regulations after EPA approval or a federal standard which the EPA is formulating. The EPA continues its emissions studies but, as yet, has not promulgated regulations containing standards; the Company anticipates public hearings (in advance of proposed federal Phase I standards) during the second quarter of 1994. The Company is also participating through appropriate trade associations, in the negotiated regulation process currently being conducted to develop a federal Phase II exhaust emission standard. Continuing design and other efforts will be expended to meet the emission standards; however, it is not currently possible to determine the cost thereof nor the impact on future operating results or competitive position of the Company. PUMP PRODUCTS The Company manufactures and sells small submersible pumps and related products through its subsidiary, Little Giant Pump Company ("Little Giant"). Little Giant's pumps are used in a broad range of commercial, industrial, and consumer products, including parts washers, machine tools, evaporative coolers, sump pumps, swimming pool equipment, statuary, fountains and water gardening. Little Giant's products are sold throughout the United States, Canada, Europe, and the Middle East, to OEMs and distributors and to retailers directly. Marketing is carried out both through Little Giant's own sales staff and also through manufacturer's representatives. The Company's other pump subsidiary, MP Pumps Inc. ("MP Pumps"), manufactures and sells a variety of heavy duty centrifugal pumps ranging in capacity from 15 to 300 gallons per minute, that are used in the construction, mining, agricultural, marine and transportation industries. MP Pumps sells both to OEMs, which incorporate its pumps into their end products, and through an extensive network of distributors located throughout the United States, which sell to end-users. A limited number of pumps are also sold to departments and agencies of the U.S. government. Most of MP Pumps' products are sold in the United States. MP Pumps markets its products through its own sales staff. The Company markets its pump products globally under the "Little Giant," "Jaeger" and "MP Pumps" brand names. The pump industry is highly fragmented, with many relatively small producers competing for sales. Little Giant has been particularly successful in competing in this industry by targeting specific market niches where opportunities exist and then designing and marketing corresponding products. Though still a relatively small portion of the Company as a whole, during the last five years the pump business has been its fastest growing business, with sales increasing from $48.5 million in 1989 to $77.9 million in 1993. 11 12 BACKLOG AND SEASONAL VARIATIONS Most of the Company's production is against short-term purchase orders, and backlog is not significant to its business. Both Compressor Products and Engine and Power Train Products are subject to some seasonal variation. Generally, the Company's sales and operating profit are stronger in the first two quarters of the year than in the last two quarters. PATENTS, LICENSES AND TRADEMARKS The Company owns a substantial number of patents, licenses and trademarks and deems them to be important to certain of its lines of business; however, the success of the Company's overall business is not considered primarily dependent on them. The Company owns and uses in the conduct of its business a variety of registered trademarks, the most familiar of which is the trademark consisting of the word "Tecumseh" in combination with a Native American Indian head symbol. RESEARCH AND DEVELOPMENT The Company must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of its major lines of business. The Company expended approximately $24.9 million, $27.0 million and $25.1 million during 1993, 1992 and 1991 on research activities relating to the development of new products and the development of improvements to existing products. None of this research was customer sponsored. ENVIRONMENTAL LEGISLATION 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. It is also the subject of an EPA administrative proceeding relating to its Somerset, Kentucky facility. The Company is also participating with the EPA and various state agencies in investigating possible remedial action that may be necessary at other sites. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" on pages 14 to 15 and "Note 9" on page 23 in the Company's Annual Report to Shareholders for the year ended December 31, 1993 for a discussion of the impact of these matters on the Company's financial condition and results of operations. Also see Item 3. Legal Proceedings. 12 13 INDUSTRY SEGMENT AND GEOGRAPHIC LOCATION INFORMATION The results of operations and other financial information by industry segment and geographic location (including the footnotes thereto) for each of the years ended December 31, 1993, 1992 and 1991 appear at page 12 of The Company's Annual Report to Shareholders for the year ended December 31, 1993 and are incorporated herein by reference. EMPLOYEES On December 31, 1993 the Company employed approximately 12,600 persons, 40% of which were employed in foreign locations. Approximately 3,400 of the U.S. employees were represented by labor unions, with no more than approximately 1,300 persons represented by the same union. The majority of foreign location personnel are represented by national trade unions. The number of the Company's employees is subject to some seasonal variation; during 1993, the maximum number of persons employed at one time was approximately 12,800, and the minimum was 11,900. The Company believes it has a good relationship with its employees. EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers of the Company.
PERIOD OF SERVICE NAME AND AGE OFFICE OR POSITION HELD AS AN OFFICER ------------ ---------------------------------------- ----------------- Kenneth G. Herrick, 72 Chairman of the Board of Directors (1) Since 1966 Todd W. Herrick, 51 President and Chief Executive Officer (2) Since 1974 John H. Foss, 51 Vice President, Treasurer, and Chief Since 1979 Financial Officer Harry L. Hans, 60 Group Vice President - Engine and Power Since 1979 Train Components (3)
(1) Since 1986. Served as Chairman of the Board of Directors and Chief Executive Officer from 1970 to 1986. Kenneth G. Herrick is the father of Todd W. Herrick. (2) Since 1986. Served as Vice President from 1974 until 1984; as Executive Vice President and Assistant to the President from January, 1984 until June, 1984; and as President and Chief Operating Officer from June, 1984 until 1986. (3) Since 1986. Served as Executive Vice President from 1979 until 1986. 13 14 ITEM 2. PROPERTIES The Company's headquarters are located in Tecumseh Michigan, approximately 50 miles southwest of Detroit. At December 31, 1993 the Company had 28 principal properties worldwide occupying approximately 5.9 million square feet with the majority, approximately 5.6 million square feet devoted to manufacturing. Ten facilities with approximately 2.1 million square feet were located in four countries outside the United States. The following table shows the approximate amount of space devoted to each of the Company's three principal business segments.
Approximate Floor Industry Segment Area in Square Feet ---------------- ------------------- Compressor Products 4,004,000 Engine and Power Train Products 1,643,000 Pump Products and Other 234,000
Three domestic facilities, including land, building and certain machinery and equipment were financed and leased through industrial revenue bonds, all of which are owned or have been repaid by the Company. All owned and leased properties are suitable, well maintained and equipped for the purposes for which they are used. The Company considers that its facilities are suitable and adequate for the operations involved. ITEM 3. LEGAL PROCEEDINGS The Company has been named by the U.S. EPA as a potentially responsible party in connection with the Sheboygan River and Harbor Superfund Site in Wisconsin. This matter is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 9 of the Notes to Consolidated Financial Statements in the Company's Annual Report to Shareholders for the year ended December 31, 1993, both of which are incorporated herein by reference. As pointed out in the said Note 9, the ultimate costs to the Company will be dependent upon factors beyond its control such as the scope and methodology of the remedial action requirements to be established by the EPA (in consultation with the State of Wisconsin), rapidly changing technology, and the outcome of any related litigation. In 1993, the Company and the EPA signed a Consent Agreement and Consent Order ("CACO") to resolve certain alleged violations of the federal Resource Conservation and Recovery Act at the Company's Somerset, Kentucky plant. Under the terms of the CACO, the Company has paid a civil penalty of $94,990, has installed certain equipment and will undertake certain investigations. Following the completion of the investigations, the Company could also be obliged to implement certain other remedial measures. Although management expects the 14 15 total expenditures to be made in complying with the CACO to exceed $100,000, it does not believe the total will be material to its consolidated financial condition. In addition to the matters discussed in the two preceding paragraphs, the Company is currently participating with the EPA and various state agencies at certain other sites to determine the nature and extent, if any, of any remedial action which may be required of the Company with regard to such other sites. 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 the various lawsuits and claims asserted or pending against the Company or its subsidiaries, including those discussed in the immediately preceding paragraph, cannot be predicted with certainty, and some may be disposed of unfavorably to the Company, its management has no reason to believe that their ultimate disposition will have a materially adverse effect on the future consolidated financial position or income from continuing operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of 1993 to a vote of security holders through the solicitation of proxies or otherwise. 15 16 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Financial Summary" and "Information Concerning Equity Securities" on pages 1 and 27, respectively, of the Company's Annual Report to Shareholders for year ended December 31, 1993 is incorporated herein by reference. As of March 11 1994, there were 1,065 holders of record of the Company's Class A common stock and 1,044 holders of the Class B common stock. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Data" on page 26 of the Company's Annual Report to Shareholders for the year ended December 31, 1993 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13, 14, and 15 of the Company's Annual Report to Shareholders for the year ended December 31, 1993 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information on pages 16 to 27, inclusive, of the Company's Annual Report to Shareholders for the year ended December 31, 1993 is incorporated herein by reference. See Item 14 on page 18 of this report for financial statement schedules. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information pertaining to directors under the caption "Election of Directors" in the Company's definitive Proxy Statement relating to its 1994 Annual Meeting of Shareholders is incorporated herein by reference. Information regarding executive officers required by Item 401 of Regulation S-K is furnished in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation," "Executive Compensation Committee Report," "Shareholder Return Performance Presentation," Compensation Committee Interlocks and Insider Participation" and in the last paragraph of the caption "Election of Directors - Directors' Meetings and Committees" in the Company's definitive Proxy Statement relating to its 1994 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the captions "Principal Shareholders" and "Election of Directors - Ownership by Management of Equity Securities" in the Company's definitive Proxy Statement relating to its 1994 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement relating to its 1994 Annual Meeting of Shareholders is incorporated herein by reference. 17 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) The following described financial statements, notes and report on pages 16 through 25 of the Company's Annual Report to Shareholders for the year ended December 31, 1993: . Report of Independent Accountants . Consolidated Balance Sheets as of December 31, 1993 and 1992 . Statements of Consolidated Income for the years ended December 31, 1993, 1992 and 1991 . Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991 . Statements of Consolidated Cash Flows for the years ended December 31, 1993, 1992 and 1991 . Notes to Consolidated Financial Statements (2) Financial Statement Schedules:
Schedule Form 10-K Number Description Page Reference ------ ----------- -------------- V Property, Plant and Equipment 22 VI Accumulated Depreciation 23 VIII Valuation and Qualifying Accounts 24 IX Short-term Borrowings 25 X Supplementary Income Statement Information 26
Schedules other than those listed above are omitted because they are either not applicable or are not required. 18 19 (3) Exhibits:
Exhibit Number Description ------ ----------- (2) -(not applicable) (3)(a) -The Company's Restated Articles of Incorporation as in effect prior to April 22, 1992 (filed as Exhibit (3) to Annual Report on Form 10-K for the year ended December 31, 1991 (Commission File no. 0-452) and incorporated herein by reference) (3)(b) -Certificate of Amendment to the Company's Restated Articles of Incorporation adopted April 22, 1992 (filed as Exhibit B-5 to Form 8 Amendment No. 1 dated April 22, 1992 to Form 10 Registration Statement dated April 24, 1965 (Commission File No. 0-452) and incorporated herein by reference) (3)(c) -Company's Amended and Restated Bylaws as amended through February 23, 1994 (4) -[Note: No instruments defining the rights of holders of long-term debt are being filed because no such instrument authorizes a total amount of securities which exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the Commission upon request.] (9) -(not applicable) (10)(a) -Amended and Restated Class B Rights Agreement (filed as Exhibit 4 to Form 8 Amendment No. 1 dated April 22, 1992 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991 (Commission File No. 0-452) and incorporated herein by reference) (10)(b) Amendment No. 1 to Amended and Restated Class B Rights Agreement (filed as Exhibit 4 to Form 8 Amendment No. 2 dated October 2, 1992 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991 (Commission File No. 0-452) and incorporated herein by reference) (10)(c) -Amendment No. 2 to Amended and Restated Class B Rights Agreement (filed as Exhibit 4 to Form 8-A/A Amendment No. 3 dated June 22, 1993 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991 (Commission File No. 0-452) and incorporated herein by reference)
19 20 (3) Exhibits (continued): (10)(d) -Class A Rights Agreement (filed as Exhibit 4 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992 (Commission File No. 0-452) and incorporated herein by reference) (10)(e) -Amendment No. 1 to Class A Rights Agreement (filed as Exhibit 4 to Form 8 Amendment No. 1 dated October 2, 1992 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992 (Commission File No. 0-452) and incorporated herein by reference) (10)(f) -Amendment no. 2 to Class A Rights Agreement (filed as Exhibit 4 to Form 8-A/A Amendment No. 2 dated June 22, 1993 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992 (Commission File No. 0-452) and incorporated herein by reference) (10)(g) -Exchange Agreement dated January 11, 1993 among the Company, certain directors and shareholders of the Company, and others (filed as Exhibit (10)(e) to Annual Report on Form 10-K for the year ended December 31, 1992 (Commission File No. 0-452) and incorporated herein by reference) (10)(h) -Description of Death Benefit Plan (management contract or compensatory plan or arrangement) (filed as Exhibit (10)(f) to Annual Report on Form 10-K for the year ended December 31, 1992 (Commission File No. 0-452) and incorporated herein by reference) (10)(i) -Management Incentive Plan effective January 1, 1994 (management contract or compensatory plan or arrangement) (10)(j) -Underwriting Agreement (U.S.) dated September 23, 1993 (filed as Exhibit (10)(a) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (Commission File No. 0-452) and incorporated herein by reference) (10)(k) -Underwriting Agreement (International) dated September 23, 1993 (filed as Exhibit (10)(b) to Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (Commission File No. 0-452) and incorporated herein by reference) (10)(l) -Indemnity and Contribution Agreement dated September 23, 1993 (filed as Exhibit (10)(c) to Quarterly Report on Form 10-Q for the quarter ended
20 21 September 30, 1993 (Commission File No. 0-452) and incorporated herein by reference) (3) Exhibits (continued): (11) -(not applicable) (12) -(not applicable) (13) -Portions of Tecumseh Products Company Annual Report to Shareholders for the year ended December 31, 1993, incorporated by reference herein (16) -(not applicable) (18) -(not applicable) (21) -Subsidiaries of the Company (22) -(not applicable) (23) -Independent Auditors' Consent (24) -(not applicable) (27) -(not applicable) (28) -(not applicable) (99) -(not applicable)
(b) No Reports on Form 8-K were filed by the Company during the last quarter of the period covered by this Report. 21 22 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE V. PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992 and 1991 (Dollars in Millions) Caption> Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Other Balance At Changes Beginning Additions Add Balance at Description of Period at Cost Retirements (Deduct) End of Period ----------- ------------------------------------------------------------------- 1993: Land and land improvements $ 8.3 $ 0.4 ($ 1.0) ($0.2) $ 7.5 Buildings and building improvements 103.8 6.6 (0.9) (3.2) 106.3 Machinery and equipment 524.4 46.0 (18.7) (13.0) 539.7 ------- -------- ------ ------ ------- TOTAL $ 637.5 $ 53.0 ($20.7) ($16.4) $ 653.5 ------- -------- ------ ------ ------- ------- -------- ------ ------ ------- 1992: Land and land improvements $ 8.1 $ 0.4 $ - ($0.2) $ 8.3 Buildings and building improvements 109.3 0.6 (1.4) (4.7) 103.8 Machinery and equipment 500.3 57.1 (20.1) (11.9) 524.4 ------- -------- ------ ------ ------- TOTAL $ 617.7 $ 58.1 ($21.5) ($16.8) $ 637.5 ------- -------- ------ ------ ------- ------- -------- ------ ------ ------- 1991: Land and land improvements $ 8.0 $ 0.5 ($0.4) $ - $ 8.1 Buildings and building improvements 103.8 11.9 (5.9) (0.5) 109.3 Machinery and equipment 476.4 76.2 (49.2) (3.1) 500.3 ------- -------- ------ ------ ------- TOTAL $ 588.2 $ 88.6 ($55.5) ($3.6) $ 617.7 ------- -------- ------ ------ ------- ------- -------- ------ ------ -------
Notes: (A) Column D includes normal sales and retirements of assets. Retirements in 1991 include $21.8 million from the sales of assets of Ilo Motorenwerk, GmbH, along with the sale of contract machining business in Tecumseh, Michigan. Retirements also include $15.8, $13.1, and $23.1 million write - off of fully depreciated assets for 1993, 1992 and 1991, respectively. (B) Column E represents the amount of adjustments resulting from translating foreign currency to U.S. dollars pursuant to FASB Statement No. 52 (C) Except for the certain highly automated and specialized machinery which is depreciated using the units of production method, depreciation is determined on the straight line method generally as follows:
YEARS YEARS ----- ----- Land improvements 7-33 Factory equipment 3-10 Buildings 20-50 Transportation equipment 4-5 Building improvements 5-40 Office equipment 3-10 Machinery 3-13 Tooling 1-5 22
23 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE VI. ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992 and 1991 (Dollars in Millions)
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Additions Other Balance At Charged to Changes Beginning Costs and Add Balance at Description of Period Expenses Retirements (Deduct) End of Period ----------- ------------------------------------------------------------------- 1993: Land and land improvements $ 2.2 $ 0.2 ($0.8) ($0.1) $ 1.5 Buildings and building improvements 39.8 4.3 (0.8) (1.5) 41.8 Machinery and equipment 272.6 46.3 (18.8) (10.3) 289.8 ------- ------- ------ ------ ------- TOTAL $ 314.6 $ 50.8 ($20.4) ($11.9) $ 333.1 ------- ------- ------ ------ ------- ------- ------- ------ ------ ------- 1992: Land and land improvements $ 1.9 $ 0.4 $ - ($0.1) $ 2.2 Buildings and building improvements 37.1 4.5 (1.2) (0.6) 39.8 Machinery and equipment 254.4 46.8 (20.0) (8.6) 272.6 ------- ------- ------ ------ ------- TOTAL $ 293.4 $ 51.7 ($21.2) ($9.3) $ 314.6 ------- ------- ------ ------ ------- ------- ------- ------ ------ ------- 1991: Land and land improvements $ 1.9 $ 0.2 ($0.2) $ - $ 1.9 Buildings and building improvements 36.7 4.2 (3.8) - 37.1 Machinery and equipment 244.7 52.6 (40.4) (2.5) 254.4 ------- ------- ------ ------ ------- TOTAL $ 283.3 $ 57.0 ($44.4) ($2.5) $ 293.4 ------- ------- ------ ------ ------- ------- ------- ------ ------ -------
Notes: (A) Column C for 1991 includes $9.0 million from the write-down of certain long-term assets. (B) Column D represents accumulated depreciation on normal sales and retirements of assets. Retirements in 1991 include $12.7 million from the sales of assets of Ilo Motorenwerk, GmbH, along with the sale of contract machining business in Tecumseh, Michigan. Retiremenets also include $15.8, $13.1, and $23.1 million write-off of fully depreciated assets for 1993, 1992 and 1991, respectively. (C) Column E represents the amount of adjustments resulting from translating foreign currency to U.S. dollars pursuant to FASB Statement No. 52. 23 24 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE VIII, VALUATION AND QUALIFYING ACCOUNTS for the years ended December 31, 1993, 1992 and 1991 (Dollars in Millions)
Column A Column B Column C Column D Column E -------- -------- ------------------------- -------- -------- Additions ------------------------- Balance at Charged to Charged to Additions Beginning Costs and Other and Balance at Description of Period Expenses Accounts (Deductions) End of Period ----------- ------------------------------------------------------------------- Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet: (A) ------ 1993 $4.4 $1.7 ($0.8) $5.3 ---- ---- ----- ---- ---- ---- ----- ---- 1992 $4.5 $0.8 ($0.9) $4.4 ---- ---- ----- ---- ---- ---- ----- ---- 1991 $4.0 $1.0 ($0.5) $4.5 ---- ---- ----- ---- ---- ---- ----- ---- Product warranty valuation allowance: (B) 1993 $26.2 $24.5 ($20.2) $30.5 ----- ----- ------- ----- ----- ----- ------- ----- 1992 $24.1 $21.4 ($19.3) $26.2 ----- ----- ------- ----- ----- ----- ------- ----- 1991 $21.4 $21.1 ($18.4) $24.1 ----- ----- ------- ----- ----- ----- ------- ----- Self-insured risks valuation allowance: (B) 1993 $26.8 $11.3 ($10.5 $27.6 ----- ----- ------- ----- ----- ----- ------- ----- 1992 $21.6 $16.0 (10.8) $26.8 ----- ----- ------- ----- ----- ----- ------- ----- 1991 $20.4 $11.2 ($10.0) $21.6 ----- ----- ------- ----- ----- ----- ------- -----
Notes: (A) Represents the total of accounts charged against the allowance for doubtful accounts and adjustments from the translation of foreign currency. (B) Represents the total of payments made during the year and adjustments from the translation of foreign currency. 24 25 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE IX. SHORT-TERM BORROWINGS for the years ended December 31, 1993, 1992 and 1991 (Dollars in Millions)
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Maximum Average Weighted Weighted Amount Amount Average Balance Average Outstanding Outstanding Interest Rate At End Interest During the During the During the Description of Period Rate Period Period Period ----------- ------------------------------------------------------------------------ Notes payable to banks: (A) (B) (C) 1993 $10.5 5.5% $20.2 $14.1 5.7% ----- --- ----- ----- --- ----- --- ----- ----- --- 1992 $19.8 6.2% $28.4 $20.4 5.7% ----- --- ----- ----- --- ----- --- ----- ----- --- 1991 $21.1 6.4% $33.1 $21.0 7.9% ----- --- ----- ----- --- ----- --- ----- ----- ---
Notes: (A) Notes payable to banks represent borrowings under revolving agreements. (B) The average amount outstanding during the period was computed by dividing the total of month-end outstanding principle balances by 12. (C) The weighted average interest rate was computed by dividing the actual interest expense by average short-term debt outstanding. 25 26 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE X. SUPPLEMENTARY INCOME STATEMENT INFORMATION for the years ended December 31, 1993, 1992 and 1991 (Dollars in Millions) Column A Column B -------- -------- Charged to Costs and Item Expenses - ------------------------ ------------- Maintenance and repairs 1993 $37.9 ----- ----- 1992 $38.6 ----- ----- 1991 $33.6 ----- ----- Note: Amounts for depreciation and amortization of intangible assets, taxes other than payroll and income taxes, royalties and advertising costs have been omitted as the amounts are less than one percent of total sales and revenues. 26 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By /s/ TODD W. HERRICK -------------------------------- Todd W. Herrick President and Chief Executive Officer Dated: March 23, 1994 27 28 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Date Signature Office of signing --------- ------- ---------- Chairman of the March 23, 1994 ___________________________ Board of Directors Kenneth G. Herrick /s/ TODD W. HERRICK President, Chief March 23, 1994 ___________________________ Executive Officer Todd W. Herrick (Principal Executive Officer) and Director /s/ PETER M. BANKS Director March 23, 1994 ___________________________ Peter M. Banks /s/ JON E. BARFIELD Director March 23, 1994 ___________________________ Jon E. Barfield /s/ JOHN H. FOSS Vice President, March 23, 1994 ___________________________ Treasurer and Chief John H. Foss Financial Officer (Principal Accounting and Principal Financial Officer) and Director /s/ J. RUSSELL FOWLER Director March 23, 1994 ___________________________ J. Russell Fowler /s/ JOHN W. GELDER Director March 23, 1994 ___________________________ John W. Gelder
28 29 /s/ STEPHEN L. HICKMAN Director March 23, 1994 ___________________________ Stephen L. Hickman /s/ EDWARD C. LEVY JR. Director March 23, 1994 ___________________________ Edward C. Levy Jr. /s/ DEAN E. RICHARDSON Director March 23, 1994 ___________________________ Dean E. Richardson /s/ FREDERICK W. SCHWIER Director March 23, 1994 ___________________________ Frederick W. Schwier
29 30 EXHIBIT INDEX
Exhibit Number - ------ (3)(c) -The Company's Amended and Restated Bylaws as amended through February 23, 1994 (10)(i) -Management Incentive Plan effective January 1, 1994 (management contract or compensatory plan or arrangement) (13) -Portions of The Company's Annual Report to Shareholders for the year ended December 31, 1993, incorporated by reference herein (21) -Subsidiaries of the Company (23) -Independent Auditors' Consent
30 EX-3.C 2 EXHIBIT 3(C) 1 As amended through 2/23/94 AMENDED AND RESTATED EXHIBIT 3(c) BYLAWS OF TECUMSEH PRODUCTS COMPANY ARTICLE I MEETINGS SECTION 1. PLACE OF MEETING. Any or all meetings of the shareholders, and of the board of directors, of this Corporation may be held within or without the State of Michigan provided that no meeting shall be held at a place other than the registered office in Michigan, except pursuant to Bylaw or resolution adopted by the board of directors. SECTION 2. ANNUAL MEETING OF SHAREHOLDERS. An annual meeting of the shareholders shall be held in each calendar year on the fourth Wednesday of April of such calendar year at 10:30 a.m., local time, or at such other date and time as shall be determined from time to time by the board of directors, for the election of directors and for the transaction of such other business as may come before such annual meeting. SECTION 3. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS. Except as otherwise provided in the Michigan Business Corporation Act, as amended from time to time (the "Act"), at least ten (10) but not more than sixty (60) days prior to the date fixed by Section 2 of this Article for the holding of the annual meeting of shareholders, written notice of the time, place, and purposes of such meeting shall be given either personally or by mail, as hereinafter provided, to each shareholder entitled to vote at such meeting. SECTION 4. ORDER OF BUSINESS AT ANNUAL MEETING. The order of business at the annual meeting of shareholders shall be as follows: (a) Roll call (b) Reading of notice and proof of mailing (c) Reports of Officers (d) Election of directors (e) Transaction of other business mentioned in the notice (f) Adjournment provided that, in the absence of any objection, the presiding officer may vary the order of business at discretion. SECTION 5. SPECIAL MEETINGS OF SHAREHOLDERS. A special meeting of the shareholders may be called at any time by the Chairman of the Board of Directors or, during the absence or disability of the Chairman of the Board of Directors or while that office is vacant, by the President (or, during the absence or disability of both the Chairman of the Board of Directors and the President or while both such offices are vacant, by the Vice-Chairman of the Board of Directors) or by a majority of the board 2 of directors, or by shareholders entitled to vote not less than an aggregate of fifty percent (50%) of the outstanding shares of the Corporation having the right to vote at such special meeting. The method by which such meeting may be called is as follows: upon receipt of a specification in writing setting forth the date and objects of such proposed special meeting, signed by the Chairman of the Board of Directors or, during the absence or disability of the Chairman of the Board of Directors or while that office is vacant, by the President (or, during the absence or disability of both the Chairman of the Board of Directors and the President or while both such offices are vacant, by the Vice- Chairman of the Board of Directors) or by a majority of the board of directors, or by shareholders as above provided, the Secretary of this Corporation shall prepare, sign and mail the notices requisite to such meeting. SECTION 6. NOTICE OF SPECIAL MEETING OF SHAREHOLDERS. At least ten (10) but not more than sixty (60) days prior to the date fixed for the holding of any special meeting of shareholders, written notice of the time, place, and purposes of such meeting shall be given either personally or by mail, as hereinafter provided, to each shareholder entitled to vote at such meeting. No business not mentioned in the notice shall be transacted at such meeting. SECTION 7. ORGANIZATION MEETING OF BOARD. At the place of holding the annual meeting of shareholders, and immediately following the same, the board of directors, as constituted upon final adjournment of such annual meeting, shall convene for the purpose of election of officers and transacting any other business properly brought before it, provided, that the organization meeting in any year may be held at a different time and place than that herein provided by consent of a majority of the directors of such new board. No notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present, unless the meeting is not held at the place of holding and immediately following the annual meeting of shareholders. SECTION 8. REGULAR MEETINGS OF BOARD. Regular meetings of the board of directors shall be held not less frequently than once in each month other than July and December, and at such time and place as the board of directors shall from time to time determine. No notice of regular meetings of the board of directors shall be required. SECTION 9. SPECIAL MEETING OF BOARD. Special meetings of the board of directors may be called by the Chairman of the Board of Directors or, during the absence or disability of the Chairman of the Board of Directors or, while that office is vacant, by the President (or, during the absence or disability of both the -2- 3 Chairman of the Board of Directors and the President or while both such offices are vacant, by the Vice-Chairman of the Board of Directors) at any time by means of notice of the time and place thereof to each Director given not less than twenty-four (24) hours before the time such special meeting is to be held, but action taken at any such meeting shall not be invalidated for want of notice if such notice shall be waived as hereinafter provided. SECTION 10. NOTICES AND MAILING. All notices required to be given by any provision of these Bylaws shall state the authority pursuant to which they are issued (as, "by order of the Chairman of the Board of Directors" or "by order of the President" or "by order of the Vice-Chairman of the Board of Directors" or "by order of the board of directors" or "by order of shareholders," as the case may be) and shall bear the written or printed signature of the Secretary. Every notice to a shareholder shall be plainly addressed to the sendee at such shareholder's last address appearing upon the original or duplicate stock ledger of this Corporation. Every notice to a director shall be plainly addressed to the sendee at his last address appearing on the records of this Corporation. Every notice by mail shall be deemed duly served when the same has been deposited in the United States mail with postage fully prepaid so addressed to the sendee. Written notice may also be given in person or by telegram, telecopy, telex, radiogram, cablegram, or mailgram, and such notice shall be deemed duly given when the recipient receives the notice personally or when notice, so addressed to the sendee, has been delivered to the company, or to the equipment, transmitting such notice. SECTION 11. WAIVER OF NOTICE. Notice of the time, place, and purpose of any meeting of the shareholders or of the board of directors may be waived in writing, either before or after such meeting has been held. Any and all requirements of the laws of the State of Michigan, and of the Articles of Incorporation, and of the Bylaws with respect to the calling of any meeting of the shareholders or of the board of directors may be waived in writing, either before or after such meeting has been held. Neither the business to be transacted at, nor the purpose of, a regular or special meeting of the board of directors need be specified in the waiver of notice of the meeting. ARTICLE II QUORUM SECTION 1. QUORUM OF SHAREHOLDERS. A majority of the outstanding shares of this Corporation entitled to vote, present by the record holders thereof in person or by proxy, shall constitute a quorum at any meeting of the shareholders. -3- 4 SECTION 2. QUORUM OF DIRECTORS. A majority of the members of the board of directors then in office shall constitute a quorum for transaction of business. ARTICLE III VOTING, ELECTIONS AND PROXIES SECTION 1. WHO IS ENTITLED TO VOTE. Except as the Articles of Incorporation of this Corporation otherwise provide, each shareholder of this Corporation shall, at every meeting of the shareholders, be entitled to one vote in person or by proxy for each share of capital stock of this Corporation held by such shareholder, subject, however, to the full effect of the limitations imposed by the fixed record date for determination of shareholders set forth in Section 2 of this Article. SECTION 2. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS. For the purpose of determining shareholders entitled to notice of and to vote at a meeting of shareholders or an adjournment of a meeting, the board of directors may fix a record date, which shall not precede the date on which the resolution fixing the record date is adopted by the board. The date shall not be more than sixty (60) nor less than ten (10) days before the date of the meeting. If a record date is not fixed, the record date for determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or if no notice is given, the day next preceding the day on which the meeting is held. When a determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders has been made as provided in this Section, the determination applies to any adjournment of the meeting, unless the board of directors fixes a new record date under this Section for the adjourned meeting. For the purpose of determining shareholders entitled to receive payment of a share dividend or distribution, or allotment of a right, or for the purpose of any other action, the board of directors may fix a record date, which shall not precede the date on which the resolution fixing the record date is adopted by the board. The date shall not be more than sixty (60) days before the payment of the share dividend or distribution or allotment of a right or other action. If a record date is not fixed, the record date shall be the close of business on the day on which the resolution of the board of directors relating to the corporate action is adopted. SECTION 3. PROXIES. No proxy shall be deemed operative unless and until signed by the shareholder and filed with the Corporation. In the absence of limitation to the contrary contained in the proxy, the same shall extend to all meetings of the shareholders and shall remain in force three years from its date and no longer. -4- 5 SECTION 4. VOTE BY SHAREHOLDER CORPORATION. Any other corporation owning voting shares in this Corporation may vote upon the same by the President of such shareholder corporation, or by proxy appointed by him or, in absence of the President and his proxy, by its Treasurer or, in their absence, by its Secretary. The board of directors of such shareholder corporation may appoint some other person to vote such shares. SECTION 5. INSPECTORS OF ELECTION. The board of directors, in advance of a shareholders' meeting, may appoint one (1) or more inspectors of election to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and on request of a shareholder entitled to vote thereat shall, appoint one (1) or more inspectors. In case a person appointed fails to appear or act, the vacancy may be filled by appointment made by the board of directors in advance of the meeting or at the meeting by the person presiding thereat. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes or ballots, hear and determine challenges and questions arising in connection with the right to vote, count and tabulate votes or ballots, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or a shareholder entitled to vote thereat, the inspectors shall make and execute a written report to the person presiding at the meeting of any of the facts found by them and matters determined by them. The report shall be prima facie evidence of the facts stated and of the vote as certified by the inspectors. ARTICLE IV BOARD OF DIRECTORS SECTION 1. NUMBER AND TERM OF DIRECTORS. The business and affairs of this Corporation shall be managed by a board of directors composed of not less than nine (9) nor more than twelve (12) members. On March 24, 1993, the board of directors consists of eleven (11) members. Thereafter, the number of directors which shall constitute the board of directors shall be determined from time to time by resolution of the board of directors; provided, however, that in the absence of an express determination by the board of directors, the number of directors, until changed by the board, shall be that number of directors elected at the most recently held annual meeting of shareholders. At each annual meeting of shareholders, the shareholders shall elect directors to hold office until the succeeding annual meeting. The board of directors may thereafter increase the number of directors from time to up to a maximum of twelve (12) and may then fill the vacancies resulting from such increase as provided by Section 2 of this -5- 6 Article IV. A director shall hold office for the term for which he is elected and until his successor is elected and qualified, or until his resignation or removal. Directors need not be shareholders. SECTION 2. VACANCIES. Unless otherwise limited by the articles of incorporation, if a vacancy, including a vacancy resulting from an increase in the number of directors, occurs in the board of directors, the vacancy may be filled as follows: (a) The shareholders may fill the vacancy. (b) The board may fill the vacancy. (c) If the directors remaining in office constitute fewer than a quorum of the board of directors, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. SECTION 3. ACTION BY UNANIMOUS WRITTEN CONSENT. Action required or permitted to be taken under authorization voted at a meeting of the board of directors or a committee of the board of directors, may be taken without a meeting if, before or after the action, all members of the board then in office or of the committee consent to the action in writing. The written consents shall be filed with the minutes of the proceedings of the board of directors or committee. The consent has the same effect as a vote of the board of directors or committee for all purposes. SECTION 4. POWER TO ELECT OFFICERS. The board of directors shall elect a Chairman of the Board of Directors, a President, a Secretary, and a Treasurer and may elect a Vice-Chairman of the Board of Directors, a Secretary of the Board of Directors, a Chairman of the Board of Directors Emeritus, and one or more Vice-Presidents, Assistant Secretaries, and Assistant Treasurers. None of said officers, except the Chairman of the Board of Directors, the President, and the Vice-Chairman of the Board of Directors, need be a member of the board of directors, but a Vice-President who is not a director shall not succeed to or fill the office of Chairman of the Board of Directors or President. Any two of the aforementioned offices, except those of Chairman of the Board of Directors and President, of Chairman of the Board of Directors and Vice-Chairman of the Board of Directors, or of President and Vice-President, may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument or document in more than one capacity. SECTION 5. POWER TO APPOINT OTHER OFFICERS AND AGENTS. The board of directors shall have power to appoint such other officers and agents as the board may deem necessary for transaction of the business of the Corporation. -6- 7 SECTION 6. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent may be removed by the board of directors, with or without cause, whenever in the judgment of the board the business interests of the corporation will be served thereby. SECTION 7. POWER TO FILL VACANCIES. The board shall have power to fill any vacancy in any office occurring from any reason whatsoever. SECTION 8. DELEGATION OF POWERS. For any reason deemed sufficient by the board of directors, whether occasioned by absence or otherwise, the board may delegate all or any of the powers and duties of any officer to any other officer or director, but no officer or director shall execute, acknowledge, or verify any instrument or document in more than one capacity. SECTION 9. POWER TO APPOINT EXECUTIVE AND OTHER COMMITTEES. The board of directors shall have power to appoint by resolution an Executive Committee composed of two or more directors who, to the extent provided in such resolution and except as otherwise provided in the Act, shall have and may exercise the authority of the board of directors in the management of the business of the Corporation between meetings of the board. The board of directors may also designate one or more other committees, each such committee to consist of one or more of the directors of the Corporation. Any such other committee, to the extent provided in the resolution of the board of directors creating such committee and except as otherwise provided in the Act, may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace an absent or disqualified member at a meeting of the committee. Any committee, and each member thereof, shall serve at the pleasure of the board of directors. SECTION 10. POWER TO REQUIRE BONDS. The board of directors may require any officer or agent to file with the Corporation a satisfactory bond conditioned for faithful performance of his duties. SECTION 11. COMPENSATION. The compensation of directors, officers, and agents may be fixed by the board. SECTION 12. OATH OF DIRECTORS. Each person who shall be elected a director of this Corporation shall promptly, after being so elected, and before assuming his duties as such director for the term for which he has been so elected, have administered to him, and shall take, in such manner, and at such time and place as the Chairman of the Board of Directors or the President shall determine and decide, an oath substantially as follows: -7- 8 I, , being duly elected to the board of directors of Tecumseh Products Company, do hereby accept such office and solemnly swear or affirm that I, conscientiously, honestly, lawfully, and to the best of my ability, will perform the duties and discharge the responsibilities of a director of this Corporation. SECTION 13. HONORARY MEMBERS OF THE BOARD OF DIRECTORS. There shall be such number of Honorary Members of the board of directors as the board of directors shall from time to time determine and decide. The board of directors may appoint as an Honorary Member of the board of directors any person who at the time of his appointment as such is not, but who at any time prior to his appointment as such has been, a member of the board of directors, as a reward for and in recognition of distinguished service to the Corporation as a member of its board of directors. An Honorary Member of the board of directors shall have the right, but not the obligation, to attend meetings of the board of directors and shall receive for such attendance such fee or other compensation as the board of directors shall from time to time fix and determine. An Honorary Member of the board of directors shall have the right to participate in any discussions and deliberations at any meeting of the board of directors in the same manner and to the same extent as if he were a member of the board of directors but shall have no right to vote on or with respect to any resolution adopted or to be adopted, any business transacted or to be transacted, or any action taken or to be taken by the board of directors at any such meeting. Except as expressly provided herein, an Honorary Member of the board of directors shall have only such authority, and shall perform only such duties, in, or in connection with, the management of the property and affairs of the Corporation and the transaction of its business as the board of directors shall from time to time delegate to him with his consent. SECTION 14. MANDATORY RETIREMENT AGE FOR DIRECTORS. Except as hereinafter provided, no person shall be eligible for election or re-election as a member, other than as an Honorary Member, of the board of directors of the Corporation after he shall have attained the age of 70 years. Each person who attains the age of 70 years during his term as a member, other than an Honorary Member, of the board of directors shall retire as a member of the board of directors of the Corporation not later than at the expiration of any term of office for which he shall have been elected and which began before, and ended after, such person shall have attained the age of 70 years. Notwithstanding the foregoing, any member of the board of directors who has attained the age of 71 years prior to February 24, 1993 shall be eligible for re-election as a member of the board of directors. -8- 9 SECTION 15. PARTICIPATION IN MEETING BY TELEPHONE. By oral or written permission of a majority of the board of directors, a member of the board of directors or of a committee designated by the board may participate in a meeting by means of conference telephone or similar communications equipment through which all persons participating in the meeting can communicate with the other participants. Participation in a meeting pursuant to this Section constitutes presence in person at the meeting. ARTICLE V OFFICERS SECTION 1. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be selected by, and from among the membership of, the board of directors. He shall preside at all meetings of the shareholders and of the board of directors and of any Executive Committee. He shall perform such other duties and functions as shall be assigned to him from time to time by the board of directors. Except where by law the signature of the President of this Corporation is required, the Chairman of the Board of Directors shall possess the same power and authority as the President to sign all certificates, contracts, instruments, papers, and documents of every conceivable kind and character whatsoever, in the name of and on behalf of this Corporation, which may be authorized by the board of directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all of the powers and discharge all of the duties of the President. SECTION 2. VICE-CHAIRMAN OF THE BOARD OF DIRECTORS. If the board of directors elects a Vice-Chairman of the Board of Directors, he shall be selected from the membership of the board of directors. During the absence or disability of both the Chairman of the Board of Directors and the President, or while both such offices are vacant, he shall preside at all meetings of the shareholders, of the board of directors, and of any Executive Committee. During the absence or disability of both the President and the Chairman of the Board of Directors, or while both such offices are vacant for any reason, the Vice-Chairman of the Board of Directors shall have and may exercise any and all of the powers and duties of the President and of the Chairman of the Board of Directors. At all other times the Vice-Chairman of the Board of Directors shall be responsible to the Chairman of the Board of Directors and through him (or during the absence or disability of the Chairman of the Board of Directors or while that office is vacant for any reason, directly) to the board of directors for the exercise, performance, and discharge of such powers, duties, and responsibilities as the Chairman of the Board of Directors or the board of directors shall see fit to vest in or delegate to him or which are vested in or imposed upon him by the Bylaws. -9- 10 SECTION 3. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President shall be selected by, and from among the membership of, the board of directors. He shall be (and may identify himself and execute instruments and other documents using the title of) the Chief Executive Officer of this Corporation and shall, in general, supervise and manage the business affairs of this Corporation, including, but not limited to, any and all duties normally and customarily incident to the office of the President and Chief Executive Officer of a corporation and such other duties and functions as shall be assigned to him from time to time by the board of directors. During the absence or disability of the Chairman of the Board of Directors, or while such office is vacant, the President shall perform all duties and functions, and while so acting shall have all of the powers and authority, of the Chairman of the Board of Directors. The President shall be ex officio a member of all standing committees other than any committee having authority to determine or make recommendations with respect to the salary, bonus, or other incentive compensation to be paid by the Corporation to any of its officers. SECTION 4. VICE-PRESIDENTS. The board of directors may designate one or more Vice-Presidents as Executive Vice-Presidents. Except as otherwise expressly provided in the Bylaws of this Corporation, or unless the board of directors shall otherwise provide by resolution duly adopted by it, such of the Vice-Presidents as shall have been designated Executive Vice-Presidents and are members of the board of directors in order of their seniority as members of the board of directors (or if no Vice-President who is a member of the board of directors shall have been designated an Executive Vice-President, then such Vice-Presidents as are members of the board of directors specified by the board of directors) shall perform the duties and exercise the power of the President, of the Chairman of the Board of Directors, and of the Vice-Chairman of the Board of Directors during the absence or disability of all of the persons occupying said offices. The Vice-Presidents shall perform such other duties as may be delegated to them by the board of directors, any Executive Committee, the Chairman of the Board of Directors, or the President. SECTION 5. SECRETARY. The Secretary shall attend all meetings of the shareholders and of any Executive Committee and, during the absence or disability of the Secretary of the Board of Directors or while such office is vacant, all meetings of the board of directors, and the Secretary shall preserve in the books of the Corporation true minutes of the proceedings of the shareholders and of any Executive Committee and, during the absence or disability of the Secretary of the Board of Directors or while such office vacant, the minutes of all meetings of the board of directors. He shall safely keep in his custody the seal of the Corporation and shall have authority to affix the same to all instruments where its use is required by statute, bylaw, or resolution. He shall perform -10- 11 such other duties as may be delegated to him by the board of directors, any Executive Committee, the Chairman of the Board of Directors, or the President. SECTION 6. TREASURER. The Treasurer shall have custody of all corporate funds and securities and shall keep in books belonging to the Corporation full and accurate accounts of all receipts and disbursements; he shall deposit all moneys, securities, and other valuable effects in the name of the Corporation in such depositories as may be designated for that purpose by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board of Directors, the President, and the board of directors whenever requested by them an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the board of directors, he shall keep in force a bond, in form, amount, and with a surety or sureties satisfactory to the board of directors, conditioned for faithful performance of the duties of his office, and for restoration to the Corporation in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and property of whatever kind in his possession or under his control belonging to the Corporation. He shall perform such other duties as may be delegated to him by the board of directors, any Executive Committee, the Chairman of the Board of Directors, or the President. SECTION 7. ASSISTANT SECRETARY AND ASSISTANT TREASURER. The Assistant Secretary or Assistant Secretaries, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary. The Assistant Treasurer or Assistant Treasurers, in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer. Any Assistant Treasurer, if required by the board of directors, shall keep in force a bond as provided in Section 6 of this Article V. SECTION 8. SECRETARY OF THE BOARD OF DIRECTORS. The Secretary of the Board of Directors shall attend all meetings of the board of directors, and shall preserve in books of the Corporation true minutes of all such meetings. He shall have authority to affix the seal of the Corporation to all certificates or other instruments embodying or relating to any resolution adopted by, or proceedings taken at any meeting of, the board of directors of the Corporation. He shall perform such other duties as may be delegated to him by the board of directors. SECTION 9. CHAIRMAN OF THE BOARD OF DIRECTORS EMERITUS. The board of directors may designate as Chairman of the Board of Directors Emeritus any person who at any time prior to such designation has been Chairman of the Board of Directors, and who at -11- 12 the time of his designation as Chairman of the Board of Directors Emeritus is a member of the board of directors of the Corporation, as a reward for and in recognition of distinguished service to this Corporation as Chairman of the Board of Directors. During the absence or disability of the Chairman of the Board of Directors, the Vice-Chairman of the Board of Directors, and the President, or while all such offices are vacant, the Chairman of the Board of Directors Emeritus shall preside at all meetings of the shareholders and of the board of directors. Except where by law the signature of the President of this Corporation is required, the Chairman of the Board of Directors Emeritus shall possess the same power and authority as the President to sign all certificates, contracts, instruments, papers, and documents of every conceivable kind and character whatsoever, in the name of and on behalf of this Corporation, which may be authorized by the board of directors. He shall perform such other duties as may be delegated to him by the board of directors, any Executive Committee, or the President. SECTION 10. CHIEF FINANCIAL OFFICER. As and whenever it determines the same to be appropriate, the board of directors may designate the President, an Executive Vice-President, a Vice-President, or the Treasurer as the Chief Financial Officer of the Corporation, and any such officer so designated (while he continues to hold the office held at the time of such designation and until such designation is revoked or a different officer is so designated by the board of directors) may identify himself and execute instruments and other documents using the title of Chief Financial Officer. ARTICLE VI STOCK AND TRANSFERS SECTION 1. CERTIFICATES FOR SHARES. Every shareholder shall be entitled to a certificate evidencing the shares of the capital stock of the Corporation owned by him, signed by the President or a Vice-President, and by the Secretary, the Treasurer, an Assistant Secretary, or an Assistant Treasurer, under the seal of the Corporation, certifying the number and class of shares, evidenced by such certificate, which certificate may, but need not be, also signed by the Chairman of the Board of Directors, shall be in such manner and form as shall have been approved by the board of directors, and shall set forth such terms and provisions as shall from time to time be required by the laws of the State of Michigan to be set forth in such certificate; provided, that where any such certificate is signed: (i) by a transfer agent or an assistant transfer agent or (ii) by a transfer clerk acting on behalf of this Corporation, and by a registrar, the signature of any such President, Vice-President, Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer, or of the Chairman of the Board of Directors, and the seal of the Corporation, may be a facsimile. -12- 13 SECTION 2. TRANSFERABLE ONLY ON BOOKS OF CORPORATION. Shares shall be transferable only on the books of the Corporation by the person named in the certificate, or by attorney lawfully constituted in writing, and upon surrender of the certificate therefor. A record shall be made of every such transfer and issue. Whenever any transfer is made for collateral security and not absolutely, the fact shall be so expressed in the entry of such transfer. SECTION 3. REGISTERED STOCKHOLDERS. The Corporation shall have the right to treat the registered holder of any share as the absolute owner thereof and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have express or other notice thereof, save as may be otherwise provided by the statutes of Michigan. SECTION 4. TRANSFER AGENT AND REGISTRAR. The board of directors may appoint a transfer agent and a registrar of transfers, and may require all certificates of shares to bear the signature of such transfer agent and of such registrar of transfers, or as the board may otherwise direct. SECTION 5. REGULATIONS. The board of directors shall have power and authority to make all such rules and regulations as the board shall deem expedient regulating the issue, transfer, and registration of certificates for shares in this Corporation. ARTICLE VII DIVIDENDS AND RESERVES SECTION 1. DIVIDENDS. The board of directors shall have the power and authority to declare dividends or other distributions to security holders to the full extent permitted by applicable law. Dividends may be paid in cash or other property of the Corporation, in shares, obligations, or other securities of the Corporation, or in any other form permitted by applicable law. SECTION 2. RESERVES. The board of directors shall have power and authority to set apart such reserve or reserves, for any proper purpose, as the board in its discretion shall approve; and the board shall have power and authority to abolish any reserve created by the board. ARTICLE VIII LIST OF SHAREHOLDERS SECTION 1. LIST OF SHAREHOLDERS ENTITLED TO VOTE. The officer or agent having charge of the stock transfer books for -13- 14 shares of the Corporation shall make and certify a complete list of the shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. The list shall: (a) Be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each shareholder. (b) Be produced at the time and place of the meeting. (c) Be subject to inspection by any shareholder during the whole time of the meeting. (d) Be prima facie evidence as to who are the shareholders entitled to examine the list or to vote at the meeting. ARTICLE IX GENERAL PROVISIONS SECTION 1. CHECKS, ETC. All checks, drafts, and orders for payment of money shall be signed in the name of the Corporation and shall be countersigned by such officers or agents as the board of directors shall from time to time designate for that purpose. SECTION 2. CONTRACTS, CONVEYANCES, ETC. When the execution of any contract, conveyance, or other instrument has been authorized without specification of the executing officers, the Chairman of the Board of Directors, the President, or any Vice-President, and the Secretary or any Assistant Secretary, may execute the same in the name and behalf of this Corporation and may affix the corporate seal thereto. The board of directors shall have power to designate the officers and agents who shall have authority to execute any instrument in behalf of this Corporation. SECTION 3. VOTING SECURITIES. Unless otherwise directed by the board of directors, the Chairman of the Board of Directors, or the President, or, in the case of their absence or inability to act, the Vice-Presidents, in order of their seniority, shall have full power and authority on behalf of this Corporation to attend and to act and to vote, or to execute in the name or on behalf of this Corporation a consent in writing in lieu of a meeting of shareholders or a proxy authorizing an agent or attorney-in-fact for this Corporation to attend and vote, at any meetings of security holders of corporations in which this Corporation may hold securities, and at such meetings he or his duly authorized agent or attorney-in-fact shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, this Corporation might have possessed and exercised if present. The board of directors by resolution from -14- 15 time to time may confer like power upon any other person or persons. ARTICLE X AMENDMENT SECTION 1. MANNER OF AMENDMENT. The Bylaws of the Corporation may be amended, altered, changed, added to, or repealed, in whole or in part, by the affirmative vote of a majority of the shares of the capital stock of the Corporation entitled to vote thereat, present in person or proxy at any annual or special meeting of the shareholders of the Corporation at which a quorum is present, if notice of the proposed amendment, alteration, change, addition, or repeal is contained in the notice of such meeting. The Bylaws may also be amended, altered, changed, added to, or repealed, in whole or in part, by the affirmative vote of a majority of the board of directors, at any regular meeting of the board of directors at which a quorum is present, or at any special meeting of the board of directors at which a quorum is present if notice of the proposed amendment, alteration, change, addition, or repeal is contained in the notice of such special meeting, unless and to the extent that the power to amend or repeal the Bylaws is reserved exclusively to the shareholders of the Corporation in its Articles of Incorporation. The power and authority of the board of directors to amend, alter, change, add to, or repeal the Bylaws shall extend and be exercisable with respect to not only all or any portion of the Bylaws adopted by the board of directors but also with respect to all or any portion of the Bylaws adopted by the shareholders, provided, however, that the shareholders may, if they elect so to do, prescribe in the Bylaws that any or all of the provisions of the Bylaws adopted by the shareholders shall not be altered or repealed by the board of directors. ARTICLE XI CHAPTER 7B OF MICHIGAN BUSINESS CORPORATION ACT SECTION 1. CHAPTER 7B NOT APPLICABLE. Chapter 7B of the Act (entitled "Control Share Acquisitions") does not apply to control share acquisitions of shares of the Corporation. -15- EX-10.I 3 EXHIBIT 10(I) 1 EXHIBIT 10(i) TECUMSEH PRODUCTS COMPANY MANAGEMENT INCENTIVE PLAN I. Purposes and Effective Date of the Plan The purposes of the Tecumseh Products Company Management Incentive Plan (the "Plan") are to provide a means to attract, reward and retain strong management, to encourage teamwork among members of management and excellence in the performance of their individual responsibilities, and to align the interests of key managers participating in the Plan with the interests of shareholders by offering an incentive compensation vehicle that is based upon the growth in shareholders' equity and the value and profitability of Tecumseh Products Company. The Plan shall be effective as of January 1, 1994, but awards shall not be made hereunder prior to 1995. II. Definitions In this Plan, the following terms shall have the meanings set forth below: (a) "Account" means the cumulative record of an Employee's Phantom Share allocations as adjusted in the manner described in the Plan. (b) "Allocation Date" means the December 31st as of which a Phantom Share allocation is made on behalf of an Employee pursuant to this Plan. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Executive Compensation Committee of the Board, or such other committee as the Board may subsequently appoint to administer the Plan. All the Directors serving on the Committee at any given time shall be "disinterested persons", as that term is used in Securities and Exchange Commission Rule 16(b)(3) (or any successor regulation) as in effect at such time ("Rule 16(b)(3)"), and the number of Directors serving on the Committee at any given time shall be no less than the minimum number then required by Rule 16(b)(3). (e) "Class A Common Stock" means the Class A Common Stock, $1.00 par value per share, of the Company. (f) "Class B Common Stock" means the Class B Common Stock, $1.00 par value per share, of the Company. 2 (g) "Company" means Tecumseh Products Company, a Michigan corporation. (h) "Employee" means a person who is employed by an Employer and who has been selected by the Committee to participate in the Plan. (i) "Employer" means the Company, any of its present subsidiary corporations, any corporation which becomes a controlled subsidiary of the Company provided the Committee determines to extend coverage thereto, and/or any successor(s) to such corporation(s). The Committee shall be deemed to have extended coverage to a subsidiary if an employee of such subsidiary is awarded an allocation under this Plan. (j) "Phantom Share" means an allocation credited to an Employee's Account and maintained in such Account together with any prior or subsequent allocations made on behalf of such Employee. The value of an Employee's Account shall be adjusted from time to time, as provided in the Plan. An allocation of Phantom Shares shall confer only such rights as are specified in the Plan. Employees who receive Phantom Share allocations shall not (as a consequence of such allocations) be treated as shareholders under the Articles of Incorporation or By-Laws of the Company or under applicable law. (k) The following terms are defined elsewhere in the Plan: "Class Year"........................ Art. VI(a); "Company Change in Control"......... Art. IX; "Good Cause"........................ Art. VII(b). III. Factors to be Considered in Phantom Share Allocations In making any decisions as to the Employees to whom Phantom Share allocations shall be made and as to the amount of each allocation, the Committee shall take into account such factors as the duties and responsibilities of the respective Employees, their present and potential contributions to the success of the Employer, and the financial success of the Company during the year. Not later than the end of April of each calendar year with respect to which allocations may be made, the Committee shall establish targeted group allocations and targeted financial results, and may establish targeted individual allocations, for that year. Actual Phantom Share allocations for such calendar year shall be based on the attainment of specified types and combinations of performance measurement criteria, which may differ as to various Employees or classes thereof, and from time to time. Such criteria may include, without limitation, (i) the attainment of certain performance levels by, and measured against objectives of, the Company, the individual Employee, and/or a group of Employees, (ii) net income 2 3 growth, (iii) increases in operating efficiency, (iv) completion of specified strategic actions, (v) the recommendation of the Chief Executive Officer, and (vi) such other factors as the Committee shall deem important in connection with accomplishing the purposes of the Plan, provided that any relevant decisions shall be made in its own discretion solely by the Committee. However, no Employee or group of Employees shall receive an actual Phantom Share allocation greater than the applicable targeted individual allocation (if any) or group allocation for a given year, unless due to extraordinary circumstances the Committee deems it appropriate (in its sole discretion) to make allocations to one or more Employees or groups of Employees in excess of his/their targeted individual allocation(s). The maximum aggregate number of Phantom shares that may be awarded and allocated to the accounts of all Employees with respect to any calendar year shall be equal to two percent (2 %) of the number of shares of Class A Common Stock which are issued and outstanding on the last day of such calendar year. Such maximum shall not apply to Phantom Shares resulting from deemed reinvestment of amounts corresponding to dividends, pursuant to Article IV, subsection (a)(ii). IV. Valuation of Phantom Share Accounts; Accounting Treatment (a) Except as otherwise provided in (b) below or in Article IX, Accounts shall be valued as follows: (i) Each Phantom Share allocation shall have an initial dollar value at which it shall be credited to the Employee's Account as of the last day of the calendar year for which such allocation was made. Such allocation shall then be converted into a share amount corresponding to the number of whole and fractional (to the nearest hundredth) shares of Class A Common Stock that could be purchased at the price determined as of such date in the manner described in (b) below. (ii) Each share of Phantom Stock, which has been allocated as of the record date applicable to a declared dividend on Class A Common Stock, shall be credited with the amount of any such per-share cash dividend paid to Class A shareholders, and the total amount credited shall thereupon be deemed reinvested in additional shares of Phantom Stock at the Class A Common Stock's closing price on the date said dividend is paid. Any such dividends (and/or additional dividends thereon) shall vest when and only if the associated Phantom Shares vest. (b) The price of Phantom Shares comprising the Account (adjusted pursuant to (c) below) shall be computed as the average of the closing prices of Class A Common Stock on the last trading day of each of the twelve calendar months which precede or coincide with the valuation date; provided that if any stock splits, stock-on-stock dividends or other capital adjustments have occurred 3 4 during the period beginning with the first such trading day and ending on the valuation date, then the closing prices used in the averaging computation shall also be adjusted as the Committee, in the reasonable exercise of its discretion, believes to be equitable and appropriate. As used in the preceding sentence, a "trading day" is one for which such sale prices are reported on the NASDAQ national market reporting system. (c) If, between the time an award is made and the date an Account is paid, any change shall occur in the market price of the Company's Class A Common Stock outstanding as the result of any stock split or any stock-on-stock dividend, then the number of Phantom Shares in the Account shall be adjusted in proportion to the adjustment in the price of Class A Common Stock. In the event of any other change in the number or character of the outstanding securities of the Company as the result of any recapitalization, reclassification, merger or any analogous change in capitalization or of any distribution to holders of the Company's Class A Common Stock other than a cash or stock dividend, the Committee shall make such adjustments, if any, in the number and/or kind of any Phantom Shares then allocated to the Account or thereafter becoming allocated to the Account as the Committee, in the reasonable exercise of its discretion, believes to be equitable and appropriate. V. Terms and Conditions of Allocations to Accounts Each Phantom Share allocation to the Account of an Employee shall be subject to the following terms and conditions: (a) Each allocation shall continue in effect for an indefinite period from the applicable Allocation Date until a date not later than December 31 of the year in which the Employee attains age 70-1/2, subject, however, to earlier termination and payment as hereinafter provided. (b) The Company shall maintain records for each Employee's Account and shall furnish him a summary thereof upon request, but not more frequently than once a year. (c) Except as provided herein with respect to transfers to the Company or another Employer, an Employee's interest in his Account shall not be transferable other than by will or the laws of descent and distribution. During the Employee's lifetime, an Account shall be paid only to the Employee, except that, in the event of the Employee's incapacity, the Committee may permit payment to the Employee's guardian or legal representative. The Committee also shall permit the payment, upon the Employee's death, to one or more beneficiaries designated by the Employee in a manner authorized by the Committee, and otherwise to his estate. 4 5 VI. Vesting and Payment (a) Each Phantom Share allocation made by the Company shall be assigned a "Class Year" corresponding to the calendar year in which the Allocation Date occurs. Such allocations shall be 0% vested in the year for which they are made, and shall not become vested until the fifth December 31 following the end of the Class Year. For example: Allocations made with respect to Class Year 1994 shall be 0% vested when allocated, 0% vested on December 31, 1995, 0% vested on December 31, 1996, etc., but shall become 100% vested on December 31, 1999. The provisions of Article VII shall generally govern the forfeiture of allocations which are not vested and, in certain circumstances, even those which are otherwise fully vested. Except as otherwise provided in Article VII, allocations to the Account of an Employee shall not be forfeited during his continued employment with an Employer. (b) Accounts shall be paid, to the extent of the portion then vested and payable, within 30 days following each December 31st. (c) An Employee's Account, to the extent not previously vested, shall become fully vested and payable as of December 31 of the calendar year in which the Employee attains age 70-1/2. VII. Retirement and Other Termination of Employment (a) Upon an Employee's completion of five (5) full calendar years of service with an Employer following the end of the calendar year for which an award is made, the relevant portion of his Account shall become fully vested and may thereupon be paid in accordance with Article VI(b), using the December 31st value applicable to the date when such portion became fully vested. Any unpaid vested portion of an Account shall be subject to forfeiture solely as a result of termination of employment for Good Cause (as determined by the Committee). (b) If the employment of an Employee to whom Phantom Share allocations have been made shall be terminated by his Employer for Good Cause (which shall be determined by the Committee), his entire Account whether or not to any extent otherwise vested shall be forfeited simultaneously with such termination of employment. "Good Cause", for purposes of determining whether an Employee's employment with an Employer terminated for Good Cause under this Agreement, shall be deemed to exist where - (i) The Employee, after receiving written notice of prior breach from his Employer, again breaches any material written rules, regulations or policies of the Employer now existing or hereafter arising which are uniformly applied to all employees of the Employer or which rules, regulations and policies are promulgated for general 5 6 application to executives, officers or directors of the Employer; or (ii) The Employee willfully and repeatedly fails to substantially perform the duties of his employment (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to him by his immediate supervisor, which demand specifically identifies the manner in which the supervisor believes that the Employee has not substantially performed his duties; or (iii) The Employee is repeatedly or habitually intoxicated or under the influence of drugs while on the premises of the Employer or while performing his employment duties, after receiving written notice thereof from the Employer, such that the Committee determines in good faith that the Employee is impaired in performing the duties of his employment; or (iv) The Employee is convicted of a felony under state or federal law, or commits a crime involving moral turpitude; or (v) The Employee embezzles any property belonging to the Employer such that he may be subject to criminal prosecution therefor or the Employee intentionally and materially injures the Employer, its personnel or its property. (c) Except as provided in Article VII(d) regarding retirement, if an Employee to whom Phantom Share allocations have been made shall voluntarily terminate his employment with the Employer or shall be terminated by the Employer for no reason or for any reason whatsoever other than for Good Cause and otherwise than as provided for in Article VIII hereof, his Account shall be forfeited according to the vesting schedule of Article VI(a), except for that portion (if any) which the Committee, in its sole and absolute discretion, deems it equitable for him to retain. (d) Notwithstanding Article VI(a), an Employee's Phantom Share allocations shall become 100% vested upon his normal, early, or disability retirement under the pension or retirement plan sponsored by his Employer. However, such vested allocations shall only become payable following the date they would have otherwise vested under Article VI, i.e. within 30 days after the fifth December 31 following each Allocation Date. (e) Prior to any payment pursuant to (a), (c) or (d), above, the Employee's account shall be adjusted as provided in Article IV. (f) So long as the Employee shall continue to be an employee of the Employer, his Account shall not be affected by any change of 6 7 duties or position. Nothing in the Plan shall confer upon any Employee any right to continue in the employ of the Employer or to receive future Phantom Share allocations or accruals thereon nor shall anything in the Plan interfere with the right of the Employer to terminate an Employee's employment at any time whether or not for cause. The adoption of the Plan shall not constitute a contract between the Company or its subsidiaries and any Employee. No Employee shall receive any right to be granted an award hereunder nor shall any such award be considered as compensation under any other employee benefit plan of the Company except as otherwise determined by the Committee. (g) Any payment or distribution to an Employee under this Plan which is not claimed by the Employee, his beneficiary, or other person entitled thereto within three years after becoming payable shall be forfeited and canceled and shall remain with the Company, and no other person shall have any right thereto or interest therein. The Company shall not have any duty to give notice that amounts are payable under this Plan to any person other than the Employee and his beneficiary (or contingent beneficiary) in the event there are benefits payable after the Employee's death. VIII. Death, Disability or Incapacity of an Employee (a) Any payment or distribution due to an Employee under this plan on account of death or on account of termination of employment for disability or retirement where the terminated Employee dies before receiving the full amount to which he is entitled hereunder, shall be made to the beneficiary and/or contingent beneficiary designated by the Employee to receive such payments in the event of his death, in a written designation of beneficiary filed with the Company prior to his death. In the event of the Employee's failure to file such a designation or its ineffectiveness for any reason such payments shall be made to the Employee's surviving spouse, or if the Employee is not survived by a spouse, in equal shares to his then surviving issue, per stirpes, or if he is not survived by any issue, then to the Employee's estate. (b) Upon the total and permanent disability of an Employee to whom Phantom Shares have been allocated, as determined solely by the Committee, his Account shall become fully vested and payable, and shall be valued as of December 31 of the year in which the Committee determines that the Employee is totally and permanently disabled; payment shall be made within 30 days thereafter. For these purposes, "total and permanent disability" means an impairment or illness of a physical or mental nature, or both, which results in the Employee's being unable to perform the normal duties of his employment consistent with the standards of his Employer for a period of at least ninety (90) consecutive business days. (c) Upon the death of an active Employee, his Account shall become fully vested and payable, with its value determined as of 7 8 December 31 of the year of the Employee's death and payment shall be made within 30 days thereafter. Upon the death of a disabled or retired Employee who has not received payment of his entire Account, the unpaid balance of such Account shall become payable at its value on the following December 31 and payment shall be made within 30 days thereafter. IX. The Effect of a Company Change in Control (a) Rights under this Plan shall be affected as hereinafter described by a Company Change in Control. A "Company Change in Control," solely for the purposes of this Plan, shall mean one or more of the following events: (i) The acquisition, after December 31, 1994, of beneficial ownership of 25% or more of the Company's Class A Common Stock or Class B Common Stock then outstanding by any person (including a group, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act")), other than: (A) the trustee of any Company-sponsored employee benefit plan, (B) the Company or any of its subsidiaries, (C) Kenneth G. Herrick, his descendants, or trusts for the benefit of such individuals, or (D) trusts or foundations established by Kenneth G. Herrick or by any of the descendants or trusts mentioned in (C), above. (ii) The first purchase, after December 31, 1994, under a tender offer or exchange offer for 25% or more of the Company's Class A Common Stock or Class B Common Stock then outstanding, other than an offer by: (A) the trustee of any Company-sponsored employee benefit plan, (B) the Company or any of its subsidiaries, (C) Kenneth G. Herrick, his descendants, or trusts for the benefit of such individuals, or (D) trusts or foundations established by Kenneth G. Herrick or by any of the descendants or trusts mentioned in (C), above. (iii) The first day on which less than a majority of the total membership of the Board shall be Continuing Directors; 8 9 (iv) The effective date of a transaction (or a group of related transactions) in which more than 50 % in fair market value of the assets of the Company, or of the particular subsidiary for which a given Employee's services are principally performed, are disposed of pursuant to a partial or complete liquidation, a spin-off, a sale of assets or otherwise. In the event this provision applies to a particular subsidiary, only those Employees whose services are principally performed for that subsidiary shall be deemed to be affected by such Change in Control; or (v) The date on which the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger of consolidation. (b) For purposes of this Article IX, the following terms shall have the following meanings: (i) "Continuing Director" shall mean any director of the Company who either (1) is a member of the Board on the date this Plan is adopted by the Board and has not terminated membership on the Board, or (2) is recommended or elected to the Company's Board of Directors by at least three-quarters of the Continuing Directors. (ii) "Person" shall mean a person as defined in Section 3(a)(9) of the 1934 Act, "beneficial ownership" shall be determined in accordance with Rule 13d-3 promulgated under the 1934 Act or any successor regulation, the term "group" shall mean a group as described in Rule 13d-5 promulgated under the 1934 Act or any successor regulation, and the formation of a group hereunder shall have the effect described in paragraph (b) of said Rule 13d-5 or any successor regulation. Anything hereinabove to the contrary notwithstanding, however: (a) relationships by blood, adoption or marriage between or among two or more persons shall not be deemed to constitute any of such persons a member of a group with any other such persons; (b) action taken or agreed to be taken by any person acting in his official capacity as an officer or director of the Company shall not be deemed to constitute such person a member of a group with any other person, and (c) formation of a group shall not constitute an acquisition by the group (or any member thereof) of beneficial ownership of any shares of the Company's Class B ("voting") common stock beneficially owned by any member of such group and acquired by such group member in an Excluded Acquisition. 9 10 (iii) "Excluded Acquisition" means any acquisition of shares of voting common stock from the Company (whether or not for consideration) or from any person by operation of law (including but not limited to the laws of descent and distribution), by will, by gift or by foreclosure of a security interest given to secure a bona fide loan, or any acquisition consummated prior to January 1, 1994. (c) At the time a Company Change in Control takes effect with respect to an Employer, the Account of each affected Employee shall become fully vested and immediately payable, and the provisions of Article VII(b)(i) and (ii) shall not be effective for three months thereafter with respect to any affected Employee. At the time a Company Change in Control takes effect with respect to the Company, every Employee's Account shall become fully vested and immediately payable, and the provisions of Article VII(b)(i) and (ii) shall not be effective for three months thereafter. (d) If cash or other valuable consideration is paid to holders of Class A Common Stock in connection with a Company Change in Control, then the Company shall pay a like amount of cash for each Phantom Share (determined as set forth in Article IV) held in an Employee's Account (or the cash value per share of noncash consideration) as is received (per share) by the holders of Class A Common Stock. If such payment to the holders of Class A Common Stock is by way of purchase of their Class A Common Stock (or some portion thereof) then a corresponding percentage of each Account shall be deemed to have been paid off in consideration of the above-referenced payment by the Company to Employees. (e) It is this Plan's intent not to make "excess parachute payments," as defined in Section 280G of the Internal Revenue Code of 1986, as it may be amended or superseded (the "Code"), which would be nondeductible for Federal income tax purposes by the Company. Consequently, if payments resulting solely from the operation of this Article would be nondeductible by the Company for Federal income tax purposes due to Section 280G of the Code, as being in excess of reasonable compensation or three times the base amount specified in Section 280G(b)(3), such payments shall be reduced by the smallest amount required so that no payments are nondeductible under Section 280G of the Code. If any payments previously made to or for the benefit of an Employee from this Plan or any other plan or agreement are subsequently determined to be nondeductible because of Section 280G of the Code, such Employee shall be required to promptly repay the Company, at its request, the smallest amount necessary so that, after giving effect to such repayments to the Company, no payments to or for the benefit of the Employee (or the smallest amount possible) will be nondeductible under said Section 280G; provided, however, that any such repayments, adjusted for the time value of such amounts under the principles of Section 1274(b)(4) of the Code, may not exceed the amount of payments originally made from this Plan or any other plan or agreement. The Committee may establish procedures to carry out the provisions of this paragraph. 10 11 (f) The terms and provisions of this Article IX shall become effective only in the event of a Company Change in Control as defined in this Article of the Plan. X. The Committee As Plan Administrator The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall make all decisions concerning Employees to be selected to receive allocations under the Plan, the amount of the allocation to be made to each participating Employee and the time when such allocations shall be made. The Committee's interpretation of the Plan and any action it takes with respect to Phantom Share allocations pursuant thereto shall be final and binding upon all affected parties. The Committee shall have the authority, subject to the provisions of the Plan, to establish, adopt, revise or repeal rules, regulations and procedures with respect to the Plan. XI. Amendment, Suspension, or Termination of the Plan The Board may at any time terminate, suspend, or amend this Plan; however, no such action shall impair rights under the Plan with respect to Phantom Shares allocated prior to the date of such action; provided also that in the event of termination of the Plan, the Committee (in its sole discretion) may accelerate the time of vesting and/or date of payment applicable to outstanding Accounts. XIV. No Guarantee The Company has only a contractual obligation to pay Accounts. The satisfaction of payment obligations is to be made solely out of the general corporate funds of the Company, which shall at all times remain subject to the claims of its creditors. Further, amounts credited to an Employee's Account shall neither be segregated for the purpose of securing the Company's liability nor be held by the Company in trust for the Employee. The Board, upon the recommendation of the Committee, may authorize the creation of trusts or other arrangements to facilitate or ensure payment of the obligations under the Plan, provided that such trusts and arrangements are consistent with the "unfunded" status of the Plan (unless the Committee determines otherwise). An Employee shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations hereunder. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Employee or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid in 11 12 cash from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payments of such amounts. XIII. Restrictions on Transfer of Benefits Neither the Employee nor any other person shall have any right to commute, sell, assign, transfer, alienate, pledge, anticipate, mortgage or otherwise encumber, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, or interest therein which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to garnishment, attachment, seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by the Employee or any other person, nor be transferable by operation of law in the event of the Employee's or any other person's bankruptcy or insolvency. Notwithstanding the above, the Company shall have the right to deduct from all amounts paid to, or on behalf of, a Participant any taxes required by law to be withheld in respect of Accounts under this Plan or any reductions under Article XV of this Plan. XIV. Protective Provisions An Employee shall cooperate with the Company by furnishing any and all information requested by the Company, taking such physical examinations as the Company may deem necessary, and taking such other relevant actions as may reasonably be required by the Company or Committee for purposes of the Plan. If an Employee neglects or refuses so to cooperate, the Company shall have no further obligation to such Employee or his beneficiaries under the Plan. XV. Obligations to Company If an Employee becomes entitled to a distribution of benefits under the Plan, and if at such time the Employee has outstanding any debt, obligation, or other liability representing an amount owing to the Company, then the Company may offset such amount owed to it against the amount of benefits otherwise distributable. Such determination shall be made by the Company. XVI. Release and Non-Disclosure/Non-Competition Agreements Any payment to an Employee or his beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company with respect to such payment, and the Company may require such Employee or his beneficiary, as a condition precedent to such payment, to execute 12 13 a receipt and release to such effect. Additionally, as a condition precedent to commencement of payments hereunder, and in consideration of such payments, an Employee may be required to execute and acknowledge a general release of all claims against the Company (and the Employer, if not the Company) in such form as the Company may then require. Upon termination of the Employee's employment, at retirement or otherwise, the Employee (if the Company requires him to do so) shall execute and thereafter perform a Non-competition/Non- disclosure Agreement in such form as the Company may then require. In that event, five per cent (5%) of each payment to the Employee or his beneficiary pursuant to the Plan shall be deemed a payment by the Company for such agreement. XVII. General (a) Titles and headings to the Articles of this Plan are included for convenience only and shall not control the meaning or interpretation of any provision of this Plan. Wherever reasonably necessary in this Plan, pronouns of any gender shall be deemed synonymous, as shall singular and plural pronouns. (b) This Plan shall be governed by and construed, enforced, and administered in accordance with the laws of the State of Michigan excluding any such laws which direct an application of the laws of any other jurisdiction. Subject to Article XVIII, the Company, the Employers and the Committee shall be subject to suit regarding the Plan only in the courts of the State of Michigan, and the Company shall fully indemnify and defend the Board and the Committee with respect to any actions relating to this Plan made in good faith by such bodies or their members. (c) The provisions of this Plan shall be deemed severable and in the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. Furthermore, the Committee shall have the power to modify such provision to the extent reasonably necessary to make the provision, as so changed, both legal, valid and enforceable as well as compatible with the other provisions of the Plan. (d) Any notice or filing required or permitted to be given under this Agreement shall be sufficient if in writing and hand delivered, or sent by registered or certified mail: (a) to the Company or the Committee at the principal office of the Company, directed to the attention of the Chairman of the Committee, and (b) to the Employee at his last known home address on file with the Company's personnel office. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. It shall be the Employee's responsibility to inform the Company's personnel office, in writing, of any change in his home address. 13 14 XVIII. Claims and Disputes (a) Claims for benefits under the Plan shall be made in writing to the Committee. The Employee may furnish the Committee with any written material he believes necessary to perfect his claim. (b) A person whose claim for benefits under the Plan has been denied, or his duly authorized representative, may request a review upon written application to the Committee, may review pertinent documents, and may submit issues and comments in writing. The claimant's written request for review must be submitted to the Committee within sixty (60) days after receipt by the claimant of written notification of the denial of a claim. A decision by the Committee shall be made promptly, and not later than sixty (60) days after the Committee's receipt of a request for review, unless special circumstances require an extension of time for proceeding, in which cases a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. The decision on review shall be in writing, shall include reasons for the decision, may include specific reference to the pertinent provision of the Plan on which the decision is based, and shall be written in a manner calculated to be understood by the claimant. (c) Unless otherwise required by law, any controversy or claim arising out of or relating to this Plan or the breach thereof, including in particular any controversy relating to Articles VII or IX, shall be settled by binding arbitration in the City of Tecumseh in accordance with the laws of the State of Michigan by three arbitrators, one of whom shall be appointed by the Company, one by the Employee (or in the event of his prior death, his beneficiary(-ies)), and the third of whom shall be appointed by the first two arbitrators. If the selected (third) arbitrator declines or is unable to serve for any reason, the appointed arbitrators shall select another arbitrator. Upon their failure to agree on another arbitrator, the jurisdiction of the Circuit Court of Lenawee County, Michigan shall be invoked to make such selection. The arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association except as hereinabove provided in (d) below. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Review by the arbitrators of any decision, action or interpretation of the Board or Committee shall be limited to a determination of whether it was arbitrary and capricious or constituted an abuse of discretion, within the guidelines of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In the event the Employee or his beneficiary shall retain legal counsel and/or incur other costs and expenses in connection with enforcement of any of the Employee's rights under this Plan, the Employee or beneficiary shall not be entitled to recover from the Company any attorneys fees, costs or expenses in connection with the enforcement of such rights (including enforcement of any arbitration award in court) regardless of the final outcome; except 14 15 that the arbitrators in their discretion may award reasonable attorneys fees and reasonable costs to the Employee in an arbitration initiated by the Employee following a Change in Control, to enforce the Employee's rights under this Plan, provided the Employee is the prevailing party in such arbitration. (d) Any arbitration shall be conducted as follows: (i) The arbitrators shall follow the Commercial arbitration Rules of the American Arbitration Association, except as otherwise provided herein. The arbitrators shall substantially comply with the rules of evidence; shall grant essential but limited discovery; shall provide for the exchange of witness lists and exhibit copies; and shall conduct a pretrial and consider dispositive motions. Each party shall have the right to request the arbitrators to make findings of specific factual issues. (ii) The arbitrators shall complete their proceedings and render their decision within 40 days after submission of the dispute to them, unless both parties agree to an extension. Each party shall cooperate with the arbitrators to comply with procedural time requirements and the failure of either to do so shall entitle the arbitrators to extend the arbitration proceedings accordingly and to impose sanctions on the party responsible for the delay, payable to the other party. In the event the arbitrators do not fulfill their responsibilities on a timely basis, either party shall have the right to require a replacement and the appointment of new arbitrators. (iii) The decision of the arbitrator shall be final and binding upon the parties and accordingly a judgment by any Circuit Court of the State of Michigan or any other court of competent jurisdiction may be entered in accordance therewith. (iv) The costs of the arbitration shall be borne equally by the parties to such arbitration, except that each party shall bear its own legal and accounting expenses relating to its participation in the arbitration. XIX. Limitations of Action Every asserted claim to benefits or right of action by or on behalf of any Employee, past, present, or future, or any spouse, child, beneficiary or legal representative thereof, against the Company or any subsidiary thereof arising out of or in connection with this Plan shall, irrespective of the place where such right of action may arise or be asserted, cease and be barred by the expiration of the earliest of: (i) one year from the date of the alleged act or omission in respect of which such right of action first arises in whole or in part, (ii) one year after the Employee's termination of employment, or (iii) six months after 15 16 notice is given to or on behalf of the Employee of the amount payable from the Employee's Account under this Plan. 16 EX-13 4 EXHIBIT 13 1 Exhibit 13 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES FINANCIAL SUMMARY (Dollars in millions except per share data)
1993 1992 1991 -------- ------- ------- Net sales $1,314.2 $1,258.5 $1,197.2 Net income before accounting changes 81.4 52.3 42.5 % of net sales 6.2% 4.2% 3.5% Cumulative effect of changes in accounting for nonpension postretirement benefits and income taxes -- (95.0) -- Net income (loss) 81.4 (42.7) 42.5 Capital expenditures 51.1 56.6 85.8 Total assets 1,132.7 1,078.6 1,055.4 Stockholders' equity 686.8 639.8 712.8 Return on average stockholders' equity 12.3% 7.7%(a) 6.0% Per share of common stock: Net income before accounting changes $ 3.72 $ 2.39 $ 1.94 Cumulative effect of accounting changes -- (4.34) -- --------- --------- ------- Net income (loss) $ 3.72 $ (1.95) $ 1.94 Cash dividends declared 1.15 0.80 0.80 Book value 31.39 29.24 32.58 Average number of employees 12,376 12,576 12,483
Note: The above per share amounts have been adjusted as necessary to reflect the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29, 1992. (a) Calculated on net income before accounting changes. 1 2 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ BUSINESS SEGMENT DATA (Dollars in millions) INDUSTRY SEGMENT INFORMATION
Income Before Net Sales Income Taxes --------------------------- -------------------------- 1993 1992 1991 1993 1992(a) 1991 --------- ------- ------- ------- ------- ------- Compressor Products . . . $ 809.4 $ 836.5 $ 775.8 $ 73.5 $54.2 $46.3 Engine & Power Train Products . . . 426.9 360.2 337.4 40.9 20.5 20.9 Pump Products (b) 77.9 61.8 84.0 11.6 7.8 6.3 Corporate Expenses . . . - - - (9.9) (10.3) (10.0) Non-Operating Items . . . . - - - 11.7 16.2 12.7 -------- -------- -------- ------ ----- ------ Total. . . . . $1,314.2 $1,258.5 $1,197.2 $127.8 $88.4 $76.2 -------- -------- -------- ------ ------ ------ -------- -------- -------- ------ ------ ------
Capital Year End Assets Expenditures Depreciation -------------------------- ----------------------- -------------------------- 1993 1992 1991 1993 1992 1991 1993 1992 1991 ------ ------- ------ ------- ------ ------ -------- -------- ------ Compressor Products . . . $ 485.5 $ 488.2 $ 524.0 $ 36.8 $ 37.7 $ 75.8 $ 39.4 $ 40.1 $ 36.3 Engine & Power Train Products . . . 206.6 201.4 196.3 13.7 17.6 8.6 12.3 12.8 11.9 Pump Products (b) 35.7 33.5 27.8 0.6 1.3 1.4 0.8 0.7 1.7 Corporate . . . . 404.9 355.5 307.3 - - - - - - -------- -------- -------- ------ ------ ------ ------ ------ ------ Total . . . . $1,132.7 $1,078.6 $1,055.4 $ 51.1 $ 56.6 $ 85.8 $ 52.5 $ 53.6 $ 49.9 -------- -------- -------- ------ ------ ------- ------ ------ ------ -------- -------- -------- ------ ------ ------- ------ ------ ------
GEOGRAPHIC SEGMENT INFORMATION
Income Before Net Sales Income Taxes Year End Assets -------------------------- ------------------------ -------------------------- 1993 1992 1991 1993 1992(a) 1991 1993 1992 1991 ------ ------ ------ ------ --------- ------ ------ ------ ------ North America . . $ 930.5 $ 840.3 $ 787.8 $ 95.4 $ 78.1 $ 56.6 $ 812.7 $ 729.4 $ 648.1 Europe . . . . . . 260.7 322.2 302.4 (1.6) (5.7) 4.5 246.1 272.3 326.5 Brazil . . . . . . 123.0 96.0 107.0 34.6 16.7 14.9 78.5 82.9 82.7 Inter-area: North America 11.6 11.7 4.0 - - - - - - Europe . . . . . 0.1 0.1 - - - - - - - Brazil . . . . . 23.8 22.7 21.1 - - - - - - Eliminations . . . (35.5) (34.5) (25.1) (0.6) (0.7) 0.2 (4.6) (6.0) (1.9) --------- --------- --------- -------- ------- ------ -------- -------- --------- Total . . . . $1,314.2 $1,258.5 $1,197.2 $ 127.8 $ 88.4 $ 76.2 $1,132.7 $1,078.6 $1,055.4 --------- --------- --------- -------- ------- ------ --------- --------- --------- --------- --------- --------- -------- ------- ------ --------- --------- ---------
(a) The 1992 results are before cumulative effect of changes in accounting for non-pension postretirement benefits and income taxes. (b) 1991 sales, in addition to pumps, included $29.4 million in contract machining, which was discontinued in that year. Transfers between geographic areas are accounted for at cost plus a reasonable profit. Export sales of domestic operations were $206.2, $226.5, and $175.3 million in 1993, 1992 and 1991, respectively. Of these sales, approximately two-thirds were to customers in the Far and Middle East. Certain amounts previously reported in the geographic segment information have been reclassified to conform with the current presentation. The Company's share of net unremitted earnings of its foreign subsidiaries was $14.0 million in 1993, none in 1992, and 2.0 million in 1991. Accumulated unremitted earnings of foreign subsidiaries at December 31, 1993 were $74.6 million. 12 3 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1993 COMPARED TO 1992 Consolidated earnings for 1993 were $81.4 million, or $3.72 per share, which was an increase of 56% compared to prior year's earnings, exclusive of the 1992 cumulative effect adjustment for changes in accounting for non-pension postretirement benefits and income taxes. Sales reached $1,314.2 million in 1993, which was a 4% increase over 1992. The improved operating results were due primarily to record-setting profit levels at the Company's Brazilian compressor operations along with strong sales of the Company's Engine and Power Train Products. Compressor Products Sales for 1993 were 3% lower than the prior year reflecting reduced sales in Europe and Asia, offset to a considerable extent by increased sales in the United States and Brazil. A rebounding Brazilian economy allowed Tecumseh's subsidiary, SICOM Ltda., to achieve growth in sales and net income despite accelerating inflation and growing economic and political uncertainties. SICOM accounted for 9% of 1993 consolidated sales (8% in 1992) and 27% of 1993 consolidated net income (15% in 1992). An economic stabilization program was announced in late 1993 but lost momentum in the Brazilian Congress as an investigation into widespread political corruption took the forefront. The politicians have also begun to focus on the October 1994 presidential elections but may not be able to avoid a confrontation with inflation, which reached a monthly rate of 40% in January 1994. Historically, economic shocks in Brazil have resulted in a wealth transfer from the private to the public sector, and the Company therefore maintains a cautious outlook for Brazil. The Company's compressor sales within the United States were up by 17% for 1993 compared to 1992. A significant portion of the sales increase came in the unitary air conditioning market. Several of the important OEMs in the unitary air conditioning market, however, have decided to significantly reduce the use of traditional reciprocating compressors in 1994 as part of an industry trend toward the use of scroll compressors. As the Company does not currently produce scroll compressors in commercial quantities, this accelerating trend will reduce, at least temporarily, the Company's share of this important market and is expected to intensify price competition for the remaining available reciprocating compressor business. In anticipation of this trend, the Company has developed its own scroll compressor, which it is currently sampling with key customers. In January 1994, Tecumseh's Board of Directors authorized funding for a scroll compressor manufacturing facility, which is expected to be in limited production by the end of 1994. The Company's U.S. compressor exports for 1993 were 17% below the 1992 record levels due primarily to continued restrictions on foreign currency in China. In addition, the Company's sales volume and prices have been impaired by an excess inventory of rotary air conditioning compressors in the Far East following an unusually cool summer in Japan. Sales for Tecumseh's European compressor manufacturer, L'Unite Hermetique S.A., were down over 20% in 1993 resulting in a small operating loss for the year. The sales decline reflected continued weak economic conditions in Europe along with a currency-related reduction in market share in the refrigerator compressor market. Manufacturers in Italy and Spain have increased sales volume through aggressive pricing following the depreciation of the currencies in those countries during the past eighteen months. The Company has substantially completed an aggressive cost-cutting plan to position this operation for a return to profitability in 1994. Engine and Power Train Products Sales for 1993 were up 19% over the prior year. The increase was due to improved industry conditions for walk-behind and riding lawn equipment as well as some gain in share. The outdoor power equipment industry predicts a 4-5% increase in equipment sales for the upcoming season. Industry sales of snow throwers doubled in 1993 after several disappointing seasons for a market where Tecumseh is the dominant supplier. Snow thrower inventory levels have been virtually depleted in key regions of the United States, setting the stage for a good season in 1994. The profit gain for the Engine and Power Train Products was primarily a result of the increase in sales volume compared to 1992. In addition, Tecumseh's Italian-based European engine operation, Tecnamotor S.r.l., benefited in 1993 from a depreciated lira along with the positive effect of a 15% work force reduction in late 1992. Pump Products The Company's Pump Products sales for 1993 increased 26% over 1992 reflecting abnormally high sump pump sales in areas affected by the 1993 floods, along with continued growth in water gardening pump products. Although the sales growth of 1993 will most likely not be repeated, the Company does hope that 1994 pump sales will exceed 1993 13 4 levels with continued growth in the sales of several new products aimed at the consumer marketplace. Interest Income Interest income for 1993 was considerably below the previous year's level due principally to SICOM's lower financial income. Real interest rates declined in Brazil in late 1992 in the government's attempt to boost consumer spending. In addition, the Company reduced cash balances held in Brazil during 1993 through dividend remittance and other transactions. Income Tax The effective income tax rate was 36% for 1993 as compared to 41% for 1992. The rate decline was primarily a result of a tax refund in Brazil along with a reduction in net operating losses at the Company's Italian engine subsidiary. The Company recorded a net favorable adjustment for the increase in the U.S. corporate tax rate from 34% to 35%, due to its large deferred tax asset position. 1992 COMPARED TO 1991 Net earnings for 1992 included a one-time, non-cash charge of $95.0 million, or $4.34 per share, as a result of the adoption of two new accounting principles which modified the Company's accounting for non-pension postretirement benefits and income taxes. In addition to the one-time charge, the ongoing effect of these accounting changes reduced 1992 net income by $6.2 million, or $0.28 per share. The following discussion relates to 1992 operating results exclusive of the cumulative effect of changes in accounting principles. Net earnings for 1992 were $52.3 million, or $2.39 per share, compared to $42.5 million, or $1.94 per share, for 1991. This represented an increase of 23% over the prior year's results. Sales for 1992 were $1,258.5 million, an increase of 5% from 1991. Both of the Company's major industry segments experienced sales growth during 1992. Increased exports of U.S. built compressors accounted for most of the increase in the Compressor Products segment while increased sales to U.S. original equipment manufacturers accounted for the majority of the sales increase in the Company's Engine and Power Train segment. The decrease in the Company's sales of Pump Products was attributable to the sale of its contract machining operations in 1991. Sales in all of the Company's primary geographic regions were up, with the exception of South America. The Company's Compressor Products business achieved an 8% increase in sales for 1992 compared to the previous year. A 35% gain in Compressor Products export shipments was the main factor behind the sales improvement. This export growth was driven by increased demand for air conditioning equipment in emerging Asian markets. Sales of the Company's compressors in the United States were flat for 1992. The U.S. air conditioning industry suffered from one of the coolest summers on record. In response, the industry reduced production levels and brought down the high inventory levels of the late summer. Primarily due to increased export volume, associated production efficiencies, and cost control measures, operating profitability of the North American compressor business nearly doubled in 1992 and is the major factor in the consolidated earnings improvement compared to the prior year. The results of SICOM were impaired by the deep economic recession then affecting Brazil. SICOM's sales to Brazilian customers in 1992 were down approximately one-third from the 1991 level. The reduced local sales volume was partially offset by increased export sales, particularly to other Latin American countries. As a result, SICOM's sales for 1992 were down only 10% from 1991. SICOM reported moderate earnings for 1992 despite the decline in sales. The operating results of L'Unite Hermetique were negatively impacted by the stagnant economic conditions prevailing in Europe during 1992 and unfavorable currency fluctuations. Overall, L'Unite Hermetique's sales for the year were up slightly with the decrease in European sales being offset by increased export sales to the Far and Middle East. These sales gains did not generate normal margins for L'Unite Hermetique due to price pressures resulting from a strengthening French franc in relation to the U.S. dollar and Japanese yen during the spring and summer months of 1992. The combination of lower sales volume in Europe and price pressure on U.S. dollar-denominated exports significantly reduced operating margins of L'Unite Hermetique during 1992. The Company's U.S. Engine and Power Train sales recorded a gain of 8% in 1992 compared to the recessionary level of the previous year. Operating profit declined slightly due to the ongoing effect of the change in accounting for non-pension postretirement benefits. Despite the continued weak market conditions in Europe, Tecnamotor also recorded a small improvement in sales for 1992. However, Tecnamotor incurred an operating loss for 1992, part of which was due to a provision for termination benefits accompanying a 15% work force reduction. The effective income tax rate was 41% for 1992 as compared to 44% for 1991. The decrease in the effective tax rate was due, in part, to a federal tax refund of $1.4 million relating to favorable disposition of a matter from prior years. LIQUIDITY AND CAPITAL RESOURCES The Company continued to maintain a strong and liquid financial position. Cash flow from operations of 14 5 $141.3 million in 1993 provided sufficient funds for capital expenditures and dividends. Working capital of $473.6 million at December 31, 1993 was up from $420.4 million at the end of 1992, and the ratio of current assets to current liabilities exceeded 3.2. The Company expects considerable capital expenditures during 1994 as it funds a scroll compressor manufacturing facility along with the purchase (and retooling) of rotary compressor manufacturing equipment from General Electric. The GE equipment will be utilized in the production of room air conditioning rotary compressors in smaller sizes that will complement Tecumseh's present product offering. Total capital spending for 1994 should approximate $175 million. Working capital requirements and planned capital expenditures for 1994 and early 1995 are expected to be financed primarily through internally available funds, although the Company may utilize long-term financing arrangements in connection with various state investment incentives. Pursuant to the National Appliance Energy Conservation Act of 1987, the U.S. government will require higher energy efficiency ratings on room air conditioning products during 1997 and on refrigerator and freezer products by 1998. Also, the primary refrigerants used in commercial and household refrigeration equipment, chlorofluorocarbon compounds (CFCs), have been identified as one of the leading factors causing depletion of the ozone layer. Under a 1992 international agreement, CFCs are scheduled to be phased out by January 1, 1996. Several OEMs have already begun to offer products which do not utilize CFCs. It is anticipated that challenges imposed by these new regulatory requirements ultimately will be met. However, it is not presently possible to estimate the level of expenditures required, the impact on future earnings, or the effect on the Company's competitive position. The California Air Resources Board (CARB) has mandated exhaust emission standards for utility engines which include the two- and four-cycle engine products manufactured by the Company. The Clean Air Act Amendments of 1990 require approval of the CARB regulations by the U.S. Environmental Protection Agency (EPA) prior to implementation. The approval from the EPA is pending. The California regulations require certain emission reductions by January 1, 1995 and additional, more stringent reductions by 1999. The Company's engine products, as presently designed and manufactured, do not all meet the 1995 CARB standards; however, engineering efforts have resulted in select engine certification to CARB requirements, and an adequate cross section of the Company's current four-cycle products will be modified to meet the 1995 requirements. The Clean Air Act Amendments of 1990 also allow other states to either adopt the California regulations after EPA approval or a federal standard which the EPA is formulating in concert with the industry and other related parties. The EPA continues its emissions studies but, as yet, has not promulgated regulations containing standards. The Company anticipates public hearings (in advance of proposed federal standards) during the second quarter of 1994. Continuing design and other efforts will be expended to meet the emission standards; however, it is not currently possible to determine the cost thereof nor the impact on future operating results or competitive position of the Company. 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 December 31, 1993, the Company had an accrual of $26.4 million for estimated costs associated with the cleanup of certain PCB contamination at this Superfund Site. The Company has based the estimated cost of cleanup on ongoing engineering studies, including engineering samples taken in the Sheboygan River, and assumptions as to the areas that will have to be remediated along with the nature and extent of the remediation that will be required. 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 Company has been informed by the EPA that it expects to issue a record of decision on the cleanup of the Sheboygan River and Harbor site by the third quarter of 1994, but ultimate resolution of the matter may take much longer. The ultimate costs to the Company will be dependent upon factors beyond its control such as the scope and methodology of the remedial action requirements to be established by the EPA (in consultation with the State of Wisconsin), rapidly changing technology, and the outcome of any related litigation. In addition to the Sheboygan River and Harbor Superfund Site, the Company also is 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 future financial position. 15 6 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Dollars in millions except per share data)
For The Years Ended December 31, --------------------------------------- 1993 1992 1991 ---------- --------- --------- INCOME: Net sales $1,314.2 $1,258.5 $1,197.2 Interest income 17.5 24.6 25.9 Other income 5.6 3.6 3.3 -------- -------- --------- 1,337.3 1,286.7 1,226.4 -------- -------- -------- EXPENSES: Cost of sales and operating expenses 1,124.0 1,109.3 1,059.2 Selling and administrative expenses 78.4 78.8 77.6 Interest expense 4.0 6.0 6.5 Other expenses 3.1 4.2 6.9 -------- -------- --------- 1,209.5 1,198.3 1,150.2 -------- -------- -------- INCOME BEFORE TAXES ON INCOME AND CHANGES IN ACCOUNTING PRINCIPLES 127.8 88.4 76.2 Taxes on income 46.4 36.1 33.7 ------- --------- ---------- INCOME BEFORE CHANGES IN ACCOUNTING PRINCIPLES 81.4 52.3 42.5 Cumulative effect of changes in accounting for non-pension postretirement benefits and income taxes (Note 1.) - (95.0) -------- --------- ---------- NET INCOME (LOSS) $ 81.4 $ (42.7) $ 42.5 ------- -------- --------- ------- -------- --------- Net income per share before changes in accounting principles $3.72 $ 2.39 $ 1.94 Cumulative effect of changes in accounting for non-pension postretirement benefits and income taxes (Note 1.) - (4.34) - ------- -------- --------- NET INCOME (LOSS) PER SHARE $ 3.72 $ (1.95) $ 1.94 ------- -------- --------- ------- -------- ---------
The above per share amounts have been adjusted as necessary to reflect the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29, 1992. The accompanying notes are an integral part of these statements. 16 7 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in millions)
Common Stock ------------------------------ Foreign Class B Capital Currency Total Class A or Prior in Excess Retained Translation Stockholders' $1 par value $1 par value of Par Value Earnings Adjustment Equity ------------- -------------- -------------- ---------- ------------- --------------- BALANCE, DECEMBER 31, 1990 $5.5 $29.9 $628.6 $28.2 $692.2 Net income 42.5 42.5 Cash dividends (17.5) (17.5) Translation adjustments (4.4) (4.4) ------------- ------------- --------------- ------------ -------------- -------------- BALANCE, DECEMBER 31, 1991 5.5 29.9 653.6 23.8 712.8 Net income (loss) (42.7) (42.7) Cash dividends (17.5) (17.5) Dividend of Class A common 5.5 (5.5) - Translation adjustments (12.8) (12.8) ------------- ------------- -------------- ------------- --------------- -------------- BALANCE, DECEMBER 31, 1992 5.5 5.5 29.9 587.9 11.0 639.8 Net income 81.4 81.4 Cash dividends (25.2) (25.2) Dividend of Class A common 10.9 (10.9) - Translation adjustments (9.2) (9.2) -------------- -------------- -------------- -------------- --------------- ------------- BALANCE, DECEMBER 31, 1993 $16.4 $5.5 $29.9 $633.2 $1.8 $686.8 -------------- -------------- -------------- -------------- --------------- -------------- -------------- -------------- -------------- -------------- --------------- --------------
17 8 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in millions)
December 31, ------------------ ASSETS 1993 1992 ------- --------- CURRENT ASSETS: Cash and cash equivalents $313.2 $263.6 Accounts receivable, trade, less allowance for doubtful accounts of $5.3 million in 1993 and $4.4 million in 1992 158.0 155.8 Inventories 174.9 173.5 Deferred income taxes 30.1 25.4 Other current assets 7.3 9.4 --------- -------- TOTAL CURRENT ASSETS 683.5 627.7 --------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land and land improvements 7.5 8.3 Buildings 106.3 103.8 Machinery and equipment 539.7 525.4 --------- -------- 653.5 637.5 Less, accumulated depreciation 333.1 314.6 --------- -------- PROPERTY, PLANT AND EQUIPMENT, net 320.4 322.9 --------- -------- EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated amortization of $10.5 million in 1993 and $8.6 million in 1992 54.5 60.9 DEFERRED INCOME TAXES 29.0 29.6 OTHER ASSETS 45.3 37.5 --------- --------- TOTAL ASSETS $1,132.7 $1,078.6 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $88.1 $91.2 Income taxes payable 9.9 5.7 Short-term borrowings 14.0 22.6 Accrued liabilities: Employee compensation 20.5 20.8 Product warranty and self-insured risks 31.8 29.9 Other 45.6 37.1 --------- -------- TOTAL CURRENT LIABILITIES 209.9 207.3 LONG-TERM DEBT 11.2 14.4 NON-PENSION POSTRETIREMENT BENEFITS 161.3 154.5 PRODUCT WARRANTY AND SELF-INSURED RISKS 26.3 23.1 ACCRUAL FOR ENVIRONMENTAL MATTERS 25.4 24.4 PENSION LIABILITIES 11.8 15.1 --------- -------- TOTAL LIABILITIES 445.9 438.8 --------- -------- STOCKHOLDERS' EQUITY: Class A common stock, $1 par value; authorized 25,000,000 shares; issued and outstanding 16,410,438 shares 16.4 5.5 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 29.9 29.9 Retained earnings 633.2 587.9 Foreign currency translation adjustment 1.8 11.0 --------- --------- TOTAL STOCKHOLDERS' EQUITY 686.8 639.8 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,132.7 $1,078.6 --------- --------- --------- ---------
The accompanying notes are an integral part of the statements. 18 9 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in millions)
For The Years Ended December 31, ----------------------------------- 1993 1992 1991 -------- ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 81.4 ($42.7) $42.5 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting for non- pension postretirement benefits and income taxes - 95.0 - Depreciation and amortization 52.5 53.6 49.9 Accounts receivable (2.1) 21.8 (8.0) Inventories (5.0) (19.6) 25.5 Payables and accrued expenses 18.6 (19.3) 13.2 Other (4.1) 4.5 (3.8) ------- -------- --------- Cash Provided By Operations 141.3 93.3 119.3 ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (51.1) (56.6) (85.8) Proceeds from the sale of property, plant and equipment - - 15.2 ------- -------- -------- Cash Used In Investing Activities (51.1) (56.6) (70.6) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (25.2) (17.5) (17.5) Proceeds from borrowings 0.9 2.1 5.7 Repayments of borrowings (10.4) (9.0) (14.1) ------- -------- -------- Cash Used In Financing Activities (34.7) (24.4) (25.9) ------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.9) (5.1) (6.7) ------- ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS 49.6 7.2 16.1 CASH AND CASH EQUIVALENTS: Beginning Of Period 263.6 256.4 240.3 ------- ------- ------- End Of Period $313.2 $263.6 $256.4 ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of the statements. 19 10 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company's investments in unconsolidated affiliates are accounted for on the equity basis. All significant inter-company transactions and balances have been eliminated. CASH EQUIVALENTS -- Cash equivalents consist of short-term investments which are readily convertible into cash. The carrying amount approximates market value because of the short duration of these instruments. INVENTORIES -- Inventories are valued at the lower of cost or market, generally on the first-in, first-out basis. INCOME TAXES -- Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The Company elected not to restate its 1991 financial statements included in this report. The cumulative effect of this change in accounting for income taxes was to increase 1992 net income by $1.5 million, or $.07 per share. SFAS No. 109 requires an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will more likely than not be realized. Income tax expense is the current tax payable for the period plus or minus the net change in the deferred tax assets and liabilities. PROPERTY, PLANT AND EQUIPMENT -- Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. For financial statement purposes, depreciation is determined using the straight-line basis except for certain highly automated and specialized machinery which is depreciated using the units of production method. EXCESS OF COST OVER ACQUIRED NET ASSETS -- Assets and liabilities related to business combinations accounted for as purchases are recorded at fair value. The excess of cost over the net tangible assets acquired is being amortized on a straight-line basis over forty years. PRODUCT WARRANTY -- Provision is made for the estimated cost of maintaining product warranties at the time the product is sold. SELF-INSURED RISKS -- Provision is made for the estimated costs of known and anticipated claims under the deductible portions of the Company's liability, disability and workers' compensation insurance policies. In addition, provision is made for the estimated cost of postemployment benefits at employment separation, in accordance with Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits". NON-PENSION POSTRETIREMENT BENEFITS -- Effective January 1, 1992, the Company adopted the accrual accounting method prescribed in SFAS No. 106 for its non-pension postretirement benefit plans. As permitted under the provisions of this standard, the expense attributable to service rendered through December 31, 1991 has been fully recognized as of the date of adoption. This non-cash transition effect of the unfunded obligation was a charge of $96.5 million to 1992 earnings, net of approximately $54.3 million of income tax effects, reducing earnings per share by $4.41. Prior to 1992, non-pension post-retirement benefits were recognized on a claims incurred basis. ENVIRONMENTAL EXPENDITURES - Expenditures for environmental safekeeping are expensed or capitalized as appropriate. Costs associated with remediation activities are expensed. Liabilities relating to probable remedial activities are recorded when the costs of such activities can be reasonably estimated. RECLASSIFICATIONS - Certain amounts included in the 1992 and 1991 financial statements have been reclassified to conform with the 1993 presentation. NOTE 2. FOREIGN CURRENCY TRANSLATION The assets and liabilities of the Company's Canadian and European subsidiaries are translated into U.S. dollars at current exchange rates and revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in a separate component of stockholders' equity:
(Dollars in millions) 1993 1992 ------ ------ Balance at January 1 $11.0 $23.8 Effect of balance sheet translations: Amount (12.0) (15.1) Tax effect 2.8 2.3 ----- ----- Balance at December 31 $ 1.8 $11.0 ----- ----- ----- -----
For the Company's Brazilian subsidiary, which operates in a highly inflationary economy, inventory and plant and equipment and related income statement items are translated at historical exchange rates while other assets and liabilities are translated at current exchange rates. The resulting translation adjustment is included in other expense and was $2.0 million, 20 11 $2.1 million, and $6.6 million in 1993, 1992, and 1991, respectively. NOTE 3. RETIREMENT PLANS The Company has defined benefit retirement plans that cover substantially all domestic employees. Plans covering salaried employees generally provide pension benefits that are based on average earnings and years of credited service. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. The Company's funding policy for retirement plans is to contribute amounts that meet the minimum funding requirements specified by the Employee Retirement Income Security Act, plus such additional amounts as the Company may determine to be appropriate. The domestic plan assets are invested in a diversified portfolio that primarily consists of equity and fixed income securities. Net pension expense of the Company's domestic defined benefit plans include the following components:
(Dollars in millions) 1993 1992 1991 ------ ------ ------ Service Cost -- benefits earned during year $ 5.3 $ 4.8 $ 5.2 Interest cost on projected benefit obligations 16.5 15.7 15.7 Actual return on assets (43.6) (25.1) (58.3) Net amortization and deferral 17.2 (1.1) 35.0 ------ ------ ------ Net pension expense (credit) $ (4.6) $ (5.7) $ (2.4) ------ ------ ------ ------ ------ ------
The following table sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company's domestic defined benefit plans at December 31:
1993 1992 -------------- -------------- (Dollars in millions) OVER- UNDER- Over- Under- FUNDED FUNDED funded funded PLANS PLANS Plans Plans ------- ------- ------- ------- Plan assets at fair value $373.3 $ .9 $345.8 $ .4 ----- ----- ----- ----- Actuarial present value of benefit obligation: Vested benefits 228.9 .9 211.6 .5 Non-vested benefits 16.5 .1 16.0 -- ----- ----- ----- ----- Accumulated benefit obligation 245.4 1.0 227.6 .5 Effect of projected future salary increases 21.1 -- 22.0 -- ----- ----- ----- ----- Projected benefit obligation 266.5 1.0 249.6 .5 ----- ----- ----- ----- Projected benefit obligation (in excess of) or less than plan assets 106.8 (.1) 96.2 (.1) Unrecognized prior service cost 12.6 -- 12.3 -- Unrecognized net (gain) loss (71.3) .1 (63.2) .1 Unrecognized net transition (asset) obligation (20.9) -- (23.1) -- ----- ----- ----- ----- Prepaid (accrued) pension expense $ 27.2 $ -- $ 22.2 $ -- ----- ----- ----- ----- ----- ----- ----- -----
Assumptions used in accounting for the domestic defined benefit plans were:
1993 1992 ------ ------ Measurement of projected benefit obligation: Discount rate 6 1/4% 6 3/4% Long-term rate of compensation increases 5 1/2% 6 % Long-term rate of return on plan assets 7 1/2% 7 1/2%
The Company's European subsidiaries provide for defined benefits that are generally based on earnings at retirement date and years of credited service. The combined expense for these unfunded plans was $2.2, $2.3, and $2.7 million in 1993, 1992 and 1991, respectively. The net liability recorded in the consolidated balance sheet was $11.8 and $15.1 million for 1993 and 1992, respectively. Consolidated pension expense (credit) of $(0.3) million in 1993, $(1.5) million in 1992, and $2.0 million in 1991 includes amounts associated with the domestic and foreign defined benefit plans described above and certain defined contribution plans. NOTE 4. NON-PENSION POSTRETIREMENT BENEFIT PLANS The Company sponsors a retiree health care benefit plan, including retiree life insurance, for eligible salaried retirees and their eligible dependents. The Company also sponsors at certain divisions, retiree health care benefit plans for eligible hourly retirees and their eligible dependents. Some of the hourly retiree health care plans include retiree life insurance. The retiree health care plans are unfunded and provide for coordination of benefits with Medicare and any other insurance plan covering a participating retiree or dependent. The plans have annual lifetime maximum benefit restrictions and pay a stated percentage of covered, medically necessary expenses incurred by the eligible retiree after applicable deductibles are met. Some of the plans are contributory, with some retiree contributions adjusted annually. The Company has reserved the right to interpret, change or eliminate these benefit plans. The components of the net periodic postretirement benefit cost for 1993 and 1992 were:
(Dollars in millions) 1993 1992 ------ ------ Service cost-benefits earned during year $ 3.7 $ 4.6 Interest cost on accumulated postretirement benefit obligation 10.3 10.9 Net amortization and deferral (1.0) -- ------ ------ Net postretirement health care costs (before tax effect) $ 13.0 $ 15.5 ------ ------ ------ ------
Prior to 1992, the Company recognized non-pension postretirement costs in the year that the benefit claims were incurred. These costs were $5.8 million in 1991. 21 12 The total of accrued postretirement benefit obligation is presented below as of December 31:
(Dollars in millions) 1993 1992 ------ ------ Accumulated postretirement benefit obligation: Retirees $ 57.7 $ 56.9 Active, eligible employees 34.7 36.5 Active, not yet eligible employees 60.7 62.8 ------ ------ 153.1 156.2 Unrecognized plan amendment gain 4.0 4.3 Unrecognized net actuarial gain 10.2 -- ------ ------ Accrued postretirement benefit cost in excess of plan assets $ 167.3 $ 160.5 ------ ------ ------ ------ Assumptions used: Discount rate 6.5% 7.0% Health care cost trend rate 11.5% 12.0% Ultimate health care cost trend rate in 2003 4.5% 5.0%
At December 31, 1993 and 1992, $6.0 million is included in Accrued Liabilities, Other. Actual health care cost trend rates for 1992 and 1993 were lower than anticipated and the Company reduced its trend rates in 1993 accordingly. The health care cost trend rate assumption has a significant effect on the amounts reported and increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993 by $21.4 million and the aggregate of the service and interest cost components of net postretirement health care cost for the year then ended by $2.2 million. NOTE 5. INCOME TAXES Consolidated income before taxes and cumulative effect of changes in accounting principles consist of the following:
(Dollars in millions) 1993 1992 1991 ------ ------ ------ United States $ 94.1 $ 76.4 $ 55.4 Foreign 33.7 12.0 20.8 ------ ------ ------ $127.8 $ 88.4 $ 76.2 ------ ------ ------ ------ ------ ------
Provision for income taxes consists of the following:
(Dollars in millions) 1993 1992 1991 ------ ------ ------ Current: U.S. federal $32.7 $23.5 $17.9 State and local 4.4 3.4 1.8 Foreign income and withholding taxes 12.8 11.7 14.7 ---- ---- ---- 49.9 38.6 34.4 ---- ---- ---- Deferred: U.S. federal (5.3) (1.7) (1.0) Foreign 1.8 (.8) 0.3 ---- ---- ---- (3.5) (2.5) (0.7) ---- ---- ---- Provision for income taxes $46.4 $36.1 $33.7 ---- ---- ---- ---- ---- ---- Income taxes paid $43.8 $46.4 $19.8 ---- ---- ---- ---- ---- ----
The principal items included in the 1991 deferred tax benefit are $5.6 million relating to a provision for consolidation of certain manufacturing operations and write down of certain long-term assets, offset by $2.6 million for a change in the estimated cost of a previously announced plant closing, and $2.6 million for tax depreciation in excess of book depreciation. A reconciliation between the actual income tax expense provided and the income tax expense computed by applying the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to pre-tax income is as follows:
(Dollars in millions) 1993 1992 1991 ------ ------ ------ Income taxes at U.S. statutory rate $44.7 $30.0 $25.9 Excess of foreign taxes over the U.S. statutory rate .4 3.0 5.3 State and local income taxes 2.9 2.2 1.1 Foreign losses without tax benefit 1.0 2.5 1.4 Deferred income tax rate changes (1.6) -- -- Tax benefits from Foreign Sales Corporation (1.1) (.9) (.6) Federal tax refund -- (1.4) -- Other .1 .7 .6 ----- ----- ----- $ 46.4 $ 36.1 $ 33.7 ----- ----- ----- ----- ----- -----
Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:
(Dollars in millions) 1993 1992 ------ ------ Deferred tax assets: Non-pension postretirement benefits $ 61.9 $ 57.8 Product warranty and self-insured risks 18.8 17.0 Net operating loss carryforwards 9.4 9.9 Provision for environmental matters 10.9 9.5 Other accruals and miscellaneous 25.9 22.4 ------ ------ 126.9 116.6 Valuation allowance 15.2 13.3 ------ ------ Total deferred tax assets 111.7 103.3 ------ ------ Deferred tax liabilities: Tax over book depreciation 37.6 33.2 Pension 10.2 8.1 Other 4.8 7.0 ------ ------ Total deferred tax liabilities 52.6 48.3 ------ ------ Net deferred tax assets $ 59.1 $ 55.0 ------ ------ ------ ------
At December 31, 1993, the Company had net operating loss carryforwards attributable to foreign operations for income tax purposes of $26.2 million which expire from 1995 to 1998 if not offset against future taxable income. For financial reporting purposes, a valuation allowance has been established to offset the deferred tax assets related to those loss carryforwards. NOTE 6. INVENTORIES The components of inventories at December 31, were:
(Dollars in millions) 1993 1992 ------ ------ Raw materials and work in process $107.2 $107.2 Finished goods 56.2 54.9 Supplies 11.5 11.4 ------ ------ $174.9 $173.5 ------ ------ ------ ------
NOTE 7. BUSINESS SEGMENT DATA Business segment data is presented on page 12 of this report. 22 13 NOTE 8. DEBT Short-term debt consists of borrowings by foreign subsidiaries at varying interest rates under revolving credit agreements and overdraft arrangements with banks used in the normal course of business. The U.S. dollar equivalent of this debt was $10.5 and $19.8 million at December 31, 1993 and 1992, respectively. Long-term debt consists of the following: 1. Unsecured borrowings, primarily with banks, by foreign subsidiaries with interest rates ranging from 7.9% to 10.3%. The U.S. dollar equivalent of these borrowings was $9.2 and $12.4 million at December 31, 1993 and 1992, respectively. 2. A $5.5 million ($4.8 million in 1992) bank repurchase agreement bearing interest at 1/2% above the London Inter-Bank Offered Rate (LIBOR) due in 1995. Scheduled maturities of long-term debt outstanding at December 31, 1993, are as follows: 1994--$3.5 million; 1995--$9.4 million; 1996--$1.2 million; 1997--$0.5 million; 1998 and beyond--$0.1 million. Interest paid was $3.6 million in 1993, $5.2 million in 1992 and $6.0 million in 1991. The carrying value of short and long-term debt at December 31, 1993 and 1992 approximates fair market value. NOTE 9. ENVIRONMENTAL MATTERS The Company has been named by the U.S. Environmental Protection Agency (EPA) as a potentially responsible party in connection with the Sheboygan River and Harbor Superfund Site in Wisconsin. At December 31, 1993, the Company had an accrual of $26.4 million for the estimated costs associated with the cleanup of certain PCB contamination at this Superfund Site. The Company has based the estimated cost of cleanup on ongoing engineering studies, including engineering samples taken in the Sheboygan River, and assumptions as to the areas that will have to be remediated along with the nature and extent of the remediation that will be required. 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 Company has been informed by the EPA that it expects to issue a record of decision on the cleanup of the Sheboygan River and Harbor site by the third quarter of 1994, but ultimate resolution of the matter may take much longer. The ultimate costs to the Company will be dependent upon factors beyond its control such as the scope and methodology of the remedial action requirements to be established by the EPA (in consultation with the State of Wisconsin), rapidly changing technology, and the outcome of any related litigation. In addition to the Sheboygan River and Harbor Superfund Site, the Company also is 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 future financial position. NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES The Company has entered into definitive agreements to purchase the rotary compressor manufacturing equipment at GE Appliances' Columbia, Tennessee, plant. Estimated cost of purchasing and retooling this equipment is approximately $80 million, to be expended in 1994 and 1995. 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 of them 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. NOTE 11. RISK CONCENTRATION Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash investments and accounts receivable. The Company places its cash investments in investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to receivables are limited due to the large number of customers in the Company's customer base, and their dispersion across different industries and geographic areas. A portion of export accounts receivable of the Company's Brazilian subsidiary, SICOM, are sold with recourse. Factored Brazilian export accounts receivable balances at December 31, 1993 and 1992, respectively, were $23.1 million and $10.2 million with discount rates, respectively of 4.5 and 4.0 percent. The Company maintains an allowance for losses based upon the expected collectability of all accounts receivable, including receivables sold. The Company enters into forward exchange contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. These contracts are designed to limit 23 14 exposure to exchange rate fluctuations because gains and losses on these contracts are offset by gains and losses on the hedged transactions. At December 31, 1993 and 1992 respectively, the Company had $44.6 million and $71.6 million in foreign exchange contracts outstanding. The aggregate value of these contracts at December 31, 1993 and 1992 approximates fair market value. NOTE 12. STOCKHOLDERS' EQUITY Prior to April 22, 1992, the Company had only a single class of stock, common stock, $1.00 par value. On April 22, 1992, the common stock was redesignated as the Class B common stock, and the Class A common stock was authorized. On May 29, 1992, the Company paid a dividend of one share of Class A common stock on each outstanding share of Class B common stock. The Class A common stock became eligible for trading on June 1, 1992. On June 30, 1993, the Company paid a dividend of one share of Class A common stock on each outstanding share of common stock. The shares of Class A common stock and Class B common stock are identical except as to voting rights. Class A common stock has no voting rights, other than those required by law. In 1991, the Company adopted a Shareholders' Rights Plan. This plan was amended in 1992 to clarify the effect of the Company's reclassification of the existing common stock to voting Class B common stock. In addition, in 1992, the Company adopted a new plan for the distribution of a Class A Right for each share of the newly created Class A common stock. Each Right entitles the registered holder, subject to the terms of the corresponding Rights Agreements, to purchase from the Company one share of the corresponding class of common stock at an exercise price of $80.00 per share, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group (Acquiring Person) acquiring or attempting to acquire 10% or more of the outstanding shares of Class B common stock. In the event that the Rights become exercisable, each Right (except for Rights beneficially owned by the Acquiring Person, which become null and void) would entitle the holder to purchase, for the exercise price then in effect, shares of the Company's corresponding class of common stock having a value of twice the exercise price. The Rights may be redeemed by the Board of Directors in whole, but not in part, at a price of $.0025 per Right. The Rights have no voting or dividend privileges and are attached to, and do not trade separately from the Class A and Class B common stock. The Rights expire on January 23, 2001. As of December 31, 1993, 8,589,562 shares of Class A common stock and 5,470,146 shares of Class B common stock are reserved for future exercise under the Rights Agreements. 24 15 MANAGEMENT'S REPORT TO THE SHAREHOLDERS OF TECUMSEH PRODUCTS COMPANY Management is responsible for the integrity and objectivity of the financial statements and other information presented in this annual report. The statements were prepared in accordance with generally accepted accounting principles and, where necessary, include certain amounts based on management's best estimate and judgment to reflect the expected effects of events and transactions that have not been completed. All financial information in the annual report is consistent with the financial statements. Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization. These controls are documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process. This system is continually reviewed and evaluated and modified to reflect current conditions. The Audit Committee of the Board of Directors, composed primarily of outside Directors, is responsible for monitoring the Company's accounting and reporting practices. The Audit Committee meets regularly with management, the internal auditors, and the independent public accountants to review the work of each and to assure that each is carrying out its responsibilities. Both the independent public accountants and the internal auditors have unrestricted access to the Audit Committee with and without management's representative present, to discuss the results of their examinations and their opinions on the adequacy of internal accounting controls and the quality of financial reporting. The independent public accountants are engaged to express an opinion on the Company's financial statements. Their opinion is based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors. Todd W. Herrick President and Chief Executive Officer John H. Foss Vice President, Treasurer and Chief Financial Officer INDEPENDENT ACCOUNTANT'S REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF TECUMSEH PRODUCTS COMPANY We have audited the accompanying consolidated balance sheets of Tecumseh Products Company and Subsidiaries as of December 31, 1993 and 1992, and the related statements of consolidated income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tecumseh Products Company and Subsidiaries at December 31, 1993 and 1992 and the consolidated results of operations and cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ MOORE, SMITH & DALE Moore, Smith & Dale Certified Public Accountants February 17, 1994 Southfield, Michigan 25 16 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SELECTED FINANCIAL DATA
Years Ended December 31, --------------------------------------------------- 1993 1992(a) 1991 1990(b) 1989 --------- ---------- --------- ---------- --------- (Dollars in millions except per share data) INCOME STATEMENT DATA: Net Sales $1,314.2 $1,258.5 $1,197.2 $1,318.1 $1,509.8 Net Income Before Accounting Changes 81.4 52.3 42.5 14.2 82.6 Cumulative Effect of Changes In Accounting Principles - (95.0) - - - --------- ---------- --------- ---------- --------- Net Income (Loss) 81.4 (42.7) 42.5 14.2 82.6 PER SHARE OF COMMON STOCK: Net Income Before Accounting Changes $ 3.72 $ 2.39 $ 1.94 $ 0.65 $ 3.77 Cumulative Effect of Accounting Changes - (4.34) - - - --------- ---------- --------- ---------- --------- Net Income (Loss) 3.72 (1.95) 1.94 0.65 3.77 Cash Dividends Declared 1.15 0.80 0.80 0.80 1.11 BALANCE SHEET DATA (AT PERIOD END): Cash and Cash Equivalents $ 313.2 $ 263.6 $ 256.4 $ 240.3 $ 187.2 Working Capital (c) 473.6 420.4 403.1 414.3 397.3 Net Property, Plant and Equipment 320.4 322.9 324.3 304.9 280.0 Total Assets 1,132.7 1,078.6 1,055.4 1,032.2 1,034.1 Long-Term Debt 11.2 14.4 17.9 23.6 19.9 Stockholders' Equity 686.8 639.8 712.8 692.2 682.3 OTHER DATA: Capital Expenditures $ 51.1 $ 56.6 $ 85.8 $ 64.8 $ 57.5 Depreciation and Amortization 52.5 53.6 49.9 49.6 43.9
Note: The above per share amounts have been adjusted as necessary to reflect the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29, 1992. (a) Reflects cumulative effect of adoption of Statement of Financial Accounting Standards (SFAS) No. 106, Accounting for Non-pension Postretirement Benefits, and SFAS No. 109, Accounting for Income Taxes. (b) The 1990 results include a nonrecurring provision for environmental cleanup of $19.2 million after income taxes, or $0.88 per share. (c) Working capital is the excess of current assets over current liabilities. 26 17 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES INFORMATION CONCERNING EQUITY SECURITIES The Company's Class A and Class B common stock are traded in the over-the-counter market and are quoted on the NASDAQ National Market System. The high and low market prices and dividends per share presented below for each quarter of 1993 and 1992 have been adjusted to reflect the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29, 1992. The stock dividends are further discussed in Note 12.
1993 1992 ------------------------------------------------ ---------------------------------------------- Sales Price Sales Price ------------------------------------ --------------------------------- Class A Class B Cash Class A Class B or Prior Cash ---------- ---------------- Dividends ------- ---------------- Dividends Quarter Ended High Low High Low Declared High Low High Low Declared - ------------- ------- --------- -------- -------- ---------- ------- ------- ------- ------- ---------- March 31 32 1/2 26 3/4 33 1/4 28 1/2 $0.20 - - 32 3/4 25 1/4 $0.20 June 30 37 30 1/2 37 1/2 31 5/8 0.20 31 1/2 28 1/2 33 29 1/4 0.20 September 30 38 3/4 31 1/4 43 35 0.20 30 1/2 27 7/8 32 28 5/8 0.20 December 31 47 1/4 36 47 1/2 38 0.55 30 24 31 25 3/4 0.20 Shareholders of record at December 31, 1,087 1,054 1,088 1,115
QUARTERLY FINANCIAL DATA (Dollars in millions except per share data)
Quarter ----------------------------------------- First Second Third Fourth Total ----- ------ ----- ------ ----- 1993 Net sales $ 341.6 $ 368.6 $ 301.8 $ 302.2 $ 1,314.2 Gross profit 46.7 56.2 38.7 48.6 190.2 Net income $ 17.9 $ 24.3 $ 18.4 $ 20.8 $ 81.4 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income per share $ 0.82 $ 1.11 $ 0.84 $ 0.95 $ 3.72 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1992 Net sales $ 332.4 $ 362.8 $ 290.2 $ 273.1 $ 1,258.5 Gross profit 42.1 50.0 28.6 28.5 149.2 Income before cumulative effect of accounting changes 14.2 20.5 10.5 7.1 52.3 Cumulative effect of accounting changes (95.0) - - - (95.0) ----- ----- ----- ----- ----- Net income (loss) $ (80.8) $ 20.5 $ 10.5 $ 7.1 $ (42.7) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (loss) per share: Income before cumulative effect of accounting changes $ 0.65 $ 0.94 $ 0.48 $ 0.32 $ 2.39 Cumulative effect of accounting changes (4.34) - - - (4.34) ----- ----- ----- ----- ----- Net income (loss) per share $ (3.69) $ 0.94 $ 0.48 $ 0.32 $ (1.95) ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
The above per share amounts have been adjusted as necessary to reflect the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29, 1992. Certain amounts previously reported have been reclassified to conform with the current presentation. 27 EX-21 5 EXHIBIT 21 1 EXHIBIT (21) Tecumseh Products Company Report on Form 10-K for the period ended December 31, 1993 Subsidiaries of the Company The following is a list of subsidiaries of the Company as of December 31, 1993 except that certain subsidiaries, the sole function of which is to hold the stock of operating subsidiaries, which in the aggregate do not constitute significant subsidiaries, have been omitted. Subject to the foregoing in each case, 100% of the voting securities (except for directors' qualifying shares, if required) are owned by the subsidiary's immediate parent as indicated by indentation. State or Country Name of Organization - ---- ---------------- MP Pumps, Inc. Michigan Ottawa Machine & Tool Co. Michigan Sociedade Intercontinental de Compressores Hermeticos -- SICOM Ltda. Brazil Tec Kold International Company, Ltd. Lichteinstein Tecumseh Products Company of Canada, Ltd. Canada Tecumseh Products Company, Engine & Transmission Group, Dunlap Operations, Inc. Tennessee Tecumseh France S.A. France L'Unite Hermetique S.A. France Societe Des Moteurs Electriques de Normandie S.A. France Tecumseh Services EURL France Tecumseh Products Company, International Division, Inc. (FSC) Virgin Islands Tecnamotor S.r.l. Italy Society T.I.G.E.R. France Tecnamotor Deutschland Vertrieb GmbH Germany Tecnamotor U.K. Limited United Kingdom Little Giant Pump Co. Oklahoma Trenton Division, Inc. Tennessee Vitrus, Inc. Rhode Island EX-23 6 EXHIBIT 23 1 EXHIBIT 23 REPORT AND CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Tecumseh Products Company We hereby consent to the incorporation by reference in this annual report on Form 10-K of Tecumseh Products Company for the year ended December 31, 1993 of our report dated February 17, 1994 which appears on page 25 of the annual report to shareholders for the year ended December 31, 1993. The audit referred to in the above-mentioned report also included the related financial schedules for the three years ended December 31, 1993 listed in the accompanying index. In our opinion, such financial schedules present fairly the information required to be set forth therein. /s/ Moore, Smith & Dale MOORE, SMITH & DALE Southfield, Michigan February 17, 1994 -----END PRIVACY-ENHANCED MESSAGE-----