<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from______to______
COMMISSION FILE NUMBER: 0-452
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1093240
(State of Incorporation) (IRS Employer Identification Number)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of Principal Executive Offices)
Telephone Number: (517) 423-8411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class of Stock Outstanding at April 30, 1995
------------------------------------------------------------------------------
<S> <C>
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,410,438
</TABLE>
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
(Dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $273.4 $283.2
Accounts receivable, trade, less allowance for doubtful
accounts of $6.2 million in 1995 and $5.8 million in 1994 275.3 191.6
Inventories 249.0 235.3
Deferred income taxes 35.1 38.4
Other current assets 9.0 7.8
---------- -----------
TOTAL CURRENT ASSETS 841.8 756.3
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $394.8 million in 1995
and $379.1 million in 1994 424.9 402.4
EXCESS OF COST OVER ACQUIRED NET ASSETS 62.3 58.0
DEFERRED INCOME TAXES 22.7 21.4
PREPAID PENSION EXPENSE 33.7 31.8
OTHER ASSETS 19.4 19.9
---------- -----------
TOTAL ASSETS $1,404.8 $1,289.8
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $151.0 $116.5
Income taxes payable 24.7 5.1
Short-term borrowings 14.7 11.7
Accrued liabilities 133.1 118.8
---------- -----------
TOTAL CURRENT LIABILITIES 323.5 252.1
LONG-TERM DEBT 9.0 9.1
NON-PENSION POSTRETIREMENT BENEFITS 171.3 169.8
PRODUCT WARRANTY AND SELF-INSURED RISKS 30.5 29.5
ACCRUAL FOR ENVIRONMENTAL MATTERS 30.7 30.7
PENSION LIABILITIES 13.3 13.1
---------- -----------
TOTAL LIABILITIES 578.3 504.3
---------- -----------
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 753.4 724.0
Foreign currency translation adjustment 21.3 9.7
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 826.5 785.5
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,404.8 $1,289.8
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE> 3
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited and subject to year end adjustments)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1995 1994
------------- -----------
<S> <C> <C>
INCOME:
Net sales $473.6 $386.4
Interest income 8.2 5.9
Other income 1.6 1.5
------------- -----------
483.4 393.8
------------- -----------
EXPENSES:
Cost of sales and operating expenses 401.8 323.6
Selling and administrative expenses 23.8 21.0
Interest expense 2.0 1.2
Other expenses 0.1 1.7
------------- -----------
427.7 347.5
------------- -----------
INCOME BEFORE TAXES 55.7 46.3
Taxes on income 20.8 17.3
------------- -----------
NET INCOME $34.9 $29.0
============= ==========
NET INCOME PER SHARE $1.59 $1.32
============= ==========
CASH DIVIDENDS DECLARED PER SHARE $0.25 $0.20
============= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and subject to year end adjustments)
(Dollars in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $34.9 $29.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15.1 13.9
Accounts receivable (80.0) (69.2)
Inventories (12.0) (1.2)
Payables and accrued expenses 61.6 39.7
Other 1.6 2.5
---------- ---------
CASH PROVIDED BY OPERATIONS 21.2 14.7
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (34.6) (31.8)
---------- ---------
CASH USED IN INVESTING ACTIVITIES (34.6) (31.8)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (5.5) (4.4)
Increase (Decrease) in borrowings, net 2.1 (1.3)
---------- ---------
CASH USED IN FINANCING ACTIVITIES (3.4) (5.7)
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7.0 3.7
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (9.8) (19.1)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 283.2 313.2
---------- ---------
END OF PERIOD $273.4 $294.1
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
December 31, 1994 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual
Report for the fiscal year ended December 31, 1994. Due to the seasonal
nature of the Company's business, the results of operations for the interim
period are not necessarily indicative of the results for the entire fiscal
year.
The financial data required in this Form 10-Q by Rule 10.01 of Regulation S-X
have been reviewed by Moore, Smith & Dale, the Company's independent
certified public accountants, as described in their report contained
elsewhere herein.
2. Inventories consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) March 31, December 31,
1995 1994
---------- ----------
<S> <C> <C>
Raw material and work in process $159.2 $147.6
Finished goods 75.9 74.3
Supplies 13.9 13.4
--------- --------
$249.0 $235.3
========= ========
</TABLE>
3. The Company has been named by the U.S. Environmental Protection
Agency (EPA) as a potentially responsible party in connection with the
Sheboygan River and Harbor Superfund Site in Wisconsin. At March 31, 1995,
the Company had an accrual of $31.7 million ($31.9 million at December 31,
1994) for the estimated costs associated with the cleanup of certain PCB
contamination at this Superfund Site. The Company has based the estimated
cost of cleanup on ongoing engineering studies, including engineering samples
taken in the Sheboygan River, and assumptions as to the areas that will have
to be remediated along with the nature and extent of the remediation that
will be required. Significant assumptions underlying the estimated costs are
that remediation will involve innovative technologies, including (but not
limited to) bioremediation near the Company's plant site and along the Upper
River, and only natural armoring and bioremediation in the Lower River and
Harbor.
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<PAGE> 6
The EPA has indicated it expects to issue a record of decision on the cleanup
of the Sheboygan River and Harbor Site during the latter half of 1995,
but the ultimate resolution of the matter may take much longer. 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.
The Company, in cooperation with the Wisconsin Department of Natural
Resources, is conducting an investigation of soil and groundwater
contamination at the Company's Grafton, Wisconsin plant. Certain test
procedures are being planned over the next year 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.
In addition to the above mentioned sites, the Company also is currently
participating with the EPA and various state agencies at certain other sites
to determine the nature and extent of any remedial action which may be
necessary with regard to such other sites. Based on limited preliminary data
and other information currently available, the Company has no reason to
believe that the level of expenditures for potential remedial action
necessary at these other sites will have a material effect on its financial
position.
4. Various lawsuits and claims, including those involving ordinary
routine litigation incidental to its business, to which the Company is a
party, are pending, or have been asserted, against the Company. Although
the outcome of these matters cannot be predicted with certainty, and some may
be disposed of unfavorably to the Company, management has no reason to
believe that their disposition will have a materially adverse effect on the
consolidated financial position of the Company.
Page 6
<PAGE> 7
[MOORE, SMITH & DALE LETTERHEAD]
May 10, 1995
INDEPENDENT ACCOUNTANTS' REPORT
Tecumseh Products Company
Tecumseh, Michigan
We have reviewed the consolidated condensed balance sheet of Tecumseh
Products Company and Subsidiaries as of March 31, 1995, and the related
consolidated condensed statements of income and cash flows for the three months
ended March 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We have conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1994, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 17, 1995, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1994, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
MOORE, SMITH & DALE
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales for the first quarter of 1995 reached a record level of $473.6 million
and were 23% higher than the same period in 1994. Consolidated earnings of
$34.9 million, or $1.59 per share, were 20% higher than the first quarter of
1994. The improved operating results reflect sales increases in each of the
Company's business segments as well as sales increases in each major geographic
region.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions) March 31,
---------------------------------
1995 1994
==============================================================================================
<S> <C> <C>
NET SALES:
Compressor Products $ 283.3 $ 219.4
Engine and Power Train Products 160.6 137.7
Pump Products 29.7 29.3
----------------------------------------------------------------------------------------------
Total Net Sales $ 473.6 $ 386.4
==============================================================================================
INCOME BEFORE INCOME TAXES:
Compressor Products $26.4 $20.1
Engine and Power Train Products 20.5 19.1
Pump Products 4.8 5.0
Corporate Expenses (2.2) (2.6)
Net Interest Income 6.2 4.7
----------------------------------------------------------------------------------------------
Total Income Before Income Taxes $ 55.7 $ 46.3
==============================================================================================
</TABLE>
Compressor Products
The Company's worldwide Compressor Products sales for the first quarter of 1995
reached $283.3 million and were 29% higher than the prior year period. The
sales increase was principally due to higher sales volume and, to a lesser
extent, due to the translation effect of a weaker U.S. dollar and to selling
price increases. Global demand for compressors remained very strong,
particularly rotary compressors and small reciprocating compressors.
Tecumseh's rotary compressors, which are used in room air conditioners, are
built primarily in the United States while the Company's fractional horsepower
reciprocating compressors, used in household and commercial refrigeration
equipment, are primarily built in Brazil and France. As a result, each of the
Company's compressor operating units reported sales increases in excess of 20%
for the first quarter of 1995.
Compressor Products operating margin for the first quarter of 1995 was 9.3%,
compared with 9.2% for the same period in 1994. The positive effects of
increased volume and price increases were offset by several factors.
Inflationary pressure on key material components such as steel and copper have
increased significantly during the past year. The Company is in
Page 8
<PAGE> 9
various stages of tooling for and beginning production of three significant
investments: a small rotary compressor line in Tupelo, Mississippi; an entirely
new scroll compressor facility in Tecumseh, Michigan; and a refrigerator
compressor line in Brazil. The start-up costs of these new lines negatively
impacted margins for the quarter. Lastly, the weaker U.S. dollar reduced the
export margins of the Company's Brazilian and French operations.
Overall financial results for the Company's Brazilian subsidiary remained
strong for the quarter. Although the country's 1994 economic program has been
its most successful in recent history, economic uncertainties persist following
the Brazilian government's handling of a March 1995 currency devaluation along
with the recent imposition of significant import tariffs. The Company has
recently reduced its Brazilian currency exposure which will lower the Company's
financial income but provide protection from further currency devaluation.
Engine and Power Train Products
Worldwide Engine and Power Train Products sales were $160.6 million in the
first quarter of 1995, a 17% increase over the same period in 1994. This gain
was due to continued customer production of snow throwers in 1995 to fill
depleted pipelines, continued acceptance of Tecumseh's Enduro engine for lawn
tractors, penetration into other outdoor chore product applications, and an
increase in sales of power train products.
Profit margins for this segment decreased from 13.8% in the first quarter of
1994 to 12.8% in 1995. The favorable effects of increased volume and a more
profitable product mix were more than offset by the higher cost of raw
materials, particularly aluminum which is a significant cost factor in the
production of virtually all of the Company's engines.
The favorable year-to-year sales and earnings comparisons for this segment are
not likely to continue in the second quarter of 1995. The second quarter of
1994 included strong snow engine production following the heavy snowfalls of
that winter. Despite a mild winter in 1995, snow thrower production occurred
throughout the season to refill pipelines. Consequently, the Company expects
that snow engine production for the remainder of 1995 will be well below the
1994 levels. Additionally, orders for walk-behind lawn mower engines have
begun to soften as cool weather conditions have hampered early spring sales and
major customers are adjusting inventory levels.
Pump Products
The Company's Pump Products sales for the first quarter of 1995 were 1% higher
than the same period in 1994. Sump pump sales in early 1994 were quite strong
due to flooding in New England and along the east coast. However, the sales
decline on sump pumps was more than offset by growth in pump product sales to
industrial segments.
Interest Income
Interest income for the first quarter of 1995 was up from the same period in
1994 due primarily to higher financial income reported by the Company's
Brazilian subsidiary, which held higher cash positions (denominated in local
currency) in the first quarter of 1995 than it had one year earlier. As was
mentioned above, the Company has recently reduced its cash products in Brazil
to better protect it from future currency devaluations.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial position.
Working capital of $518.3 million at March 31, 1995 was up from $504.2 million
at December 31, 1994, and
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<PAGE> 10
the ratio of current assets to current liabilities approximated 2.6. As with
1994, the Company's capital spending for the first quarter of 1995 was over
twice the level of its depreciation. Total capital spending for the entire
year of 1995 should approximate $150-175 million as the Company expects to
substantially complete the three compressor investments discussed above along
with expanding capacity of both its engine and pump businesses. Working
capital requirements and planned capital expenditures for the remainder of 1995
and early 1996 are expected to be financed through internally available funds,
although the Company may utilize long-term financing arrangements in connection
with various state investment incentives.
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
TECUMSEH PRODUCTS COMPANY
(Registrant)
Dated May 12, 1995 By JOHN H. FOSS
___________________________________
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 11
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 1ST QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 273,400
<SECURITIES> 0
<RECEIVABLES> 281,500
<ALLOWANCES> 6,200
<INVENTORY> 249,000
<CURRENT-ASSETS> 841,800
<PP&E> 819,700
<DEPRECIATION> 394,800
<TOTAL-ASSETS> 1,404,800
<CURRENT-LIABILITIES> 323,500
<BONDS> 0
<COMMON> 21,900
0
0
<OTHER-SE> 804,600
<TOTAL-LIABILITY-AND-EQUITY> 1,404,800
<SALES> 473,600
<TOTAL-REVENUES> 483,400
<CGS> 401,800
<TOTAL-COSTS> 401,800
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 55,700
<INCOME-TAX> 20,800
<INCOME-CONTINUING> 34,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,900
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
