-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oc7qau7hDzrbzCy/94h0i4LpRR3P4CRKtBQ1CELb7jnhgFVbKMFe5zC+Efx6CEJH PCupzIsMc0rbEkMI37e9zQ== 0000950124-97-001811.txt : 19970327 0000950124-97-001811.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950124-97-001811 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECUMSEH PRODUCTS CO CENTRAL INDEX KEY: 0000096831 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 381093240 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00452 FILM NUMBER: 97563900 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-K405 1 FORM 10-K405 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, 1996 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. [X] Registrant disclaims the existence of control and, accordingly, believes that as of February 28, 1997 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 February 28, 1997, held an aggregate of 2,279,244 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 February 28, 1997 (based on the closing price of $55.25 per share, as reported on the NASDAQ National Market System on such date) of the 3,190,902 shares then issued and outstanding held by non-affiliates was approximately $176,297,336. Numbers of shares outstanding of each of the Registrant's classes of Common Stock at March 15, 1997: 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, 1996 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 1997 Annual Meeting of Shareholders has been incorporated herein by reference in Part III hereof. The Exhibit Index is located on page 23. =============================================================================== 2 TABLE OF CONTENTS Item Page PART I 1. Business 3 Executive Officers of the Registrant 12 2. Properties 13 3. Legal Proceedings 13 4. Submission of Matters to a Vote of Security Holder 14 PART II 5. Market for the Company's Common Equity and Related 15 Stockholder Matters 6. Selected Financial Date 15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 8. Financial Statements and Supplementary Data 15 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III 10. Directors and Executive Officers of the Company 16 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management 16 13. Certain Relationships and Related Transactions 16 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 Signatures 22 Exhibit Index 24 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. The Company also produces an extensive line of pumps. Products are 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, as well as refrigeration condensing units. The Company's compressor products range from fractional horsepower models used in small refrigerators and dehumidifiers to large compressors used in unitary air conditioning applications. The Company sells compressors in all four compressor market segments: (I) household refrigerators and freezers; (ii) room air conditioners; (iii) commercial and residential unitary central air conditioning systems; and (iv) commercial refrigeration applications including freezers, dehumidifiers, water coolers and vending machines. The Company sells compressors to original equipment manufacturers ("OEMs") and aftermarket distributors. 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 and 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 sales and manufacturing have become increasingly important to the Company's business as a whole. In 1996, sales to customers outside the United States represented approximately 45% of total consolidated net sales. In addition to North American operations, compressor products are produced in Brazil and France, while engines are produced in Italy. 3 4 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. Tecumseh do Brasil, Ltd. ("Tecumseh do Brasil"), the Company's Brazilian compressor subsidiary, sells its products principally in Latin America, 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, Tecumseh Europa, S.p.A. ("Tecumseh Europa"), in Italy and, to a lesser extent, by U.S. export sales. Approximately 33% of the Company's sales to customers outside the U.S. were to customers of compressor and engine products in Europe. Sales of compressors are also significant in Latin America, Middle East and the Asian-Pacific markets. The Company's dependence on sales in foreign countries entails certain commercial and political 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 other risks as well, including 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 Tecumseh do Brasil's performance on the Company's total operating results. In comparison to its domestic and European operations, the Company believes its Brazilian business offers the potential for greater rewards but with a correspondingly higher degree of risk. In November, 1996, the Company announced that it had signed a memorandum of understanding with Whirlpool of India, Ltd. to acquire Whirlpool's refrigeration compressor manufacturing facilities in the state of Haryana, India, subject to execution of a mutually satisfactory definitive agreement and all necessary approvals. Under the proposed agreement, Tecumseh will continue to manufacture the currently produced refrigeration compressor. Over the next several years, the capacity will be expanded to include a Tecumseh designed high efficiency CFC-free refrigeration compressor. Once expanded and fully equipped, the operation will have sufficient capacity to produce over two million refrigeration compressors annually. As of this writing, negotiations are ongoing to conclude the previously announced joint venture with Siel Limited for the production of air conditioning and commercial refrigeration compressors in Hyderabad Andra Pradesh, India. 4 5 COMPRESSOR PRODUCTS The Compressor Products segment is the Company's largest business 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 produces a cooling effect which forms the basis for a wide variety of refrigeration and air conditioning products. All of the compressors produced by the Company are hermetically sealed. The Company's current compressor line includes reciprocating and rotary designs. PRODUCT LINE The Company manufactures and sells a wide variety of traditional, reciprocating compressors suitable for use in all four compressor market segments. There is increasing worldwide demand for commercial and household refrigeration and freezer compressors that utilize HFC-134a, a non-CFC refrigerant. A substantial majority of the Company's compressor products utilize this and other non-ozone depleting refrigerants. The TP compressor, which uses refrigerant HFC-134a, continued to experience significant sales gains in the U.S. household refrigerator and freezer market in 1996. The Company produces rotary compressors ranging from 5,000 to 18,000 BTU/hr for use in room and mobile air conditioning applications. Rotary compressors generally provide increased operating efficiency, lower equipment space requirements, and reduced sound levels when compared to reciprocating designs. A new line of room air conditioning rotary compressors for use primarily in portable window units and recreational vehicles experienced significant sales gains in 1996. 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 its principal unitary air conditioning competitors do, which the Company believes puts it at a competitive disadvantage. The Company has made a significant investment in a scroll compressor facility in Tecumseh, Michigan, where it has experienced delays in the commercial production of this new type of compressor. The Company is committed to a successful launch of this product. MANUFACTURING OPERATIONS Compressor Products manufactured in the Company's U.S. plants accounted for approximately 53% of 1996 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 are purchased from a variety of non-affiliated suppliers. The Company utilizes multiple sources of supply and the required raw materials and components are generally available in sufficient quantities. 5 6 SALES AND MARKETING The Company markets its U.S. and Brazilian built compressors under the "Tecumseh" brand and French built compressors under the "L'Unite Hermetique" brand. 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. The Company's U.S. Export division and Brazilian and French subsidiaries have their 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 conditioners and for household refrigerators and freezers are to OEMs. Sales of Compressor Products for unitary central air conditioning systems and commercial applications include substantial sales to both OEM and aftermarket customers. Tecumseh do Brasil's Compressor Products are sold primarily in Brazil and other Latin American countries. Tecumseh do Brasil also furnishes component parts to the Company's North American plants and finished compressors for sale in North America. L'Unite Hermetique, sells a majority of its products in Europe but also has substantial sales outside Europe. The Company has a joint venture with Bitzer Kuhlmaschinenbau GmbH and Co. KG ("Bitzer") of Germany for the purpose of marketing Bitzer's extensive lines of semi-hermetic and open drive piston and screw-type compressor products in the United States and Canada. Product is marketed under the "Tecumseh-Bitzer" brand, using existing marketing and distribution systems. The Company has over 1,200 customers for Compressor Products, the majority of which are commercial customers. In 1996, the two largest customers for Compressor Products accounted for 10.5% and 9.4%, respectively, of segment sales, or 6.6% and 5.9%, 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. In 1996, approximately 35% 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 delivery, efficiency, noise level, price and reliability. The 6 7 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 OEMs 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 share of the domestic unitary air conditioning compressor business than either Bristol or the Company. Over the last several years there has been an industry trend toward the use of scroll compressors in the unitary air conditioning market. Copeland Corporation and other compressor manufacturers have had scroll compressors as part of their product offerings for some time. Carrier Corporation, a subsidiary of United Technologies and a major OEM which also produces scroll compressors, has a joint venture to produce scroll compressors with Bristol Corporation. Early in 1997, two major U.S. central air conditioning manufacturers, American Standard's Trane air conditioning division and Lennox International, Inc. announced that Copeland Corporation had joined their Alliance Scroll manufacturing joint venture. As discussed in the product line section, the Company has made a significant investment in a scroll compressor facility in Tecumseh, Michigan and is currently testing scroll products of its own design. The Company believes that successful introduction of this product is necessary to maintain long-term participation in the central air conditioning market. In the domestic room air conditioning compressor market, the Company competes primarily with foreign companies, which export compressors to the United States but also have U.S. manufacturing capabilities. The Company also competes to a lesser extent with U.S. manufacturers. Competitors include Matsushita Electric Industrial Corporation, Rotorex, Inc., and Sanyo Electric Trading Company, and others. 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. Competitors include Matsushita Electric Industrial Corporation, Danfoss, Inc., Embraco, S.A. and Copeland Corporation, and others. The household refrigerator and freezer market is vertically integrated with white good producers manufacturing a substantial portion of their compressor needs. The non-captive portion of the household refrigerator and freezer segment is substantially dominated by Far Eastern manufacturers, which export compressors to the United States but are also increasing U.S. manufacturing capabilities. Non-captive and captive competitors include Matsushita Electric Industrial Corporation, Embraco S.A., Danfoss, Inc. and AB Electrolux, and others. 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 and Brazil. Competitors include AB Electrolux, Embraco S.A. and Danfoss, Inc., and others. Tecumseh do Brasil sells the major portion of its manufactured compressors in Brazil and other Latin American countries and competes directly with Embraco S.A. 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. These factors are discussed below. 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, production of CFCs in developed countries was phased out January 1, 1996. The U.S. government has approved several replacement refrigerants, including HFC-134a, HFC-404A, and HFC-507, among others. The Company began producing compressors using alternative refrigerants for the commercial refrigeration market in late 1992 and for the refrigerator and freezer market during 1994. The Company believes that its rapid development of product using non-CFC refrigerant technology has improved its competitive position in these markets. Hydrochlorofluorocarbon compounds ("HCFCs") are used as a refrigerant in air conditioning systems. Under a 1992 international agreement, HCFCs will be banned from new equipment beginning in 2010, however, some European countries are beginning HCFC phase-outs as early as 1998. The Company believes the replacement of HCFCs will accelerate due to the expected availability of alternative refrigerants with better performance characteristics than HCFCs. It is not presently possible to estimate the level of expenditures which will be required to meet industry needs or the effect on the Company's competitive position. The U.S. National Appliance Energy Conservation Act of 1987 (the "NAECA") will require higher energy efficiency ratings on room air conditioners, refrigerators and freezers. These standards have not been finalized, and are expected to be issued in 1997 for staggered implementation starting in 2000 and running through 2003. It is not presently possible to estimate the level of expenditures which will be required to meet the new standards or the effect on the Company's competitive position. 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. These are used in a broad variety of consumer products, including lawn mowers (both riding and walk-behind types), snow throwers, small lawn and garden tractors, small power devices used in outdoor chore products, generators, pumps and certain self-propelled vehicles. The Company manufactures gasoline engines, both two- and four-cycle types, with aluminum die cast bodies ranging in sizes from 1.6 through 16.5 horsepower and with cast iron bodies ranging in size from 12 through 18 horsepower. A line of battery-operated electric power heads was also introduced in 1996 for limited applications. 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 five 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 train products. SALES AND MARKETING The Company markets its Engine and Power Train Products worldwide under the "Tecumseh" and "Peerless" brands. A substantial portion of the Company's engines are incorporated into lawn mowers sold under brand labels, including the "Craftsman" brand of Sears, Roebuck and Co. 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. North America and Europe are the principal markets for lawn and garden products. In 1996, the two largest customers for Engine and Power Train Products accounted for 20.3% and 19.2%, respectively, of segment sales, or 6.4% and 6.1%, respectively, of consolidated net sales. Loss of either of this segment'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 and its business as a whole. There are no long-term contracts between the Company and its major customers, but the present business relationships have existed for a substantial period of time. COMPETITION The Company believes it is the second largest producer of small gasoline engines in the world and that the largest such producer, with a broader product range, is Briggs & Stratton Corporation. Other producers of small gasolines include Kohler Corporation, Toro Company and Honda Corporation, among others. 9 10 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 important. The Company believes that it competes effectively on these bases. NEW EMISSION STANDARDS The U.S. Environmental Protection Agency ("EPA") is developing emission standards for utility engines which include the two- and four-cycle engines produced by the Company. Phase I requires compliance with new standards beginning September 1, 1997. The Company is prepared to produce competitively priced engines that meet these standards. Negotiations of the EPA Phase II standards are currently in progress. As an interim measure, in January, 1997, the Company and other small engine manufacturers signed a Statement of Principles with the EPA to provide additional air quality benefits by reducing smog-forming engine emissions. It is not currently possible to determine the related costs of compliance nor the impact on the 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 heating, ventilating and cooling, parts washers, machine tools, evaporative coolers, sump pumps, 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 under the "Little Giant" brand name. The Company's other pump subsidiary, MP Pumps Inc. ("MP Pumps"), manufactures and sells a variety of centrifugal pumps ranging in capacity from 15 to 3,700 gallons per minute, that are used in the agricultural, marine and transportation industries and in a variety of commercial and industrial applications and end products. 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 under the "MP Pumps"and "Jaeger" 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. 10 11 BACKLOG, CUSTOMERS AND SEASONAL VARIATIONS Most of the Company's production is against short-term purchase orders, and backlog is not significant. In 1996, 12% of consolidated sales represented engine and compressor sales to customers under the common control of AB Electrolux. 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. In the conduct of its business, the Company owns and uses 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 $30.4 million, $30.1 million and $27.8 million during 1996, 1995 and 1994 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. 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" and Note 9 of the Notes to Consolidated Financial Statements in the Company's Annual Report to Shareholders for the year ended December 31, 1996 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. 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, 1996, 1995 and 1994 appear under the caption "Business Segment Data" of the Company's Annual Report to Shareholders for the year ended December 31, 1996 and are incorporated herein by reference. 11 12 EMPLOYEES On December 31, 1996 the Company employed approximately 16,300 persons, 44% of which were employed in foreign locations. Approximately 4,900 of the U.S. employees were represented by labor unions, with no more than approximately 1,700 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 1996, the maximum number of persons employed was approximately 16,700 and the minimum was 16,000. 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 as of December 31, 1996.
PERIOD OF SERVICE NAME AND AGE OFFICE OR POSITION HELD AS AN OFFICER ----------------------- ----------------- Kenneth G. Herrick, 75 Chairman of the Board of Directors (1) Since 1966 Todd W. Herrick, 54 President and Chief Executive Officer (2) Since 1974 John H. Foss, 54 Vice President, Treasurer, and Chief Since 1979 Financial Officer Harry L. Hans, 63 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. Retired December 31, 1996. 12 13 ITEM 2. PROPERTIES The Company's headquarters are located in Tecumseh Michigan, approximately 50 miles southwest of Detroit. At December 31, 1996 the Company had 28 principal properties worldwide occupying approximately 7.2 million square feet with the majority, approximately 6.8 million square feet devoted to manufacturing. Nine facilities with approximately 2.4 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 4,654,000 Engine and Power Train Products 1,975,000 Pump Products and Other 547,000 Three domestic facilities, including land, building and certain machinery and equipment were financed and leased through industrial revenue bonds, substantially 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, 1996, both of which are incorporated herein by reference. As pointed out in 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 addition to the matter discussed in the preceding paragraph, 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 13 14 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 1996 to a vote of security holders through the solicitation of proxies or otherwise. 14 15 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the captions "Financial Summary" and "Information Concerning Equity Securities" of the Company's Annual Report to Shareholders for year ended December 31, 1996 is incorporated herein by reference. As of a February 28, 1997, there were 971 holders of record of the Company's Class A common stock and 908 holders of the Class B common stock. No equity securities were sold by the Company during the period covered by this report. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Data" of the Company's Annual Report to Shareholders for the year ended December 31, 1996 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" of the Company's Annual Report to Shareholders for the year ended December 31, 1996 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, 1996 is incorporated herein by reference. See Item 14 of this report for financial statement schedules. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 16 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 1997 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," "Compensation Committee Interlocks and Insider Participation" and "Election of Directors - Director Compensation" in the Company's definitive Proxy Statement relating to its 1997 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 - Management's Ownership of Equity Securities" in the Company's definitive Proxy Statement relating to its 1997 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 1997 Annual Meeting of Shareholders is incorporated herein by reference. 16 17 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, 1996: . Statements of Consolidated Income for the years ended December 31, 1996, 1995 and 1994 . Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 . Consolidated Balance Sheets as of December 31, 1996 and 1995 . Statements of Consolidated Cash Flows for the years ended December 31, 1996, 1995 and 1994 . Notes to Consolidated Financial Statements . Report of Independent Accountants (2) Financial Statement Schedules: Schedule Form 10-K Number Description Page Reference -------- ----------- --------------- II Valuation and Qualifying Accounts 21 Schedules other than those listed above are omitted because they are either not applicable or are not required. 17 18 (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 (filed as Exhibit (3)(c) to Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-452) and incorporated herein by reference) (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) 18 19 (3) Exhibits (continued): Exhibit Number Description ------- ----------- (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) (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) 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)(h) Management Incentive Plan, as amended through November 22, 1995 (management contract or compensatory plan or arrangement) (filed as Exhibit (10)(h) to Annual Report on Form 10-K for the year ended December 31, 1995 (Commission File No. 0-452) and incorporated herein by reference) (10)(i) Third Amendment to Management Incentive Plan, adopted January 22, 1997 (management contract or compensatory plan or arrangement) (10)(j) Supplemental Executive Retirement Plan effective January 1, 1995 (management contract or compensatory plan or arrangement) (filed as Exhibit (10)(l) to Annual Report on Form 10-K for the year ended December 31, 1994 (Commission File No. 0-452) and incorporated herein by reference) 19 20 (3) Exhibits (continued): Exhibit Number Description ------- ----------- (11) (not applicable) (12) (not applicable) (13) Portions of Tecumseh Products Company Annual Report to Shareholders for the year ended December 31, 1996, incorporated by reference herein (16) (not applicable) (18) (not applicable) (21) Subsidiaries of the Company (22) (not applicable) (23) Report and Consent of Certified Public Accountants (24) (not applicable) (27) Financial Data Schedule (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. 20 21 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in millions)
Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------------------ Additions ---------------------- Balance at Charged to Charged to Additions Balance at Beginning Costs and Other and End of Description of Period Expenses Accounts (Deductions) Period - ------------------------------------------------------------------------------------------------------ Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet: (A) 1996 $6.9 $0.2 ($0.4) $6.7 1995 $5.8 $1.5 ($0.4) $6.9 1994 $5.3 $0.9 ($0.4) $5.8
Notes: (A) Represents the total of accounts charged against the allowance for doubtful accounts and adjustments from the translation of foreign currency. 21 22 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____________________________________ Todd W. Herrick President and Chief Executive Officer Dated: March 26, 1997 22 23 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 26, 1997 Kenneth G. Herrick Board of Directors ___________________________ President, Chief March 26, 1997 Todd W. Herrick Executive Officer (Principal Executive Officer) and Director ___________________________ Director March 26, 1997 Peter M. Banks ___________________________ Director March 26, 1997 Jon E. Barfield ___________________________ Vice President, Treasurer March 26, 1997 John H. Foss and Chief Financial Officer (Principal Accounting and Principal Financial Officer) and Director ___________________________ Director March 26, 1997 J. Russell Fowler ___________________________ Director March 26, 1997 John W. Gelder ___________________________ Director March 26, 1997 Stephen L. Hickman ___________________________ Director March 26, 1997 Dean E. Richardson
23 24 EXHIBIT INDEX Exhibit Number - ------- (10)(i) Third Amendment to Management Incentive Plan, adopted January 22, 1997 (management contract or compensatory plan or arrangement) (13) Portions of the Company's Annual Report to Shareholders for the year ended December 31, 1996, incorporated by reference herein (21) Subsidiaries of the Company (23) Report and Consent of Certified Public Accountants (27) Financial Data Schedule 24 EX-10.I 2 EXHIBIT 10(I) 1 EXHIBIT (10)(I) THIRD AMENDMENT TO TECUMSEH PRODUCTS COMPANY MANAGEMENT INCENTIVE PLAN Effective January 1, 1997, the Executive Compensation Committee ("Committee") of Tecumseh Products Company (the "Company"), on behalf of the Company, amends the Company's Management Incentive Plan as follows: 1. Article IV(b) of the Plan is amended to read: (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 first trading day of each of the eleven 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 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. 2. Article VI of the Plan is amended to read: 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) Upon an active 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 portion of his Account which has thereby become vested shall be valued in accordance with Article IV(b) and paid within 30 days. 3. Article VII of the Plan is amended to read: VII. Retirement and Other Termination of Employment ---------------------------------------------- (a) If the employment of an Employee to whom Phantom Share allocations have been made shall be terminated by his Employer for any Reason denominated below (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. Such "Reason", for the sole purpose of determining whether an Employee's otherwise vested benefits are to be forfeited, shall be deemed to exist where - 2 (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 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. Nothing in this Plan shall alter the at-will nature of the Employee's employment relationship with his Employer. Nothing in this Plan shall confer upon any Employee the right to continue in the employ of any Employer. (b) Except as provided in Article VII(c) 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 one or more Reasons specified in Article VII(a) 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, permits him to retain. Nothing in this Plan shall alter the at-will nature of the Employee's employment relationship with his Employer. Nothing in this Plan shall confer upon any Employee the right to continue in the employ of any Employer. (c) Notwithstanding Article VI(a), an Employee's Phantom Share allocations shall be 100% vested as of the first day of the month that includes his last day of active work prior to normal or early 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 31st following each Allocation Date. (d) Prior to any payment pursuant to (b) or (c), above, the Employee's account shall be adjusted as provided in Article IV. (e) So long as the Employee shall continue to be an employee of the Employer, his Account shall not be affected by any change of 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. (f) 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 3 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. 4. Article VIII of the Plan is amended to read: 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 in accordance with Article IV(b) as of the end of the year in which the Committee determines that the Employee is totally and permanently disabled; payment shall be made during the following January. 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. An Employee who is "totally and permanently disabled" within the meaning of the Company's Salaried Retirement Plan shall be deemed to have a "total and permanent disability" under this Plan. (c) Upon the death of an active Employee, his Account shall become fully vested and payable, and shall be valued in accordance with Article IV(b) as of the end of the year in which the Employee's death occurs; payment shall be made during the following January. Upon the death of a disabled or retired Employee who has not received payment of his entire Account, the undistributed balance of such Account shall be valued in accordance with Article IV(b) as of the end of the year in which the retired Employee's death occurs; payment shall be made during the following January. 5. Article XIII of the Plan is amended to read: 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. If FICA taxes become payable due to vesting of an award in circumstances where it is not practicable (or would create a hardship) to withhold the employee's share of taxes from regular paychecks during the remainder of the taxable year, the Committee (or its delegate) may direct the Company to advance the employee's share of FICA taxes as an interest free loan, to be withheld from benefit amounts at the time they first become payable under this Plan. 4 6. References to Article VII(b) appearing in Article II(k) and Article IX(c) of the Plan shall be changed to Article VII(a). 7. Except as amended above, the Plan continues in full force and effect. WITNESS execution of this amendment on behalf of the Company by the Chairman of the Committee. TECUMSEH PRODUCTS COMPANY By /s/ Dean E. Richardson Committee Chairman Dated: January 22, 1997 EX-13 3 EXHIBIT 13 1
FINANCIAL SUMMARY (Dollars in millions except per share data) - ------------------------------------------------------------------------------------------------------ 1996(a) 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------ Net sales $1,784.6 $1,716.0 $1,533.4 $1,314.2 $1,258.5 - ------------------------------------------------------------------------------------------------------ Net income before accounting changes 112.6 119.2 120.3 81.4 52.3 % of net sales 6.3% 6.9% 7.8% 6.2% 4.2% - ------------------------------------------------------------------------------------------------------ Cumulative effect of changes in accounting for non- pension postretirement benefits and income taxes -- -- -- -- (95.0) - ------------------------------------------------------------------------------------------------------ Net income (loss) 112.6 119.2 120.3 81.4 (42.7) - ------------------------------------------------------------------------------------------------------ Capital expenditures 115.2 127.4 136.2 51.1 56.6 - ------------------------------------------------------------------------------------------------------ Total assets 1,472.6 1,407.6 1,289.8 1,132.7 1,078.6 - ------------------------------------------------------------------------------------------------------ Stockholders' equity 947.5 877.1 785.5 686.8 639.8 - ------------------------------------------------------------------------------------------------------ Return on average stockholders' equity (b) 12.3% 14.3% 16.3% 12.3% 7.7% - ------------------------------------------------------------------------------------------------------ Per share of common stock: Net income before accounting changes $5.15 $5.45 $5.50 $3.72 $2.39 Cumulative effect of accounting changes -- -- -- -- (4.34) -------- -------- -------- -------- -------- Net income (loss) 5.15 5.45 5.50 3.72 (1.95) Cash dividends declared 1.68 1.61 1.35 1.15 .80 Book value 43.30 40.09 35.90 31.39 29.24 - ------------------------------------------------------------------------------------------------------ Average number of employees 16,300 15,600 14,400 12,400 12,600 ======================================================================================================
NET CAPITAL RETURN ON AVERAGE NET INCOME SALES EXPENDITURES STOCKHOLDERS' EQUITY(b) PER SHARE (A) ------- -------------- ---------------------- ------------- millions of dollars millions of dollars percentage dollars 92 1,258.50 92 56.6 92 7.7 92 2.39 93 1,314.20 93 51.1 93 12.3 93 3.72 94 1,533.40 94 136.2 94 16.3 94 5.50 95 1,716.00 95 127.4 95 14.3 95 5.45 96 1,784.60 96 115.2 96 12.3 96 5.15 CASH DIVIDENDS PER SHARE --------------- dollars 92 .80 93 1.15 94 1.35 95 1.61 96 1.68
(a) The 1996 results included a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. (b) Calculated on net income before accounting changes. 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. 11 2 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - --------------------------------------------------------------------------- BUSINESS SEGMENT DATA (Dollars in millions) INDUSTRY SEGMENT INFORMATION
Net Sales Operating Profit ----------------------------- ---------------------------- 1996 1995 1994 1996 1995 1994 -------- --------- -------- -------- -------- -------- Compressor Products ..... $1,126.5 $1,131.9 $881.2 $102.7 $114.7 $92.8 Engine & Power Train Products ..... 564.1 497.6 563.8 64.5 51.4 80.2 Pump Products ..... 94.0 86.5 88.4 11.5 11.1 13.1 Corporate Expenses ..... - - - (10.4) (10.3) (11.4) Nonrecurring Charges (*) .. - - - (5.1) - - -------- --------- -------- -------- -------- ------- Total ........ $1,784.6 $1,716.0 $1,533.4 $163.2 $166.9 $174.7 ======== ========= ======== ======== ======== ======= Year End Assets Capital Expenditures Depreciation ---------------------------- --------------------------- --------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 -------- -------- -------- -------- -------- ------- ------ ------ ------ Compressor Products ..... $741.2 $729.0 $609.3 $77.9 $96.3 $119.2 $49.3 $45.4 $41.7 Engine & Power Train Products ..... 296.7 271.4 249.1 35.3 27.4 14.6 14.2 12.7 13.1 Pump Products ..... 47.9 42.6 42.9 2.0 3.7 2.4 1.1 1.1 .9 Corporate ..... 386.8 364.6 388.5 - - - - - - -------- -------- -------- ------- ------- ------- ------ ------ ------ Total ........ $1,472.6 $1,407.6 $1,289.8 $115.2 $127.4 $136.2 $64.6 $59.2 $55.7 ======== ======== ======== ======= ======= ======= ====== ====== ======
GEOGRAPHIC SEGMENT INFORMATION
Net Sales Operating Profit Year End Assets ----------------------------- -------------------------- ---------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 -------- -------- -------- ------ ------ ------- ------- ------- --------- North America .. $1,281.1 $1,159.6 $1,118.6 $121.4 $111.9 $121.4 $1,009.1 $942.4 $876.7 Europe ......... 328.5 373.0 283.6 1.7 12.5 9.8 273.6 321.5 279.4 Brazil ......... 270.1 272.7 187.6 40.1 42.5 43.5 189.9 143.7 133.7 Inter-area : North America.. (19.7) (25.2) (13.8) - - - - - - Europe ........ (11.5) (7.6) (3.1) - - - - - - Brazil ........ (63.9) (56.5) (39.5) - - - - - - -------- -------- -------- ------ ------ ------- -------- -------- -------- Total ......... $1,784.6 $1,716.0 $1,533.4 $163.2 $166.9 $174.7 $1,472.6 $1,407.6 $1,289.8 ======== ======== ======== ====== ====== ======= ======== ======== ========
Transfers between geographic areas are accounted for at cost plus a reasonable profit. Export sales of domestic operations were $264.1, $258.2, and $213.2 million in 1996, 1995 and 1994, respectively. Of these sales, approximately two-thirds were to customers in the Far and Middle East. In 1996, 12% of consolidated sales represented engine and compressor sales to customers under common control. The Company's share of net unremitted earnings of its foreign subsidiaries was $8.6 million in 1996, $9.6 million in 1995, and $44.2 million in 1994. Accumulated unremitted earnings of foreign subsidiaries at December 31, 1996 were $137.0 million. Certain amounts previously reported have been reclassified to conform with the current presentation. (*) The 1996 results included a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. 12 3 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tecumseh Products 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's products are sold in over 100 countries around the world. Products are grouped into three principal industry segments: Compressor Products, Engine and Power Train Products, and Pump Products. 1996 WORLDWIDE SALES $1.8 BILLION SALES [PIE CHART] Compressors 63% Engines 32% Pumps 5%
Annual sales for 1996 were $1,784.6 million, up 4% from 1995. 1996 net income was $112.6 million, or $5.15 per share, after a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. 1995 net income was $119.2 million or $5.45 per share. In addition to the nonrecurring charge, lower interest income and weak results from European operations contributed to the lower 1996 earnings. COMPRESSOR PRODUCTS 1996 VS. 1995 The Company's worldwide Compressor Products sales were $1,126.5 million, down slightly from $1,131.9 million in 1995. New product development programs launched over the past several years continued to positively impact sales, offset by a sales decline in Europe reflecting a weak European economy, cool weather and an unusually weak refrigerator market. COMPRESSOR PRODUCTS SALES [BAR CHART]
dollars in millions 1994 881.2 1995 1131.9 1996 1126.5
In North American markets, recently developed products which continued to gain share included the Brazilian-built TP compressor for household refrigeration and the RG rotary compressor for room air conditioning. Unitary air conditioning compressor sales remained strong in domestic and overseas markets, particularly to export customers in the Middle East. The Company's Brazilian subsidiary, Tecumseh do Brasil, maintained comparable year-to-year sales and operating results. Local Brazilian demand for refrigeration product remained strong throughout the year, but was offset by generally weaker demand in the rest of South and Central America. Compressor Products operating margins for 1996 were 9.1% as compared to 10.1% in 1995. Weak sales results in Europe, including an operating loss in European operations in the fourth quarter of 1996, were the primary contributor to margin declines. 1995 VS. 1994 Worldwide compressor sales for 1995 reached $1,131.9 million and were 28% higher than 1994. Sales of new product introductions, a worldwide weather-related shortage of room air conditioning compressors and rising demand in emerging nations all contributed to an increase in sales. European and North American compressor operations reported double-digit sales growth while the Company's Brazilian subsidiary, Tecumseh do Brasil, reported a 46% increase in sales for 1995. Compressor Products operating margins were 10.1% for 1995 as compared to 10.5% in 1994. New product start-up costs and currency-driven reductions in export margins of the Company's Brazilian and French operations offset the favorable effects of increased sales volume. ENGINE AND POWER TRAIN PRODUCTS 1996 VS. 1995 Worldwide Engine and Power Train Products sales were $564.1 million and were up 13% as compared to 1995. In North America, heavy snowfall in the winter of 1995-96 depleted retail inventories of snow throwers, resulting in continued strong demand for the Company's snow engine product. North American lawn and garden sales also increased compared to the prior year, despite a generally down year for the lawn and garden industry as a result of unusually cool weather this past summer in key regions of the U.S. These sales gains were offset in part by weaker sales in the Company's European lawn and garden operations. [Continued on next page] 13 4 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENGINE AND POWER TRAIN PRODUCTS SALES
dollars in millions 1994 563.8 1995 497.6 1996 564.1
Engine and Power Train Products operating margin was 11.4% for 1996 as compared to 10.3% for 1995. A small loss experienced by European lawn and garden operations was more than offset by margin gains from increased sales volume in North American snow and lawn and garden products. 1995 VS. 1994 Worldwide Engine and Power Train Products sales of $497.6 million declined 12% as compared to 1994. A cool spring in the North East and North Central U.S., consumer economic uncertainty and summer drought caused several lawn and garden customers to curtail production. Snow engine sales were also lower as compared to exceptionally strong sales in 1994. The reduced sales volume, particularly in the higher margin snow engine product, and higher raw material costs caused 1995 operating margins to decrease to 10.3% as compared to 14.2% in 1994. PUMP PRODUCTS 1996 Pump Products sales of $94.0 million increased 9% as compared to 1995. 1995 versus 1996 gains were due to increased sales to the plumbing and HVAC industries. 1995 sales of $86.5 million were slightly down as compared to $88.4 million in 1994, due in part to comparably lower sales to an industrial customer who had completed an equipment replacement program in the prior year. INTEREST INCOME AND INCOME TAX Interest income and other, net was $20.2 million as compared to $29.1 million in 1995. The decrease was due in large part to lower financial income reported by the Company's Brazilian subsidiary. During 1995, the Company lowered its cash position in Brazil to provide some protection from potential currency devaluations. The effective tax rate for 1996 was 36.4% as compared to 36.6% in 1995. LIQUIDITY AND CAPITAL RESOURCES In November, the Company announced that it had signed a memorandum of understanding with Whirlpool of India, Ltd. to acquire Whirlpool's refrigeration compressor manufacturing facilities in the state of Haryana, India, subject to execution of a mutually satisfactory definitive agreement and all necessary approvals. Under the proposed agreement, Tecumseh will continue to manufacture the currently produced refrigeration compressor. Over the next several years, the capacity will be expanded to include Tecumseh's high efficiency CFC-free TP refrigeration compressor. Once expanded and fully equipped, the operation will have sufficient capacity to produce over 2 million refrigeration compressors annually. As of this writing, negotiations are ongoing to conclude the previously announced joint venture with Siel Limited for the production of air conditioning and commercial refrigeration compressors in Hyderabad Andra Pradesh, India. The Company has made a significant investment in a scroll compressor facility in Tecumseh, Michigan. Delays in the commercial production of this new type of compressor are being experienced. Design modifications are in process in response to customer feedback and field testing. The Company is committed to a successful launch of this product. The Company continued to maintain a strong and liquid financial position. Working capital of $549.7 million at December 31, 1996 was up from $521.3 million at the end of 1995, and the ratio of current assets to current liabilities was 3.2. Capital expenditures for 1996 were $115 million as compared to $127 million in 1995. Major capital projects for 1996 included substantial completion of a reduced emission engine facility in Georgia and initial construction of a compressor electric motors facility in Mississippi. Total capital spending for 1997 should approximate $130-150 million, including the Whirlpool acquisition in India and could exceed that upon conclusion of the joint venture with Siel Limited. Other major capital projects for 1997 include completion of the electric motors facility in Mississippi, additional equipment for the new engine manufacturing facility in Georgia, and capacity expansion of rotary room air conditioning compressor manufacturing overseas. Working capital requirements and planned capital and investment expenditures for 1997 and early 1998 are expected to be financed primarily through internally available funds. However, the Company may also utilize long-term financing arrangements in connection with state 14 5 investment incentives and may from time to time utilize short-term borrowings to hedge currency risk and to finance foreign working capital requirements. The Company maintains a $100 million revolving credit facility that is available for general corporate purposes. The U.S. Environmental Protection Agency (EPA) is developing emission standards for utility engines which include the two- and four-cycle engines produced by the Company. Phase I requires compliance with new standards beginning September 1, 1997. The Company is prepared to produce competitively priced engines that meet these standards. Negotiations of the EPA Phase II standards are currently in process. As an interim measure, in January, 1997, the Company and other small engine manufacturers signed a Statement of Principles with the EPA to provide additional air quality benefits by reducing smog-forming engine emissions. It is not currently possible to determine the related costs of compliance nor the impact on the competitive position of the Company. The Company is subject to various laws relating to the protection of the environment and is in various stages of investigation or remediation for sites where contamination has been alleged. (See Note 9 to the financial statements). Liabilities relating to probable remediation activities are recorded when the costs of such activities can be reasonably estimated based on the facts and circumstances currently known. Difficulties exist estimating the future timing and ultimate costs to be incurred due to uncertainties regarding the status of laws, regulations, technology and information available. At December 31, 1996 and 1995 the Company had accrued $39.8 million and $36.1 million for environmental remediation, respectively. UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the securities laws. In addition, forward-looking statements may be made orally in the future by or on behalf of the Company. Forward-looking statements involve risks and uncertainties, including, but not limited to, changes in business conditions and the economy in general in both foreign and domestic markets; weather conditions affecting demand for air conditioners, lawn and garden products and snow throwers; financial market changes, including interest rates and foreign exchange rates; economic trend factors such as housing starts; governmental regulations; availability of materials; actions of competitors; and the Company's ability to profitably develop, manufacture and sell both new and existing products. 15 6 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ STATEMENTS OF CONSOLIDATED INCOME (Dollars in millions except per share data)
For the Years Ended December 31, -------------------------------- 1996(*) 1995 1994 ---------- -------- --------- NET SALES .............................. $1,784.6 $1,716.0 $1,533.4 COST AND EXPENSES Cost of sales and operating expense ... 1,517.8 1,454.8 1,269.9 Selling and admininistrative expense .. 98.5 94.3 88.8 Nonrecurring charges .................. 5.1 - - ---------- -------- --------- OPERATING INCOME ....................... 163.2 166.9 174.7 OTHER INCOME (EXPENSE) Interest expense ...................... (6.4) (8.0) (6.5) Interest income and other, net ........ 20.2 29.1 23.7 ---------- -------- --------- INCOME BEFORE TAXES ON INCOME .......... 177.0 188.0 191.9 TAXES ON INCOME ........................ 64.4 68.8 71.6 ---------- -------- --------- NET INCOME ............................. $ 112.6 $ 119.2 $ 120.3 ========== ======== ========= NET INCOME PER SHARE ................... $ 5.15 $ 5.45 $ 5.50 ========== ======== =========
Note: Certain amounts previously reported have been reclassified to conform with the current presentation. (*) The 1996 results included a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. The accompanying notes are an integral part of these statements. 16 7 - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in millions)
COMMON STOCK FOREIGN -------------------------- CAPITAL CURRENCY TOTAL CLASS A CLASS B IN EXCESS RETAINED TRANSLATION STOCKHOLDERS' $1 PAR VALUE $1 PAR VALUE OF PAR VALUE EARNINGS ADJUSTMENT EQUITY ------------ ------------ ------------ -------- ----------- ------------- BALANCE, DECEMBER 31, 1993 .. $16.4 $5.5 $29.9 $633.2 $1.8 $686.8 Net income .................. 120.3 120.3 Cash dividends .............. (29.5) (29.5) Translation adjustments ..... 7.9 7.9 ------------ ------------ ------------ -------- ----------- ------------- BALANCE, DECEMBER 31, 1994 .. 16.4 5.5 29.9 724.0 9.7 785.5 Net income .................. 119.2 119.2 Cash dividends .............. (35.2) (35.2) Translation adjustments ..... 7.6 7.6 ------------ ------------ ------------ -------- ----------- ------------- BALANCE, DECEMBER 31, 1995 .. 16.4 5.5 29.9 808.0 17.3 877.1 Net income .................. 112.6 112.6 Cash dividends .............. (36.8) (36.8) Translation adjustments ..... (5.4) (5.4) ------------ ------------ ------------ -------- ----------- ------------- BALANCE, DECEMBER 31, 1996 .. $16.4 $5.5 $29.9 $883.8 $11.9 $947.5 ============ ============ ============ ======== =========== =============
The accompanying notes are an integral part of these statements. 17 8 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (Dollars in millions)
December 31, ---------------- ASSETS 1996 1995 ------ ------ CURRENT ASSETS: Cash and cash equivalents ........................................ $ 277.7 $ 261.6 Accounts receivable, trade, less allowance for doubtful accounts of $6.7 million in 1996 and $6.9 million in 1995 ....... 204.5 225.5 Inventories ...................................................... 275.2 260.0 Deferred income taxes ............................................ 36.6 33.9 Other current assets ............................................. 10.4 10.2 -------- -------- TOTAL CURRENT ASSETS ......................................... 804.4 791.2 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, at cost: Land and land improvements ....................................... 8.9 9.0 Buildings ........................................................ 162.6 149.0 Machinery and equipment .......................................... 805.9 738.1 -------- -------- 977.4 896.1 Less accumulated depreciation .................................... 448.3 419.1 -------- -------- PROPERTY, PLANT AND EQUIPMENT, net ........................... 529.1 477.0 -------- -------- EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated amortization of $16.5 million in 1996 and $14.5 million in 1995 .. 56.0 60.9 DEFERRED INCOME TAXES ................................................ 13.6 19.9 PREPAID PENSION EXPENSE .............................................. 46.7 37.6 OTHER ASSETS ......................................................... 22.8 21.0 -------- -------- TOTAL ASSETS ................................................. $1,472.6 $1,407.6 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade .......................................... $114.3 $129.5 Income taxes payable ............................................. .1 7.5 Short-term borrowings ............................................ 19.8 13.5 Accrued liabilities: Employee compensation ........................................... 37.2 34.0 Product warranty and self-insured risks ......................... 35.2 30.2 Other ........................................................... 48.1 55.2 -------- -------- TOTAL CURRENT LIABILITIES .................................... 254.7 269.9 LONG-TERM DEBT ....................................................... 14.4 14.7 NON-PENSION POSTRETIREMENT BENEFITS .................................. 178.4 174.0 PRODUCT WARRANTY AND SELF-INSURED RISKS .............................. 30.2 30.0 ACCRUAL FOR ENVIRONMENTAL MATTERS .................................... 33.0 27.3 PENSION LIABILITIES .................................................. 14.4 14.6 -------- -------- TOTAL LIABILITIES ............................................ 525.1 530.5 -------- -------- STOCKHOLDERS' EQUITY: Class A common stock, $1 par value; authorized 75,000,000 shares; issued and outstanding 16,410,438 shares ................ 16.4 16.4 Class B common stock, $1 par value; authorized 25,000,000 shares; issued and outstanding 5,470,146 shares ................. 5.5 5.5 Capital in excess of par value ................................... 29.9 29.9 Retained earnings ................................................ 883.8 808.0 Foreign currency translation adjustment .......................... 11.9 17.3 -------- -------- TOTAL STOCKHOLDERS' EQUITY ................................... 947.5 877.1 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $1,472.6 $1,407.6 ======== ========
The accompanying notes are an integral part of these statements. 18 9 - ------------------------------------------------------------------------------ STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in millions)
For The Years Ended December 31, ----------------------------------- 1996 1995 1994 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................... $112.6 $119.2 $120.3 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............... 64.6 59.2 55.7 Accounts receivable ......................... 17.5 (31.2) (26.6) Inventories ................................. (16.3) (21.6) (58.2) Payables and accrued expenses ............... (15.0) 12.1 28.0 Other ....................................... 2.7 (5.3) 8.0 --------- --------- --------- Cash Provided By Operations ................ 166.1 132.4 127.2 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .......................... (115.2) (127.4) (136.2) --------- --------- --------- Cash Used In Investing Activities .......... (115.2) (127.4) (136.2) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid ................................ (36.8) (35.2) (29.5) Proceeds from borrowings ...................... 7.1 10.9 9.5 Repayments of borrowings ...................... (1.1) (4.5) (15.4) --------- --------- --------- Cash Used In Financing Activities .......... (30.8) (28.8) (35.4) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH ........... (4.0) 2.2 14.4 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 16.1 (21.6) (30.0) CASH AND CASH EQUIVALENTS: Beginning of period ......................... 261.6 283.2 313.2 --------- --------- --------- End of period ............................... $277.7 $261.6 $283.2 ========= ========= =========
The accompanying notes are an integral part of these statements. 19 10 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES BUSINESS DESCRIPTION -- Tecumseh Products 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's products are sold in over 100 countries around the world. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company's investments in unconsolidated affiliates are generally 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. INVENTORIES -- Inventories are valued at the lower of cost or market, generally on the first-in, first-out basis. 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. 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." 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. ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts during the reporting period and at the date of the financial statements. Actual results could differ from those estimates. 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) 1996 1995 ----- ----- Balance at January 1 $17.3 $9.7 Effect of balance sheet translations: Amount (8.8) 11.3 Tax effect 3.4 (3.7) ----- ----- Balance at December 31 $11.9 $17.3 ===== =====
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 gain (loss) is included in net earnings and was $2.5 million, $4.8 million, and $(1.1) million in 1996, 1995, and 1994, 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. 20 11 Net pension expense of the Company's domestic defined benefit plans include the following components:
(Dollars in millions) 1996 1995 1994 ------ ------ ------ Service cost-benefits earned during year $ 6.5 $ 5.2 $ 6.2 Interest cost on projected benefit obligations 16.9 17.1 16.3 Actual (gain) loss on assets (47.0) (85.0) 6.0 Net amortization and deferral 14.6 57.2 (32.8) ------ ------ ------ Net pension expense (credit) $ (9.0) $ (5.5) $ (4.3) ====== ====== ======
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:
(Dollars in millions) 1996 1995 -------------- --------------- Over- Under- Over- Under- funded funded funded funded Plans Plans Plans Plans ------ ------ ------- ------ Plan assets at fair value $455.6 $ .4 $ 423.2 $ .8 ------ ------ ------- ------ Actuarial present value of benefit obligation: Vested benefits 235.9 .8 236.6 .9 Non-vested benefits 14.2 .3 14.1 .2 ------ ------ ------- ------ Accumulated benefit obligation 250.1 1.1 250.7 1.1 Effect of projected future salary increases 21.2 .5 21.6 - ------ ------ ------- ------ Projected benefit obligation 271.3 1.6 272.3 1.1 ------ ------ ------- ------ Projected benefit obligation (in excess of) or less than plan assets 184.3 (1.2) 150.9 (.3) Unrecognized prior service cost 9.5 .9 10.5 .1 Unrecognized net (gain)loss (132.3) .3 (107.0) .2 Unrecognized net transition (asset) obligation (14.8) - (16.8) - ------ ------ ------- ------ Prepaid pension expense $ 46.7 $ - $ 37.6 $ - ====== ====== ======= ======
Assumptions used in accounting for the domestic defined benefit plans were:
1996 1995 ---- ---- Measurement of projected benefit obligation: Discount rate 6.50% 6.25% Long-term rate of compensation increases 5.00% 5.00% Long-term rate of return on plan assets 7.50% 7.50%
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 $2.1, $2.5, and $1.8 million in 1996, 1995 and 1994, respectively. The net liability recorded in the consolidated balance sheet was $14.4 and $14.6 million for 1996 and 1995, respectively. Consolidated pension expense (credit) of $(3.3) million in 1996, $0.1 million in 1995, and $(0.1) million in 1994 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 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. 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. The components of the net periodic postretirement benefit cost were:
(Dollars in millions) 1996 1995 1994 ----- ----- ----- Service cost-benefits earned during year $ 4.2 $ 3.6 $ 3.9 Interest cost on accumulated postretirement benefit obligation 8.3 8.9 8.9 Net amortization and deferral (3.2) (3.7) (1.6) ----- ----- ----- Net postretirement health care costs $ 9.3 $ 8.8 $11.2 ===== ===== =====
[Continued on next page] 21 12 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [continued] The total of accrued postretirement benefit obligation is presented below as of December 31:
(Dollars in millions) 1996 1995 ------ ------ Accumulated postretirement benefit obligation: Retirees $ 50.0 $ 51.5 Active, eligible employees 26.0 24.3 Active, not yet eligible employees 59.7 56.6 ------ ------ 135.7 132.4 Unrecognized plan amendment gain 11.7 12.9 Unrecognized net actuarial gain 37.0 34.8 ------ ------ Accrued postretirement benefit cost in excess of plan assets $184.4 $180.1 ====== ====== Assumptions used: Discount rate 6.50% 6.25% Health care cost trend rate 7.60% 8.00% Ultimate health care cost trend rate in 2004 5.00% 5.00%
At December 31, 1996 and 1995 respectively, $6.0 and $6.1 million were included in Accrued Liabilities, Other. 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, 1996 by $20.3 million and the aggregate of the service and interest cost components of net postretirement health care cost for the year then ended by $2.3 million. NOTE 5. INCOME TAXES Consolidated income before taxes consists of the following:
(Dollars in millions) 1996 1995 1994 ------ ------ ------ United States $131.4 $125.8 $132.8 Foreign 45.6 62.2 59.1 ------ ------ ------ $177.0 $188.0 $191.9 ====== ====== ======
Provision for income taxes consists of the following:
(Dollars in millions) 1996 1995 1994 ------ ------ ------ Current: U.S. federal $ 37.4 $ 34.7 $ 53.8 State and local 6.2 6.4 7.8 Foreign income and withholding taxes 14.0 25.6 14.7 ------ ------ ------ 57.6 66.7 76.3 ------ ------ ------ Deferred: U.S. federal 8.5 .5 (4.2) Foreign (1.7) 1.6 (.5) ------ ------ ------ 6.8 2.1 (4.7) ------ ------ ------ Provision for income taxes $ 64.4 $ 68.8 $ 71.6 ====== ====== ====== Income taxes paid $ 61.6 $ 59.4 $ 80.7 ====== ====== ======
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% to pre-tax income is as follows:
(Dollars in millions) 1996 1995 1994 ----- ----- ----- Income taxes at U.S. statutory rate $62.0 $65.8 $67.2 Excess of foreign taxes over the U.S. statutory rate .9 .2 - State and local income taxes 4.0 4.1 5.1 Tax benefits from Foreign Sales Corporation (1.6) (1.7) (1.0) Other (.9) .4 .3 ----- ----- ----- $64.4 $68.8 $71.6 ===== ===== =====
Significant components of the Company's deferred tax assets and liabilities as of December 31 were as follows:
(Dollars in millions) 1996 1995 ----- ----- Deferred tax assets: Non-pension postretirement benefits $68.2 $66.5 Product warranty and self-insured risks 24.5 22.4 Net operating loss carryforwards 5.0 8.3 Provision for environmental matters 14.7 13.4 Other accruals and miscellaneous 21.7 23.6 ----- ----- 134.1 134.2 Valuation allowance (5.4) (9.5) ----- ----- Total deferred tax assets 128.7 124.7 ----- ----- Deferred tax liabilities: Tax over book depreciation 42.4 39.7 Pension 15.0 13.9 Other 21.1 17.3 ----- ----- Total deferred tax liabilities 78.5 70.9 ----- ----- Net deferred tax assets $50.2 $53.8 ===== =====
22 13 - ------------------------------------------------------------------------------ At December 31, 1996, the Company had net operating loss carryforwards attributable to foreign operations for income tax purposes of $13.4 million which expire from 1997 to 2000 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) 1996 1995 ------ ------ Raw materials and work in process $155.1 $162.8 Finished goods 101.4 80.4 Supplies 18.7 16.8 ------ ------ $275.2 $260.0 ====== ======
NOTE 7. BUSINESS SEGMENT DATA Business segment data is presented on page 12 of this report. 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 $16.4 million (at 5.4%) at December 31, 1996, and $11.3 million (at 5.6%) at December 31, 1995. Long-term debt consists of the following: 1. Unsecured borrowings, primarily with banks, by foreign subsidiaries with interest rates ranging from 5.9% to 6.7%. The U.S. dollar equivalent of these borrowings was $5.6 and $4.6 million at December 31, 1996 and 1995, respectively. 2. A $5.4 million variable-rate bank repurchase agreement (effective interest rate of 5.9% at December 31, 1996), due in 1998. 3. $6.7 million ($6.9 million in 1995) variable-rate Industrial Development Revenue Bonds (effective interest rate of 6.0% at December 31, 1996) payable in quarterly installments from 1997 to 2020. Scheduled maturities of long-term debt outstanding at December 31, 1996, are as follows: 1997--$3.7 million; 1998--$5.7 million; 1999--$0.4 million; 2000--$1.3 million; 2001 and beyond--$6.6 million. Interest paid was $6.4 million in 1996, $8.6 million in 1995 and $6.4 million in 1994. The Company has obtained a $100 million revolving credit facility for general corporate purposes. The facility has a three-year term which may be extended annually with the consent of the participating banks. Under the facility, the Company may select among various interest rate arrangements. As of December 31, 1996, the Company had not made any borrowings under this facility. NOTE 9. ENVIRONMENTAL MATTERS 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, 1996 and 1995, the Company had an accrual of $30.1 million for estimated costs associated with the cleanup of certain polychlorinated biphenyl (PCB) contamination at this Superfund Site. The Company has based the estimated cost of cleanup on ongoing engineering studies, including samples taken in the Sheboygan River, and on assumptions as to the nature, extent and areas that will have to be remediated. Significant assumptions underlying the estimated costs are that remediation will involve innovative technologies, including (but not limited to) bioremediation near the Company's plant site and along the upper river, and only natural armoring and bioremediation in the lower river and harbor. The EPA has indicated it expects to issue a record of decision on the cleanup of the Sheboygan River and Harbor Site by late 1997, but the ultimate resolution of the matter may take much longer. The ultimate costs to the Company will be dependent upon factors beyond its control. These factors include the scope and methodology of the remedial action requirements to be established by the EPA (in consultation with the Wisconsin Department of Natural Resources (WDNR)), rapidly changing technology, and the outcome of any related litigation. The Company, in cooperation with the WDNR, is conducting an investigation of soil and groundwater contamination at the Company's Grafton, Wisconsin plant. Certain test procedures are underway to assess the extent of contamination and to develop remedial options for the site. While the Company has provided for estimated investigation and on-site remediation costs, the extent and timing of future off-site remediation requirements, if any, are not presently determinable. The WDNR has requested that the Company and other interested parties join it in a cooperative effort to clean up PCB contamination in the watershed of the south branch of the Manitowoc River, downstream of the Company's New Holstein, Wisconsin facility. The [Continued on next page] 23 14 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [continued] Company has cooperated to date with the WDNR in investigating the scope and range of the contamination. The WDNR has not identified the parties it believes are responsible for such contamination. The Company has provided for preliminary investigation expenses. Although participation in a cooperative remediation effort is under consideration, it is not possible at this time to reasonably estimate the cost of any such participation. In addition to the above mentioned sites, the Company is also currently participating with the EPA and various state agencies at certain other sites to determine the nature and extent of any remedial action which may be necessary with regard to such other sites. Based on limited preliminary data and other information currently available, the Company has no reason to believe that the level of expenditures for potential remedial action necessary at these other sites will have a material effect on its financial position. NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES 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. FINANCIAL INSTRUMENTS 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, Tecumseh do Brasil, are sold at a discount. Discounted Brazilian export accounts receivable balances at December 31, 1996 and 1995, respectively, were $13.3 million and $20.6 million with discount rates, respectively of 6.3 and 8.25 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 receivables, payables and other known transactional exposures for periods consistent with the expected cash flows of the underlying transactions. Foreign exchange contracts generally mature within one year and are designed to limit 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, 1996 and 1995 respectively, the Company had $64.9 million and $62.6 million in foreign exchange contracts outstanding. The carrying value of cash and cash equivalents, receivables, accounts payable and the aggregate value of forward exchange contracts approximates fair value due to the short maturity of these instruments. The carrying value of short and long-term debt approximates fair value based on discounting the projected cash flows using market rates available for similar maturities. NOTE 12. STOCKHOLDERS' EQUITY The shares of Class A common stock and Class B common stock are substantially identical except as to voting rights. Class A common stock has no voting rights except the right to i) vote on any amendments that could adversely affect the Class A Stock Protection Provision and ii) vote in other limited circumstances, primarily involving mergers and acquisitions, as required by law. A Shareholders' Rights Plan is in effect for each class of stock. These plans protect shareholders against unsolicited attempts to acquire control of the Company that do not offer an adequate price to all shareholders. The rights are not currently exercisable, but would become exercisable at an exercise price of $80 per share, subject to adjustment, if certain events occurred relating to a person or group acquiring or attempting to acquire 10% or more of the outstanding shares of Class B common stock. 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, 1996, 16,410,438 shares of Class A common stock and 5,470,146 shares of Class B common stock were reserved for future exercise under the plans. 24 15 [BLANK] 25 16 TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES - ------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (Dollars in millions except per share data) 1996(A) 1995 1994 1993 1992(b) ------- ---- ---- ---- ------- INCOME STATEMENT DATA: Net sales $1,784.6 $1,716.0 $1,533.4 $1,314.2 $1,258.5 ------------------------------------------------------------------------------------------- Net income before accounting changes 112.6 119.2 120.3 81.4 52.3 ------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principles - - - - (95.0) ------------------------------------------------------------------------------------------- Net income (loss) 112.6 119.2 120.3 81.4 (42.7) ------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK: Net income before accounting changes $ 5.15 $ 5.45 $ 5.50 $ 3.72 $ 2.39 ------------------------------------------------------------------------------------------- Cumulative effect of accounting changes - - - - (4.34) ------------------------------------------------------------------------------------------- Net income (loss) 5.15 5.45 5.50 3.72 (1.95) ------------------------------------------------------------------------------------------- Cash dividends declared 1.68 1.61 1.35 1.15 .80 ------------------------------------------------------------------------------------------- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents $ 277.7 $ 261.6 $ 283.2 $ 313.2 $ 263.6 ------------------------------------------------------------------------------------------- Working capital (e) 549.7 521.3 504.2 473.6 420.4 ------------------------------------------------------------------------------------------- Net property, plant and equipment 529.1 477.0 402.4 320.4 322.9 ------------------------------------------------------------------------------------------- Total assets 1,472.6 1,407.6 1,289.8 1,132.7 1,078.6 ------------------------------------------------------------------------------------------- Long-term debt 14.4 14.7 9.1 11.2 14.4 ------------------------------------------------------------------------------------------- Stockholders' equity 947.5 877.1 785.5 686.8 639.8 ------------------------------------------------------------------------------------------- OTHER DATA: Capital expenditures $ 115.2 $ 127.4 $ 136.2 $ 51.1 $ 56.6 ------------------------------------------------------------------------------------------- Depreciation and amortization 64.6 59.2 55.7 52.5 53.6 -------------------------------------------------------------------------------------------
26 17
SELECTED FINANCIAL DATA (Dollars in millions except per share data) 1991 1990(c) 1989(d) 1988 1987 ---- ------- ------- ---- ---- INCOME STATEMENT DATA: Net sales $1,197.2 $1,318.1 $1,509.8 $1,093.5 $ 951.2 ------------------------------------------------------------------------------------------- Net income before accounting changes 42.5 14.2 82.6 70.2 71.6 ------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principles - - - - - ------------------------------------------------------------------------------------------- Net income (loss) 42.5 14.2 82.6 70.2 71.6 ------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK: Net income before accounting changes $ 1.94 $ .65 $ 3.77 $ 3.21 $ 3.27 ------------------------------------------------------------------------------------------- Cumulative effect of accounting changes - - - - - ------------------------------------------------------------------------------------------- Net income (loss) 1.94 .65 3.77 3.21 3.27 ------------------------------------------------------------------------------------------- Cash dividends declared .80 .80 1.11 1.05 1.05 ------------------------------------------------------------------------------------------- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents $ 256.4 $ 240.3 $ 187.2 $ 163.0 $ 218.1 ------------------------------------------------------------------------------------------- Working capital (e) 403.1 414.3 397.3 340.4 329.3 ------------------------------------------------------------------------------------------- Net property, plant and equipment 324.3 304.9 280.0 251.8 210.3 ------------------------------------------------------------------------------------------- Total assets 1,055.4 1,032.2 1,034.1 900.0 764.0 ------------------------------------------------------------------------------------------- Long-term debt 17.9 23.6 19.9 14.3 11.3 ------------------------------------------------------------------------------------------- Stockholders' equity 712.8 692.2 682.3 618.0 575.7 ------------------------------------------------------------------------------------------- OTHER DATA: Capital expenditures $ 85.8 $ 64.8 $ 57.5 $ 37.7 $ 41.7 ------------------------------------------------------------------------------------------- Depreciation and amortization 49.9 49.6 43.9 30.5 29.3 -------------------------------------------------------------------------------------------
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) The 1996 results included a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. (b) 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. (c) The 1990 results included a nonrecurring provision for environmental cleanup of $19.2 million after income taxes, or $0.88 per share. (d) The 1989 data reflected completion of the acquisitions of L'Unite Hermetique S.A. on December 30, 1988 and Tecumseh Europa S.p.A. on July 25, 1989. (e) Working capital is the excess of current assets over current liabilities. - ------------------------------------------------------------------------------ QUARTERLY FINANCIAL DATA (Dollars in millions except per share data)
Quarter First Second Third Fourth(*) Total ------ ------- ------ --------- -------- 1996 Net sales ................................. $496.2 $490.9 $408.7 $388.8 $1,784.6 Gross profit .............................. 69.9 76.3 62.6 58.0 266.8 Net income ................................ $ 31.0 $ 33.9 $ 27.2 $ 20.5 $ 112.6 ====== ======= ====== ======= ======== Net income per share ...................... $ 1.42 $ 1.55 $ 1.24 $ .94 $ 5.15 ====== ======= ====== ======= ======== 1995 Net sales ................................. $473.6 $467.3 $392.7 $382.4 $1,716.0 Gross profit .............................. 73.6 75.1 57.5 55.0 261.2 Net income ................................ $ 34.9 $ 35.3 $ 24.9 $ 24.1 $ 119.2 ====== ======= ====== ======= ======== Net income per share ...................... $ 1.59 $ 1.62 $ 1.14 $ 1.10 $ 5.45 ====== ======= ====== ======= ========
(*) Fourth quarter 1996 results included a $5.1 million nonrecurring charge for environmental and litigation costs. This charge was equivalent to $.15 per share after taxes. Note: Certain amounts previously reported have been reclassified to conform with the current presentation. - ------------------------------------------------------------------------------ INFORMATION CONCERNING EQUITY SECURITIES The Company's Class A and Class B common stock trades on the Nasdaq Stock Market under the symbols TECUA and TECUB, respectively. Total shareholders as of February 1,1997 were 8,161 for Class A common stock and 2,566 for Class B common stock.
1996 1995 ----------------------------------------- ----------------------------------------- Sales Price Cash Sales Price Cash ------------------------------ ------------------------------ Class A Class B Dividends Class A Class B Dividends -------------- -------------- -------------- -------------- Quarter Ended High Low High Low Declared High Low High Low Declared ------ ------ ------ ------ --------- ------ ------ ------ ------ --------- March 31 59 1/2 51 3/4 56 1/4 49 3/4 $.26 50 1/4 44 49 1/2 44 1/2 $.25 June 30 60 1/4 51 1/2 56 3/4 50 1/8 .26 52 3/4 43 1/4 52 42 1/2 .25 September 30 55 1/2 50 53 48 .26 53 1/4 43 1/2 52 1/4 42 1/2 .25 December 31 60 1/4 54 1/4 57 1/4 50 3/4 .90 54 46 1/4 53 45 3/4 .86
27 EX-21 4 EXHIBIT 21 1 EXHIBIT (21) Tecumseh Products Company Report on Form 10-K for the period ended December 31, 1996 Subsidiaries of the Company The following is a list of subsidiaries of the Company as of December 31, 1996 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 Tecumseh do Brasil, Ltd. Brazil Tec Kold International Company, Ltd. Lichteinstein SICOM Europe Srl Italy Tecumseh Products Company of Canada, Ltd. Canada Tecumseh Products Company, Engine & Transmission Group, Dunlap Operations, Inc. Tennessee Douglas Products, Inc. Georgia Tecumseh France S.A. France L'Unite Hermetique S.A. France Societe Des Moteurs Electriques de Normandie S.A. France Societe Immobiliere De Construction de La Verpilliere France Tecumseh Services EURL France Tecumseh Products Company, International Division, Inc. (FSC) Virgin Islands Tecumseh Europa, S.p.A. Italy Society T.I.G.E.R. France Tecumseh Deutschland GmbH Germany Tecumseh U.K. Limited United Kingdom Little Giant Pump Co. Oklahoma Trenton Division, Inc. Tennessee Vitrus, Inc. Rhode Island
EX-23 5 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, 1996 of our report dated February 18, 1996 which appears on page 25 of the Annual Report of Shareholders for the year ended December 31, 1996. Our audit also included the related financial schedule for the three years ended December 31, 1996 listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. CIULLA, SMITH & DALE, LLP Southfield, Michigan February 18, 1996 EX-27 6 EXHIBIT 27
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 277,700 0 211,200 6,700 275,200 804,400 977,400 448,300 1,472,600 254,700 0 0 0 21,900 625,600 1,472,600 1,784,600 1,804,800 1,517,800 1,621,400 0 0 6,400 177,000 64,400 112,600 0 0 0 112,600 5.15 5.15
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