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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, 1994 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 Securities Registered Pursuant to
Section 12(b) of the Act: Section 12(g) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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Class B Common Stock, $1.00 Par Value
None None Class A Common Stock, $1.00 Par Value
Class B Common Stock Purchase Rights
Class A Common Stock Purchase Rights
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
Registrant disclaims the existence of control and, accordingly, believes that
as of March 3, 1995, all of the 5,470,146 shares of its Class B Common Stock,
$1.00 par value, then issued and outstanding, were held by non-affiliates of
Registrant. Certain shareholders, which, as of March 3, 1995, held an
aggregate of 2,392,640 shares of Class B Common Stock might be regarded as
"affiliates" of Registrant as that word is defined in Rule 405 under the
Securities Exchange Act of 1934, as amended. If such persons are "affiliates,"
the aggregate market value as of March 3, 1995 (based on the closing price of
$46.00 per share, as reported on the NASDAQ National Market System on such
date) of the 3,077,506 shares then issued and outstanding held by
non-affiliates was approximately $141,565,276.
Numbers of shares outstanding of each of the Registrant's classes of Common
Stock at March 13, 1995:
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, 1994 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 1995 Annual Meeting of
Shareholders has been incorporated herein by reference in Part III hereof. The
Exhibit Index is located on page 25.
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TABLE OF CONTENTS
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Item Page
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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 Holders 14
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 15
6. Selected Financial Data 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 25
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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. In 1994, the Company's products were sold in over 100
countries around the world.
The Company groups its products into three principal industry segments:
Compressor Products, Engine and Power Train Products, and Pump Products.
Compressor Products include a broad range of air conditioning and
refrigeration compressors and compressor parts as well as refrigeration
condensing units. The Company's compressor products range from fractional
horsepower units used in small refrigerators and dehumidifiers to large units
used in commercial air conditioning applications. The Company sells
compressors in four major compressor market segments: household refrigerators
and freezers; room air conditioners; commercial and residential unitary central
air conditioning systems; and commercial devices including freezers,
dehumidifiers and vending machines. The Company sells compressors to original
equipment manufacturers ("OEMs") 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 operations and sales have become
increasingly important to the Company's business as a whole. In 1994, sales to
customers outside the United States represented approximately 45% of total
consolidated net sales. Additionally, a substantial portion of the Company's
products are manufactured overseas. Compressor products are
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produced by the Company's plants in both Brazil and France, while engines are
produced in Italy.
Products sold outside the United States are manufactured at both U.S. and
foreign plants. The Company's European compressor subsidiary, L'Unite
Hermetique, S.A., ("L'Unite Hermetique"), generally sells the compressor
products it manufactures in Europe, the Middle East, Africa, Latin America and
Asia. Sociedade Intercontinental De Compressores Hermeticos-SICOM, Ltda.
("SICOM"), the Company's Brazilian compressor subsidiary, sells its products
principally in Latin America and, to a lesser extent, in North America and
Europe. In the engine business, the Company's two principal markets are North
America, which is generally served by the Company's U.S. manufacturing
operations, and Europe, which is served both by the manufacturing operations of
the Company's European engine subsidiary, Tecumseh Europa, S.p.A. ("Tecumseh
Europa") in Italy and, to a lesser extent, by U.S. export sales.
Of the Company's sales to customers outside the United States in 1994,
approximately 35% were to customers of compressor and engine products in
Europe. Sales of compressors are also significant in markets in Latin America,
Asia and the Far East.
The Company's dependence on sales in foreign countries entails certain
risks, including currency fluctuations, unstable economic or political
conditions in some areas and the possibility of U.S. government embargoes on
sales to certain countries. The Company's foreign manufacturing operations are
subject to the same risks and others as well, including risks of governmental
expropriation, governmental regulations which may be disadvantageous to
businesses owned by foreign nationals and instabilities in the work force due
to changing political and social conditions.
These considerations are especially significant in the context of the
Company's Brazilian operations given the importance of SICOM's performance to
the Company's total operating results. Political, social, and economic
conditions in Brazil are less stable than those which prevail in the United
States and many other countries, and this instability is reflected in SICOM's
operating results, which can vary dramatically from period to period.
COMPRESSOR PRODUCTS
The Compressor Products segment is the Company's largest industry segment.
A compressor is a device which compresses a refrigerant gas. When the gas is
later permitted to expand, it absorbs and transfers heat, and produces a
cooling effect which forms the basis for a wide variety of refrigeration
products. The Company's compressors range from fractional horsepower units
used in small refrigerators and dehumidifiers to large units used in commercial
air conditioning applications. All of the compressors produced by the Company
are hermetically sealed. The Company's current compressor line includes
reciprocating and rotary designs and the Company is in sample production of a
line of scroll compressors.
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The Company's compressors are used in each of four major compressor market
segments: household refrigerators and freezers; room air conditioners;
residential and commercial unitary central air conditioning systems; and
commercial devices, including freezers, dehumidifiers, refrigerated display
cases, water coolers and vending machines. The Company believes it is the
world's only independent manufacturer of compressor products for all four of
these market segments.
PRODUCT LINE
The Company manufactures and sells a wide variety of traditional,
reciprocating compressors suitable for use in all of the market segments
described above. There is increasing worldwide demand for commercial and
household refrigeration and freezer compressors that utilize R134-a, a non-CFC
refrigerant. During 1994 the Company significantly increased its production of
compressor products that utilize this and other non-ozone depleting
refrigerants. The new TP compressor for household refrigerator and freezers
which uses refrigerant R134-a reached commercial production levels during 1994
and the Company anticipates increasing demand for this product in the future.
The Company also produces rotary compressors for use in room air
conditioning applications. Rotary compressors generally provide increased
operating efficiency, lower equipment space requirements, and reduced sound
levels when compared to reciprocating designs. In late 1994 the Company began
commercial production of a new line of smaller room air conditioning rotary
compressors for use primarily in portable window units and recreational
vehicles. With this new product offering, the Company has a full complement of
rotary product ranging from 5,000 to 18,000 BTU/Hr.
Scroll compressors offer energy efficiency and reduced noise levels
compared to traditional reciprocating designs and are generally preferred by
OEMs for certain products, including unitary central air conditioning systems
and certain commercial applications. The Company does not currently offer
scroll compressors while some of its competitors do, which the Company believes
puts it at a competitive disadvantage. The Company is currently making a
significant investment in a scroll compressor facility in Tecumseh, Michigan.
Customers are receiving sample compressors for testing, but the Company does
not expect this line to significantly contribute to revenues before 1996.
MANUFACTURING OPERATIONS
Compressor Products manufactured in the Company's U.S. plants accounted
for approximately 55% of 1994 compressor sales. The balance was produced at
the Company's manufacturing facilities in Brazil and France. The compressor
operations are substantially vertically integrated, and the Company
manufactures a significant portion of its component needs internally, including
electric motors, metal stampings and glass terminals. Raw materials essential
to the conduct of business are purchased from a variety of non-affiliated
suppliers. The
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Company utilizes multiple sources of supply and the required raw materials and
purchased components have generally been available in sufficient quantities.
SALES AND MARKETING
The Company markets its Compressor Products globally under the "Tecumseh"
brand, as well as under the "SICOM" brand in Latin America and the "L'Unite
Hermetique" brand in Europe.
The Company sells its Compressor Products in North America primarily
through its own sales staff. Major OEM customers are assigned to sales staff
on an account basis. Other customers (aftermarket wholesalers and smaller
commercial OEM's) are served by sales personnel assigned to specified
geographic regions. Each of the Company's Brazilian and French subsidiaries
has its own sales staff. In certain foreign markets, the Company also uses
local independent sales representatives.
Substantially all of the Company's sales of Compressor Products for room
air conditioning applications are to OEMs. Sales of Compressor Products for
unitary central air conditioning systems and commercial applications include
substantial amounts of both OEM and aftermarket customers.
SICOM's Compressor Products are sold primarily in Brazil and other Latin
American countries. SICOM also furnishes component parts to the Company's
North American plants and finished compressors for resale in North America.
L'Unite Hermetique, which does not sell finished compressors in North America,
sells a majority of its products in Europe but also has substantial sales
outside Europe.
Late in 1994 the Company entered into a joint venture with Bitzer
Kuhlmaschinenbau GmbH ("Bitzer") of Germany for the purpose of marketing
Bitzer's extensive lines of semi-hermetic and open drive piston and screw-type
compressor products throughout North America. 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 1994, the two largest customers for
Compressor Products accounted for 9.1% and 5.2%, respectively, of consolidated
net sales of the Company's Compressor Products, or 5.2% and 3.0%, 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.
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In 1994, 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 price, efficiency,
reliability, noise level, and delivery. The Company competes not only with
other independent compressor producers but also with manufacturers of end
products which have internal compressor manufacturing operations.
The domestic unitary air conditioning compressor market consists of
original equipment manufacturers and a significant compressor aftermarket. The
Company competes primarily with two U. S. manufacturers, Copeland Corporation,
a subsidiary of Emerson Electric, Inc., and Bristol, a division of York
International Corporation. Copeland Corporation enjoys a larger volume of the
domestic unitary air conditioning compressor business than either Bristol or
the Company. Several important OEMs in the unitary air conditioning market
have decided to significantly reduce the use of traditional reciprocating
compressors as part of an industry trend toward the use of scroll compressors.
Since the Company does not currently produce scroll compressors in commercial
quantities, this trend has reduced, at least temporarily, the Company's share
of this important market and has intensified price competition for the
remaining available reciprocating compressor business. The Company is currently
making a significant investment in a scroll compressor facility in Tecumseh,
Michigan. Customers are receiving sample compressors for testing, but the
Company does not expect this line to significantly contribute to revenues
before 1996.
In the domestic room air conditioning compressor market, the Company
competes primarily with foreign companies, which import compressors to the
United States but are also increasing U. S. manufacturing capabilities. The
Company also competes to a lesser extent with U. S. manufacturers.
In the domestic markets for water coolers, dehumidifiers, vending
machines, refrigerated display cases and other commercial refrigeration
products, the Company competes primarily with manufacturers from the Far East,
Europe and South America, and to a lesser extent, the United States. The
non-captive portion of the household refrigerator and freezer segment is
substantially dominated by Far Eastern manufacturers, which import compressors
to the United States but are also increasing U.S. manufacturing capabilities.
In the geographic regions in which the Company supplies a significant
portion of its domestically produced export compressors, the primary
competitors are Bristol, Copeland Corporation and several Far East
manufacturers, most of which are substantially larger and have greater
resources than the Company.
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L'Unite Hermetique sells the major portion of its manufactured compressors
in Western Europe, and competes in those markets primarily with several large
European manufacturers, some of which are captive suppliers, and to a lesser
but increasing extent, with manufacturers from the Far East.
SICOM sells the major portion of its manufactured compressors in Brazil
and other Latin American countries and competes directly with Embraco S.A., an
affiliate of Whirlpool Corporation, in Brazil and with Embraco and several
other foreign manufacturers in Latin America.
The ability to successfully bring new products to market in a timely
manner has rapidly become a critical factor in competing in the compressor
products business as a result of, among other things, the imposition of energy
efficiency standards and environmental regulations.
NEW REGULATORY REQUIREMENTS
Chloroflourocarbon compounds ("CFCs"), the primary refrigerants used in
household refrigerators and freezers and in commercial refrigeration equipment,
have been identified as one of the leading factors causing depletion of the
Earth's ozone layer. Under a 1992 international agreement, CFCs are scheduled
to be phased out by January 1, 1996. Several OEMs have already begun to offer
products which do not utilize CFCs. 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.
Pursuant to the National Appliance Energy Conservation Act of 1987 (the
"NAECA") the U.S. government will require higher energy efficiency ratings on
room air conditioning products and on refrigerator and freezer products during
1998. These standards have not been finalized, but the Company will need to
improve the efficiency of its compressors to meet these standards. It is not
presently possible to estimate the level of expenditures which will be required
to meet the new standards nor the effect on the Company's competitive position.
ENGINE AND POWER TRAIN PRODUCTS
Small gasoline engines account for a majority of the net sales of the
Company's Engine and Power Train Products segment. The Company manufactures
gasoline engines, both two- and four-cycle types, with aluminum 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. These engines 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, and certain self-propelled vehicles.
During 1994, the Company introduced a new line of 5.0 HP overhead valve engines
for generator, pump, outdoor chore
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products, industrial and commercial 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 four plants
in the United States and one plant in Italy. All of the Company's power train
products are manufactured in one facility in the United States. Operations of
the Company in this segment are partially vertically integrated as the Company
produces most of its plastic parts and carburetors, as well as a substantial
portion of the aluminum diecastings used in its engines and power trains.
SALES AND MARKETING
The Company markets its Engine and Power Train Products worldwide under
the "Tecumseh" and "Peerless" brands. 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.
Sales to the Company's largest customer accounted for approximately 9% of
the Company's 1994 consolidated net sales and approximately 24% of its net
sales of Engine and Power Train Products. Sales to the Company's second
largest customer in this segment accounted for approximately 17% of the
segment's net sales in 1994 and 6% of the Company's 1994 consolidated net
sales. Loss of either of the Company's two largest customers would have a
material adverse effect on the results of operations of this segment and, at
least temporarily, on the Company's business as a whole. There are no
long-term contracts between the Company and its major customers in this
segment, but the present business relationships have existed for a substantial
period of time.
COMPETITION
The Company believes it is the second largest independent producer of
small gasoline engines in the United States and that the largest such producer,
with a broader product range, is Briggs & Stratton Corporation. The Company
competes not only with other engine manufacturers but also with manufacturers
of end products which produce their own engines and power transmission
components.
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North America and Europe are the principal markets for lawn and garden
products. Foreign competition for sales has been limited in the past but is
increasing, particularly as foreign manufacturers have begun establishing U.S.
manufacturing facilities. In the European market, a successful cost reduction
program and increased efficiency has enabled the Company's Italian-produced
products to become more cost-competitive with Briggs and Stratton U.S.-
produced products sold in Europe.
Competition in the Company's engine business is based principally on
price, service, product performance and features. As mass merchandisers have
captured a larger portion of the sales of lawn and garden products in the
United States, price competition and the ability to offer customized styling
and feature choices have become even more significant factors. The Company
believes that it competes effectively on these bases.
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. The development consists of two phases. Phase I is
expected to be published in May 1995 with an effective date as early as August
1, 1996, but the EPA may accommodate an industry requested 1997 effective date.
The Company believes that it will be prepared to meet the EPA Phase I standards
with competitively priced engines. The California Air Resources Board ("CARB")
has mandated exhaust emission standards for utility engines. These standards
became effective January 1, 1995, followed by a non-enforcement period of
approximately six to eight months. An adequate cross-section of the Company's
engine products have been or will be modified to meet the 1995 CARB
requirements. Current negotiations of the EPA Phase II standards are expected
to be completed by June 1995 with a proposed rule issued in early 1996. It is
not currently possible to determine the compliance cost thereof 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 parts washers, machine tools, evaporative coolers,
sump pumps, swimming pool equipment, statuary, fountains and water gardening.
Little Giant's products are sold throughout the United States, Canada, Europe,
and the Middle East, to OEMs and distributors and to retailers directly.
Marketing is carried out both through Little Giant's own sales staff and also
through manufacturer's representatives under the "Little Giant" brand name.
The Company's other pump subsidiary, MP Pumps Inc. ("MP Pumps"),
manufactures and sells a variety of heavy duty centrifugal pumps ranging in
capacity from 15 to 3,700 gallons per minute, that are used in the
construction, mining, agricultural, marine and transportation industries. MP
Pumps sells both to OEMs, which incorporate its pumps into their end products,
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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 "Jaeger" and "MP Pumps" brand names.
The pump industry is highly fragmented, with many relatively small
producers competing for sales. Little Giant has been particularly successful in
competing in this industry by targeting specific market niches where
opportunities exist and then designing and marketing corresponding products.
Though still a relatively small portion of the Company as a whole, during the
last five years the pump business has been its fastest growing business, with
sales increasing from $51.6 million in 1990 to $88.4 million in 1994.
BACKLOG AND SEASONAL VARIATIONS
Most of the Company's production is against short-term purchase orders,
and backlog is not significant to its business.
Both Compressor Products and Engine and Power Train Products are subject
to some seasonal variation. Generally, the Company's sales and operating
profit are stronger in the first two quarters of the year than in the last two
quarters.
PATENTS, LICENSES AND TRADEMARKS
The Company owns a substantial number of patents, licenses and trademarks
and deems them to be important to certain of its lines of business; however,
the success of the Company's overall business is not considered primarily
dependent on them. The Company owns and uses in the conduct of its business a
variety of registered trademarks, the most familiar of which is the trademark
consisting of the word "Tecumseh" in combination with a Native American Indian
head symbol.
RESEARCH AND DEVELOPMENT
The Company must continually develop new and improved products in order to
compete effectively and to meet evolving regulatory standards in all of its
major lines of business. The Company expended approximately $27.8 million,
$24.9 million and $27.0 million during 1994, 1993 and 1992 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
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action that may be necessary at other sites. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" on page 15 and "Note 9" on page 23 in the Company's Annual
Report to Shareholders for the year ended December 31, 1994 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, 1994, 1993 and 1992 appear at page 12 of the
Company's Annual Report to Shareholders for the year ended December 31, 1994
and are incorporated herein by reference.
EMPLOYEES
On December 31, 1994 the Company employed approximately 15,000 persons,
45% of which were employed in foreign locations. Approximately 4,100 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
1994, the maximum number of persons employed at one time was approximately
15,000 and the minimum was 13,300.
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.
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PERIOD OF SERVICE
NAME AND AGE OFFICE OR POSITION HELD AS AN OFFICER
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Kenneth G. Herrick, 73 Chairman of the Board of Directors (1) Since 1966
Todd W. Herrick, 52 President and Chief Executive Officer (2) Since 1974
John H. Foss, 52 Vice President, Treasurer, and Chief Since 1979
Financial Officer
Harry L. Hans, 61 Group Vice President - Engine and Power Since 1979
Train Components (3)
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(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.
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(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.
ITEM 2. PROPERTIES
The Company's headquarters are located in Tecumseh Michigan, approximately 50
miles southwest of Detroit. At December 31, 1994 the Company had 28 principal
properties worldwide occupying approximately 6.4 million square feet with the
majority, approximately 6.0 million square feet devoted to manufacturing. Ten
facilities with approximately 2.1 million square feet were located in four
countries outside the United States. The following table shows the approximate
amount of space devoted to each of the Company's three principal business
segments.
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Approximate Floor
Industry Segment Area in Square Feet
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Compressor Products 4,362,000
Engine and Power Train Products 1,647,000
Pump Products and Other 367,000
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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, 1994, 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.
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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 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 1994 to a vote of
security holders through the solicitation of proxies or otherwise.
14
<PAGE> 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" on pages 1 and 27, respectively, of the Company's
Annual Report to Shareholders for year ended December 31, 1994 is incorporated
herein by reference. As of March 3, 1995, there were 1,037 holders of record
of the Company's Class A common stock and 1,011 holders of the Class B common
stock.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Data" on page 26 of
the Company's Annual Report to Shareholders for the year ended December 31,
1994 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 13, 14, and 15 of the
Company's Annual Report to Shareholders for the year ended December 31, 1994 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, 1994 is incorporated
herein by reference. See Item 14 on page 17 of this report for financial
statement schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
15
<PAGE> 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 1995
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 -
Compensation of Directors" in the Company's definitive Proxy Statement relating
to its 1995 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information under the captions "Principal Shareholders" and "Election
of Directors - Ownership by Management of Equity Securities" in the Company's
definitive Proxy Statement relating to its 1995 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 1995 Annual Meeting of Shareholders is incorporated herein by reference.
16
<PAGE> 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, 1994:
. Report of Independent Accountants
. Consolidated Balance Sheets as of December 31, 1994
and 1993
. Statements of Consolidated Income for the years ended
December 31, 1994, 1993 and 1992
. Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1994, 1993 and 1992
. Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992
. Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
Schedule Form 10-K
Number Description Page Reference
------ ----------- --------------
<S> <C> <C>
VIII Valuation and Qualifying Accounts 21
</TABLE>
Schedules other than those listed above are omitted because they are either
not applicable or are not required.
17
<PAGE> 18
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
(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)
(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
</TABLE>
18
<PAGE> 19
(3) Exhibits (continued):
<TABLE>
<S> <C>
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 effective January 1, 1994 (management contract or compensatory plan or
arrangement) (filed as Exhibit (10)(i) to Annual Report on Form 10-K for the year ended December 31, 1993
(Commission File No. 0-452) and incorporated herein by reference)
(10)(i) -Underwriting Agreement (U.S.) dated September 23, 1993 (filed as Exhibit (10)(a) to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993 (Commission File No. 0-452) and incorporated herein by
reference)
(10)(j) -Underwriting Agreement (International) dated September 23, 1993 (filed as Exhibit (10)(b) to Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993 (Commission File No. 0-452) and incorporated
herein by reference)
(10)(k) -Indemnity and Contribution Agreement dated September 23, 1993(filed as Exhibit (10)(c) to Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993 (Commission File No. 0-452) and incorporated herein
by reference)
</TABLE>
19
<PAGE> 20
(3) Exhibits (continued):
<TABLE>
<S> <C>
(10)(l) -Supplemental Executive Retirement Plan effective January 1, 1995 (management contract or compensatory plan
or arrangement)
(11) -(not applicable)
(12) -(not applicable)
(13) -Portions of Tecumseh Products Company Annual Report to Shareholders for the year ended December 31, 1994,
incorporated by reference herein
(16) -(not applicable)
(18) -(not applicable)
(21) -Subsidiaries of the Company
(22) -(not applicable)
(23) -Independent Auditors' Consent
(24) -(not applicable)
(27) -Financial Data Schedule
(28) -(not applicable)
(99) -(not applicable)
</TABLE>
(b) No Reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this Report.
20
<PAGE> 21
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1994, 1993 and 1992
(Dollars in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ------------------------- -------- ---------
Additions
-------------------------
Balance at Charged to Charged to Additions
Beginning Costs and Other and Balance at
Description of Period Expenses Accounts (Deductions) End of Period
----------- --------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
deducted from accounts receivable
in the balance sheet:
(A)
1994 $5.3 $0.9 ($0.4) $5.8
==== ==== ===== ====
1993 $4.4 $1.7 ($0.8) $5.3
==== ==== ===== ====
1992 $4.5 $0.8 ($0.9) $4.4
==== ==== ===== ====
</TABLE>
Notes:
(A) Represents the total of accounts charged against the allowance for
doubtful accounts and adjustments from the translation of foreign
currency.
21
<PAGE> 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 22, 1995
22
<PAGE> 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 22, 1995
Kenneth G. Herrick Board of Directors
___________________________ President, Chief March 22, 1995
Todd W. Herrick Executive Officer
(Principal Executive
Officer) and Director
___________________________ Director March 22, 1995
Peter M. Banks
___________________________ Director March 22, 1995
Jon E. Barfield
___________________________ Vice President, March 22, 1995
John H. Foss Treasurer and Chief
Financial Officer
(Principal Accounting
and Principal Financial
Officer) and Director
___________________________ Director March 22, 1995
J. Russell Fowler
___________________________ Director March 22, 1995
John W. Gelder
23
<PAGE> 24
___________________________ Director March 22, 1995
Stephen L. Hickman
___________________________ Director March 22, 1995
Edward C. Levy Jr.
___________________________ Director March 22, 1995
Dean E. Richardson
24
<PAGE> 25
EXHIBIT INDEX
Exhibit
Number
-------
(10)(l) -Supplemental Executive Retirement Plan effective January 1,
1995 (management contract or compensatory plan or arrangement)
(13) -Portions of The Company's Annual Report to Shareholders for
the year ended December 31, 1994, incorporated by reference
herein
(21) -Subsidiaries of the Company
(23) -Independent Auditors' Consent
(27) -Financial Data Schedule
25
<PAGE> 1
EXHIBIT (10)(l)
TECUMSEH PRODUCTS COMPANY
SUPPLEMENTAL RETIREMENT PLAN
(Effective January 1, 1995)
ARTICLE I
PURPOSE
1.1 Tecumseh Products Company, a Michigan corporation (the "Company"),
establishes the Tecumseh Products Company Supplemental Retirement Plan (the
"Plan") for the purpose of providing certain management or highly compensated
employees with retirement benefits in excess of those benefits provided under
the Tecumseh Products Company Salaried Retirement Plan (the "Retirement Plan").
1.2 The Plan supplements benefits under the Retirement Plan to the extent
such benefits are reduced due to the limits of Section 401(a)(17) and Section
415 of the Internal Revenue Code of 1986, as amended (the "Code"), and to the
extent that benefits are reduced as a result of a change in the Retirement Plan
benefit formula that became effective as of January 1, 1993. The Plan is
intended to be an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees as described in Sections 201(a)(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
ARTICLE II
DEFINITIONS
Unless a different meaning is expressly assigned, all capitalized terms
used in this Plan have the same meaning as in the Retirement Plan. In
addition, the following terms shall have the following meanings unless the
context in which the term is used clearly indicates that another or different
meaning is intended:
2.1 "Adjusted Retirement Benefits" means the benefits in the form and
amount that the Participant or his surviving spouse would have received under
the Retirement Plan if --
(i) the limitation on benefits imposed by Section 415 of the Code were
disregarded;
(ii) Base Compensation were computed without reduction due to the limits
of Section 401(a)(17) of the Code; and
(iii) such benefits were computed by applying whichever of the following
two benefit formulas results in the largest monthly amount when
applied to all of the Participant's Benefit Service under the Retirement
Plan as of the time benefits become payable under this Plan (subject,
however, to the 30 and 35 year limits on service, as described in the
formulas; and provided that Formula 1 shall not apply in respect of a
person who first became a Participant in the Retirement Plan
<PAGE> 2
after January 1, 1993):
Formula 1 The difference, "A" minus "B", where -
"A" represents 1-1/2% of the Participant's Average Monthly
Compensation multiplied by his years and fractional years of
Benefit Service (provided that no Benefit Service in excess of
35 years shall be included), and
"B" represents 1-2/3% of the Participant's Primary Social
Security Benefit multiplied by his years and fractional years of
Benefit Service (provided that no Benefit Service in excess of
30 years shall be included). However, if "B" as computed
pursuant to the preceding sentence exceeds 50% of "A", then "B"
shall be reduced to 50% of "A".
Formula 2 The amount "G", where "G" represents 1-1/4% of the
Participant's Average Monthly Compensation multiplied by his years and
fractional years of Benefit Service (provided that no Benefit Service in
excess of 35 years shall be included).
2.2 "Board" means the Board of Directors of the Company.
2.3 "Retirement Benefits" means benefits in the form and amount actually
payable to the Participant or his surviving spouse (if any) under the
Retirement Plan.
2.4 The following terms are defined elsewhere in this Plan:
"Administration Committee"......... Sec. 9.1;
"Code" ............................ Sec. 1.2;
"Company" ......................... Sec. 1.1;
"ERISA" ........................... Sec. 1.2;
"Participating Employer(s)"........ Sec. 3.2;
"Plan" ............................ Sec. 1.1;
"Reason" .......................... Sec. 6.2;
"Retirement Plan" ................. Sec. 1.1;
"Subsidiary" ...................... Sec. 3.1;
"Vested" .......................... Sec. 6.1.
ARTICLE III
EMPLOYER PARTICIPATION
3.1 If a Subsidiary of the Company wishes to participate in the Plan and
its participation is approved by the Administration Committee, the board of
directors of the Subsidiary shall adopt a resolution in form and substance
satisfactory to the Administration Committee authorizing participation by the
Subsidiary in the Plan with respect to its employees. As used herein, the term
"Subsidiary" means any corporation at least one-half of whose outstanding
voting stock is owned, directly or indirectly, by the Company.
-2-
<PAGE> 3
3.2 A Subsidiary participating in the Plan may cease to be a
Participating Employer at any time by action of the Administration Committee,
or by action of the board of directors of such Subsidiary, which latter action
shall be effective not earlier than the date of delivery to the Secretary of
the Company of a certified copy of a resolution of the Subsidiary's board of
directors taking such action. If the participation in the Plan of a Subsidiary
shall terminate, such termination shall not relieve it of any obligations
heretofore incurred by it under the Plan except with the approval of the Board
of Directors of the Company. The Company and each of its Subsidiaries
participating in this Plan are sometimes called "Participating Employer(s)" in
this Plan.
ARTICLE IV
PARTICIPATION
4.1 The persons entitled to benefits under this Plan shall be those
Participants in the Retirement Plan whose Base Compensation for the purpose of
determining his benefits under the Retirement Plan is limited by Section
401(a)(17), or whose benefit under the Retirement Plan is limited by Section
415 of the Code and who are selected for participation in this Plan by the
Administration Committee.
4.2 A Participant shall cease to participate in this Plan on the earliest
of (i) termination of employment, (ii) retirement, (iii) Total and Permanent
Disability, (iv) death, (v) withdrawal from participation in the Plan by the
Participant's Participating Employer, or (vi) removal of the Participant from
participation by the Administration Committee; provided, however, that no such
event shall withdraw the right to receive benefits earned under this Plan prior
to such event, recognizing that the amount of such benefits may increase or
decrease over time, depending on the various factors taken into account in
computing the benefit.
4.3 The Administration Committee shall promptly notify each Participant
in writing of his selection for participation in or removal from or other
cessation of participation in this Plan. The Administration Committee shall
maintain a record of Participants.
ARTICLE V
BENEFITS
5.1 Subject to becoming and remaining vested under Article VI, a
Participant's benefits under the Plan shall be his Adjusted Retirement Benefits
reduced by his Retirement Benefits, with the initial benefit payment(s) to be
reduced or eliminated, as described in Section 5.5, on account of any
obligations to the Company as described in Section 12.6. For an example
showing the computation of benefits under the Plan, see Exhibit A.
5.2 Any benefits payable pursuant to this Plan shall be paid at the same
times and in the same manner and form (using the same actuarial assumptions) as
Retirement Benefits are paid to the
-3-
<PAGE> 4
Participant under the Retirement Plan.
5.3 If a Participant dies before benefits commence under the Retirement
Plan, the Participant's surviving spouse (if any) shall be entitled to a
survivor benefit under this Plan equal to (i) the survivor benefit provided for
in the Retirement Plan calculated as though the Participant's benefit under the
Retirement Plan was his Adjusted Retirement Benefit, reduced by (ii) the
survivor benefit paid to the surviving spouse under the Retirement Plan, with
the initial benefit payment(s) to be reduced or eliminated, as described in
Section 5.5, on account of any obligations to the Company as described in
Section 12.6. Survivor benefits under this Plan shall be paid at the same
times and in the same manner and form as survivor benefits are paid under the
Retirement Plan.
5.4 If a Participant dies after benefits under this Plan commence,
survivor benefits, if any, shall be paid in accordance with the form of benefit
being paid to the Participant at the time of death.
5.5 If a Participant is obligated to the Company as described in Section
12.6 at the time benefits first become payable to the Participant or his spouse
under the Plan, then the initial monthly benefit payment(s), net of required
withholding taxes, shall be applied in reduction of such obligations until they
are fully repaid. Only after such benefits are fully repaid shall payments
commence to the Participant or his spouse under the Plan.
ARTICLE VI
VESTING
6.1 Except as otherwise provided in the Plan, a Participant's entitlement
to benefits under the Plan shall become vested on the first day of the calendar
month after such Participant has become entitled to a Deferred Benefit under
Article VII, Section 2 of the Retirement Plan, or such earlier date as he dies
or becomes Totally and Permanently Disabled. As used in the Plan, "vested"
refers to the right to receive a benefit calculated pursuant to Section 5.1,
recognizing that the amount of such benefit may increase or decrease over time,
depending on the various factors taken into account in computing the benefit.
The provisions of Sections 6.2 and 6.3 shall govern the forfeiture of benefits
which are not vested and, in certain circumstances, even those which had become
fully vested. Subject to Section 12.7, a Participant's benefits, to the extent
not previously vested, shall become fully vested and payable as of the
Participant's Normal Retirement Date.
6.2 Any unpaid vested benefits shall be forfeited as a result of
termination of employment for one or more Reasons specified below, as
determined by the Administration Committee. Also, any previously unpaid vested
benefits in pay status shall be forfeited for any one or more of the Reasons
specified in subsections (iv) and (v) below. Such "Reason," for the sole
purpose of determining whether a Participant's otherwise vested benefits are to
be
-4-
<PAGE> 5
forfeited, shall be deemed to exist where -
(i) The Participant, after receiving written notice of prior
breach from his Participating Employer, again breaches any
material written rules, regulations or policies of the
Participating Employer now existing or hereafter arising
which are uniformly applied to all employees of the
Participating Employer or which rules, regulations and
policies are promulgated for general application to
executives, officers or directors of the Participating
Employer; or
(ii) The Participant 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
Participant has not substantially performed his duties; or
(iii) The Participant is repeatedly or habitually intoxicated or
under the influence of drugs while on the premises of the
Participating Employer or while performing his employment
duties, after receiving written notice thereof from the
Participating Employer, such that the Administration
Committee determines in good faith that the Participant is
impaired in performing the duties of his employment; or
(iv) The Participant is convicted of a felony under state or
federal law, or commits a crime involving moral turpitude;
or
(v) The Participant embezzles any property belonging to the
Company or any of its Subsidiaries such that he may be
subject to criminal prosecution therefor or the Participant
intentionally and materially injures the Company or any of
its Subsidiaries or their personnel or property.
Nothing in this Plan shall alter the at-will nature of the Participant's
employment relationship with his Participating Employer. Nothing in this Plan
shall confer upon any Participant the right to continue in the employ of the
Company or any of its Subsidiaries.
6.3 Except as provided in Section 6.1, if a Participant voluntarily
terminates his employment with the Participating Employer or is terminated by
the Participating Employer for no reason or for any reason whatsoever, his
benefits shall be forfeited, except for that portion (if any) which the
Administration Committee, in its sole and absolute discretion,
-5-
<PAGE> 6
permits him to retain. Nothing in this Plan shall alter the at-will nature of
the Participant's employment relationship with his Participating Employer.
Nothing in this Plan shall confer upon any Participant the right to continue in
the employ of the Company or any of its Subsidiaries.
ARTICLE VII
SOURCE OF PAYMENT
7.1 Each Participating Employer shall pay the benefits earned by and
payable to a Participant under this Plan to the extent that the Participant's
benefit is based on compensation paid from the Participating Employer's
payroll. Notwithstanding the withdrawal of a Participating Employer from this
Plan, it shall continue to be liable for benefits earned by each Participant on
its payroll prior to its withdrawal.
7.2 The benefits payable under this Plan shall be paid only from the
general funds of each Participating Employer, and each Participant and his
surviving spouse shall be no more than unsecured general creditors of the
Participating Employer, with no special or prior right to any assets of the
Participating Employer for payment of any obligations hereunder. Nothing
contained in this Plan or elsewhere shall be deemed to create a trust or escrow
of any kind for the benefit of any Participant or any surviving spouse with
respect to any assets of any Participating Employer. Any assets (including
without limitation insurance policies or annuities) which a Participating
Employer chooses to use to pay benefits under this Plan shall constitute
general assets of the Participating Employer, shall be subject to the claims of
the Participating Employer's general creditors and shall not cause this to be a
funded plan within the meaning of any section of ERISA or the Code. No
Participant or surviving spouse shall have any prior or special claim to any
such asset.
7.3 The Board, upon the recommendation of the Administration Committee,
may authorize the creation of trusts or other arrangements to facilitate or
ensure payment of some or all benefit obligations under the Plan, provided that
such trusts and arrangements are consistent with the "unfunded" status of the
Plan. A Participant shall have no right, title, or interest whatsoever in or
to any investments which a Participating Employer may make to aid it in meeting
its obligations hereunder. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Participating Employer and
the Participant or any other person. To the extent that any person acquires a
right to receive benefits under this Plan, such right shall be no greater than
the right of an unsecured general creditor of the Participating Employer. All
payments to be made hereunder shall be paid in cash from the general funds of
the Participating Employer and no special or separate fund shall be established
and no segregation of assets shall be made to assure payments of such amounts.
-6-
<PAGE> 7
ARTICLE VIII
WITHHOLDING
8.1 The Participant and (if applicable) his surviving spouse shall make
appropriate arrangements with the Participating Employer by which he was or is
employed for the satisfaction of any federal, state or local income tax
withholding requirements and federal social security, medicare, or other
employment tax requirements applicable to the payment or vesting of benefits.
If no other arrangements are made, the Participating Employer may provide, at
its discretion, for such withholding and tax payments as may be required.
ARTICLE IX
ADMINISTRATION OF THE PLAN
9.1 The Plan shall be administered by the Administration Committee which
shall have full power, discretion and authority to interpret, construe and
administer the Plan and any part thereof, and the Administration Committee's
interpretation and construction thereof, and actions thereunder, shall be
binding and conclusive on all persons for all purposes. The Administration
Committee shall be the Executive Compensation Committee of the Board, or such
other committee as the Board may subsequently appoint to administer the Plan.
All actuarial determinations shall be made by the actuary for the Retirement
Plan, and the Administration Committee shall be entitled to rely on the good
faith determinations of such actuary. Any Participant who is a member of the
Administration Committee shall take no part in any discretionary action by the
Administration Committee which affects only him. Decisions of the
Administration Committee shall be final and binding on all parties who have an
interest in the Plan.
ARTICLE X
AMENDMENT OR TERMINATION OF THE PLAN
10.1 The Board may at any time amend, alter, modify or terminate the
Plan; provided, however, that any such action shall not reduce any benefits
earned under the Plan prior to such action. In the event of termination of the
Plan, the Administration Committee (in its sole discretion) may accelerate the
time of vesting and/or date of payment applicable to such benefits.
ARTICLE XI
CLAIMS AND DISPUTES
11.1 Claims for benefits under the Plan shall be made in writing to the
Administration Committee. The Participant may furnish the Administration
Committee with any written material he believes necessary to perfect his claim.
11.2 A person whose claim for benefits under the Plan has been
denied, or his duly authorized representative, may request a review upon
written application to the Administration Committee,
-7-
<PAGE> 8
may review pertinent documents, and may submit issues and comments in writing.
The claimant's written request for review must be submitted to the
Administration Committee within sixty (60) days after receipt by the claimant
of written notification of the denial of a claim. A decision by the
Administration Committee shall be made promptly, and not later than sixty (60)
days after the Administration Committee's receipt of a request for review,
unless special circumstances require an extension of time for proceeding, in
which cases a decision shall be rendered as soon as possible, but not later
than one hundred twenty (120) days after receipt of the request for review.
The decision on review shall be in writing, shall include reasons for the
decision, may include specific reference to the pertinent provision of the Plan
on which the decision is based, and shall be written in a manner calculated to
be understood by the claimant.
11.3 Unless otherwise required by law, any controversy or claim
arising out of or relating to this Plan or the breach thereof, including in
particular any controversy relating to Articles VI or IX, shall be settled by
binding arbitration in the City of Tecumseh in accordance with the laws of the
State of Michigan by three arbitrators, one of whom shall be appointed by the
Company, one by the Participant (or in the event of his prior death, his
beneficiary(-ies)), and the third of whom shall be appointed by the first two
arbitrators. If the selected (third) arbitrator declines or is unable to serve
for any reason, the appointed arbitrators shall select another arbitrator.
Upon their failure to agree on another arbitrator, the jurisdiction of the
Circuit Court of Lenawee County, Michigan shall be invoked to make such
selection. The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association except as
provided in Section 11.4 below. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. Review by
the arbitrators of any decision, action or interpretation of the Board or
Administration Committee shall be limited to a determination of whether it was
arbitrary and capricious or constituted an abuse of discretion, within the
guidelines of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In
the event the Participant or his beneficiary shall retain legal counsel and/or
incur other costs and expenses in connection with enforcement of any of the
Participant's rights under this Plan, the Participant or beneficiary shall not
be entitled to recover from the Company any attorneys fees, costs or expenses
in connection with the enforcement of such rights (including enforcement of any
arbitration award in court) regardless of the final outcome.
11.4 Any arbitration shall be conducted as follows:
(a) The arbitrators shall follow the Commercial arbitration Rules of
the American Arbitration Association, except as otherwise provided herein.
The arbitrators shall substantially comply with the rules of evidence;
shall grant essential but limited discovery; shall provide for the
-8-
<PAGE> 9
exchange of witness lists and exhibit copies; and shall conduct a pretrial
and consider dispositive motions. Each party shall have the right to
request the arbitrators to make findings of specific factual issues.
(b) The arbitrators shall complete their proceedings and render
their decision within 40 days after submission of the dispute to them,
unless both parties agree to an extension. Each party shall cooperate
with the arbitrators to comply with procedural time requirements and the
failure of either to do so shall entitle the arbitrators to extend the
arbitration proceedings accordingly and to impose sanctions on the party
responsible for the delay, payable to the other party. In the event the
arbitrators do not fulfill their responsibilities on a timely basis,
either party shall have the right to require a replacement and the
appointment of new arbitrators.
(c) The decision of the arbitrator shall be final and binding upon
the parties and accordingly a judgment by any Circuit Court of the State
of Michigan or any other court of competent jurisdiction may be entered in
accordance therewith.
(d) The costs of the arbitration shall be borne equally by the
parties to such arbitration, except that each party shall bear its own
legal and accounting expenses relating to its participation in the
arbitration.
(e) Every asserted claim to benefits or right of action by or on
behalf of any Participant, past, present, or future, or any spouse, child,
beneficiary or legal representative thereof, against the Company or any
Subsidiary arising out of or in connection with this Plan shall,
irrespective of the place where such right of action may arise or be
asserted, cease and be barred by the expiration of the earliest of: (i)
one year from the date of the alleged act or omission in respect of which
such right of action first arises in whole or in part, (ii) one year after
the Participant's termination of employment, or (iii) six months after
notice is given to or on behalf of the Participant of the amount of
benefits payable under this Plan.
ARTICLE XII
MISCELLANEOUS
12.1 Governing Law; Indemnification. This Plan shall be governed by and
construed, enforced, and administered in accordance with the laws of the State
of Michigan excluding any such laws which direct an application of the laws of
any other jurisdiction. Subject to Article XI, the Company, the Participating
Employers and the Administration Committee shall be subject to suit regarding
the Plan only in the courts of the State of Michigan, and the Company shall
fully indemnify and defend the Board and the Administration Committee with
respect to any actions relating to this Plan made in good faith by such bodies
or their members.
-9-
<PAGE> 10
12.2 Prohibition of Assignment. The benefits provided under Article V of
this Plan may not be alienated, assigned, transferred, pledged or hypothecated
by any Participant, surviving spouse or other person, at any time, to any
person whatsoever. These benefits shall be exempt from the claims of creditors
or other claimants and from all orders, decrees, levies, garnishment or
executions to the fullest extent allowed by law.
12.3 Severability. The provisions of this Plan shall be deemed
severable and in the event any provision of this Plan is held invalid, void, or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan. Furthermore, the Administration
Committee shall have the power to modify such provision to the extent
reasonably necessary to make the provision, as so changed, both legal, valid
and enforceable as well as compatible with the other provisions of the Plan.
12.4 Interpretation. Titles and headings to the Articles of this Plan
are included for convenience only and shall not control the meaning or
interpretation of any provision of this Plan. Wherever reasonably necessary in
this Plan, pronouns of any gender shall be deemed synonymous, as shall singular
and plural pronouns.
12.5 Participant Cooperation. A Participant shall cooperate with the
Company by furnishing any and all information requested by the Company, taking
such physical examinations as the Company may deem necessary, and taking such
other relevant actions as may reasonably be required by the Company or
Administration Committee for purposes of the Plan. If a Participant neglects
or refuses so to cooperate, the Company shall have no further obligation to
such Participant or his beneficiaries under the Plan, and any Plan benefits
accrued prior to such neglect or refusal shall be forfeited.
12.6 Obligations to Company. If any Participant becomes entitled to
payment of benefits under this Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount
owing to the Company or any of its Subsidiaries, then, as provided in Article
V, such amounts owed shall be an offset against the amount of benefits payable
under this Plan.
12.7 Release and Non-Disclosure/Non-Competition Agreements. As a
condition precedent to commencement of benefit payments under the Plan, and in
consideration of such payments, a Participant may be required to execute and
acknowledge a general release of all claims against the Company (and the
Participating Employer, if not the Company) in such form as the Company may
then require. Upon termination of the Participant's employment, at retirement
or otherwise, the Participant (if the Company requires him to do so) shall
execute and thereafter perform a Non-competition/Non-disclosure Agreement in
such form as the Company
-10-
<PAGE> 11
may then require. In that event, five per cent (5%) of each payment to the
Participant pursuant to the Plan shall be deemed a payment by the Company for
such agreement. If the Participant subsequently violates the
Non-competition/Non-disclosure Agreement, as determined by the Administration
Committee, the Company may suspend payment of Plan benefits to the Participant
and any surviving spouse or other beneficiary until such time as there is a
final determination that no such violation had occurred.
12.8 No Employment Contract. Nothing in this Plan shall be construed to
limit in any way the right of the Company or any other Participating Employer
to terminate a Participant's employment at any time for any reason whatsoever;
nor shall it be evidence of any agreement or understanding, express or implied,
that the Company or any Participating Employer (i) will employ an employee in
any particular position or for any particular period of time, (ii) will ensure
participation in any incentive program, or (iii) will grant any awards from any
such program.
12.9 Effective Date. This Plan shall be effective with respect to any
Participant who retires or whose employment otherwise terminates on or after
January 1, 1995.
TECUMSEH PRODUCTS COMPANY
By _______________________________
Its _________________________
-11-
<PAGE> 12
EXHIBIT A
EXAMPLE OF BENEFIT COMPUTATION:
Participant A decides to retire at age 60 and receive a joint and survivor
retirement benefit. His Accrued Benefit under the Retirement Plan is $5,469
per month at his Normal Retirement Date. However, there are actuarial
reductions for commencing benefits before age 62 and for his wife's survivor
benefit, so A's Retirement Benefits (as defined in Section 2.3) will be $4,707
per month. If A's Accrued Benefit were to be calculated under "Formula 1" and
"Formula 2" as described in Section 2.1(iii), Formula 1 would produce the
largest benefit. If that benefit were not reduced in accordance with Code
Sections 401(a)(17) and 415, his Accrued Benefit would be $8,100 per month.
Applying the same actuarial reductions, his Adjusted Retirement Benefits (as
defined in Section 2.1) would be $6,972 per month. A's benefits under this
Plan are initially determined by subtracting his Retirement Benefits from his
Adjusted Retirement Benefits; in other words $6,972 minus $4,707 = $2,265.
Assuming A has no obligations to the Company pursuant to Section 12.6, no
further reductions are required. A's benefits under this Plan are, therefore,
$2,265 per month.
A-1
<PAGE> 1
EXHIBIT 13
TECUHMSEH PRODUCTS COMPANY AND SUBSIDIARIES
FINANCIAL SUMMARY
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Net sales $ 1,533.4 $1,314.2 $1,258.5
Net income before accounting changes 120.3 81.4 52.3
% of net sales 7.8% 6.2% 4.2%
Cumulative effect of changes in accounting
for nonpension postretirement benefits
and income taxes -- -- (95.0)
Net income (loss) 120.3 81.4 (42.7)
Capital expenditures 136.2 51.1 56.6
Total assets 1,289.8 1,132.7 1,078.6
Stockholders' equity 785.5 686.8 639.8
Return on average
stockholders' equity 16.3% 12.3% 7.7%(a)
Per share of common stock:
Net income before accounting changes $5.50 $3.72 $2.39
Cumulative effect of accounting changes -- -- (4.34)
------- ------- --------
Net income (loss) $5.50 $3.72 ($1.95)
Cash dividends declared 1.35 1.15 0.80
Book value 35.90 31.39 29.24
Average number of employees 14,400 12,400 12,600
</TABLE>
Note: The above per share amounts have been adjusted as necessary to reflect
the 100% stock dividend paid June 30, 1993 and the 100% stock dividend paid
May 29, 1992.
(a) Calculated on net income before accounting changes.
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
BUSINESS SEGMENT DATA
(Dollars in millions)
Industry Segment Information
<TABLE>
<CAPTION>
Income Before
Net Sales Income Taxes
------------------------------- --------------------------
1994 1993 1992 1994 1993 1992(a)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Compressor
Products . . . . $ 881.2 $ 809.4 $ 836.5 $ 87.3 $ 71.7 $ 51.6
Engine & Power
Train
Products . . . . 563.8 426.9 360.2 80.3 40.9 20.8
Pump
Products . . . . 88.4 77.9 61.8 13.1 11.6 7.7
Corporate
Expenses . . . . - - - (11.5) (9.9) (10.3)
Net Interest
Income . . . . . - - - 22.7 13.5 18.6
-------- -------- -------- ------ ------ ------
Total . . . . . $1,533.4 $1,314.2 $1,258.5 $191.9 $127.8 $ 88.4
======== ======== ======== ====== ====== ======
<CAPTION>
Capital
Year End Assets Expenditures Depreciation
----------------------------------- ------------------------- -----------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressor
Products . . . . $ 609.3 $ 485.5 $ 488.2 $119.2 $36.8 $37.7 $41.7 $39.4 $40.1
Engine & Power
Train
Products . . . . 249.1 206.6 201.4 14.6 13.7 17.6 13.1 12.3 12.8
Pump
Products . . . . 42.9 35.7 33.5 2.4 0.6 1.3 0.9 0.8 0.7
Corporate . . . . 388.5 404.9 355.5 - - - - - -
-------- -------- -------- ------ ----- ----- ----- ----- -----
Total . . . . . $1,289.8 $1,132.7 $1,078.6 $136.2 $51.1 $56.6 $55.7 $52.5 $53.6
======== ======== ======== ====== ===== ===== ===== ===== =====
<CAPTION>
Geographic Segment Information
Income Before
Net Sales Income Taxes Year End Assets
----------------------------------- ------------------------- -----------------------------
1994 1993 1992 1994 1993 1992(a) 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America . . $1,104.8 $ 930.5 $ 840.3 $135.3 $ 95.4 $78.1 $ 876.7 $ 812.7 $ 729.4
Europe . . . . . . 280.5 260.7 322.2 9.6 (1.6) (5.7) 279.6 246.1 272.3
Brazil . . . . . . 148.1 123.0 96.0 47.6 34.6 16.7 134.1 78.5 82.9
Inter-area:
North America . . 13.8 11.6 11.7 - - - - - -
Europe . . . . . 3.1 0.1 0.1 - - - - - -
Brazil . . . . . 39.5 23.8 22.7 - - - - - -
Eliminations . . . (56.4) (35.5) (34.5) (0.6) (0.6) (0.7) (0.6) (4.6) (6.0)
-------- -------- -------- ------ ------ ----- -------- ------- --------
Total . . . . . . $1,533.4 $1,314.2 $1,258.5 $191.9 $127.8 $88.4 $1,289.8 $1,132.7 $1,078.6
======== ======== ======== ====== ====== ===== ======== ======== ========
</TABLE>
(a) The 1992 results are before cumulative effect of changes in accounting
for non-pension postretirement benefits and income taxes.
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Export sales of domestic operations were $213.2, $206.2,
and $226.5 million in 1994, 1993 and 1992, respectively. Of these sales,
approximately two-thirds were to customers in the Far and Middle East.
The Company's share of net unremitted earnings of its foreign subsidiaries
was $44.2 million in 1994, $14.0 million in 1993, and none in 1992.
Accumulated unremitted earnings of foreign subsidiaries at December 31, 1994
were $118.8 million.
Certain amounts previously reported have been reclassified to conform with
the current presentation.
12
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Sales for 1994 reached a record level $1,533.4 million and were 17%
higher than 1993 sales. Net income of $120.3 million, or $5.50 per share, for
1994 was 48% higher than 1993, and also represented a record level for the
Company. The improved operating results were due primarily to the strong sales
of the Company's Engine and Power Train Products.
COMPRESSOR PRODUCTS
The Company's worldwide Compressor Products sales for 1994 reached
$881.2 million and were 9% higher than 1993. Double-digit volume increases in
North and South America were the major factor in the overall sales gain. Sales
in Europe rebounded in the second half of 1994 and ended with an 8% increase
over 1993. This additional volume, along with cost-cutting initiatives in the
Company's European compressor operations in 1993, were key contributors to the
1994 profit gains for the Compressor Products segment. The Company expects
moderate growth from its compressor business in Europe for 1995.
The Company's compressor sales within the United States were up by 14%
for 1994. This gain was primarily attributable to sales of compressors used in
room air conditioners and various commercial refrigeration applications. Early
summer near-record heat favorably affected the sales of rotary compressors used
in room air conditioners. The strong U.S. demand, coupled with a good season
in Japan and certain areas of southeast Asia, has resulted in a global shortage
that should keep Tecumseh's rotary production schedules near capacity
throughout 1995. The Company reported strong year-to-year gains in its sales
of compressors that utilize R-134a, a non-CFC refrigerant. Despite a robust
year for the residential air conditioning market, the Company experienced a
decline in sales of reciprocating compressors to this market, due to the
industry trend toward the use of scroll compressors. The Company is currently
making a significant investment in a scroll compressor facility in Tecumseh,
Michigan. Customers are receiving sample compressors for testing, but the
Company does not expect this line to significantly contribute to revenues
before 1996.
The Company's Brazilian subsidiary, SICOM Ltda., reported a 20%
increase in sales for 1994, due primarily to the strong local demand for
appliances. The country's economic stabilization program initiated in mid-1994
has been its most successful in recent history, slashing monthly inflation from
50% in June to 2% in December. The resultant consumer confidence has driven
demand for consumer durables, in spite of high interest rates. Although the
high interest rates have generated significant financial income for Tecumseh,
the accompanying appreciation of Brazil's new currency began to negatively
impact export margins during the fourth quarter of 1994. The Company is
cautiously optimistic on Brazil, despite recent events in Mexico that serve as
a caution against being too confident of apparent solutions to fundamental
economic, social and political problems. In 1994, SICOM accounted for 10% of
consolidated sales and 26% of consolidated net income.
ENGINE AND POWER TRAIN PRODUCTS
The Company's worldwide Engine and Power Train Products sales were
$563.8 million in 1994 which was 32% higher than 1993. Sales of engines used
in snow thrower applications more than doubled in 1994 and were the leading
factor in explaining year-to-year sales gains. Despite the mild winter thus
far in 1995, retail inventory levels for snow throwers are quite low which
should result in a good year for 1995, albeit at lower levels than 1994.
Tecumseh's sales of engines used on walk-behind mowers also increased
significantly in 1994, both in North America and in Europe, reflecting good
market conditions and some gain in market share. The Company is well
positioned in the mass merchandisers' planned product offerings for the 1995
seasonal year, which is expected to grow 5% in U.S. lawn and garden equipment
sales according to the most recent industry forecast.
Primarily due to the favorable impact of higher sales volume and a
more profitable product mix, the profit margin for this segment improved from
9.6% in 1993 to 14.2% in 1994. This segment is experiencing inflationary
pressures on its raw material costs, particularly aluminum. The rapidly rising
cost of aluminum is beginning to put pressure on Tecumseh's engine and power
train margins, and pricing of its product will be an important issue for the
coming year.
PUMP PRODUCTS
The Company's 1994 Pump Products sales of $88.4 million were 13%
higher than those of an unusually robust 1993 which was aided by widespread
flooding. The sales increase was primarily due to growing demand for consumer
pumps, such as for water gardening, along with increases to certain industrial
customers. Water gardening and other consumer applications should continue to
provide growth opportunities for this segment, which has grown at an annualized
rate of 11% over the past five years.
INTEREST INCOME
Interest income for 1994 was significantly higher than 1993. This
increase was primarily attributable to the Company's Brazilian subsidiary, and
was the direct result of higher interest rates in Brazil and the Company
maintaining somewhat higher cash balances in Brazil in 1994 than in 1993.
INCOME TAXES
The effective tax rate was 37% for 1994 as compared to 36% for 1993.
The 1993 rate included a net favorable adjustment for the increase in the U.S.
corporate tax rate from 34% to 35%, due to the Company's large deferred tax
asset position.
13
<PAGE> 4
1993 COMPARED TO 1992
Consolidated earnings for 1993 were $81.4 million, or $3.72 per share,
which was an increase of 56% compared to prior year's earnings, exclusive of
the 1992 cumulative effect adjustment for changes in accounting for non-pension
postretirement benefits and income taxes. Sales reached $1,314.2 million in
1993, which was a 4% increase over 1992. The improved operating results were
due primarily to record-setting profit levels at the Company's Brazilian
compressor operations along with strong sales of the Company's Engine and Power
Train Products.
COMPRESSOR PRODUCTS
Sales for 1993 were 3% lower than the prior year reflecting reduced
sales in Europe and Asia, offset to a considerable extent by increased sales in
the United States and Brazil. A rebounding Brazilian economy allowed
Tecumseh's subsidiary, SICOM Ltda., to achieve growth in sales and net income
despite accelerating inflation and growing economic and political
uncertainties. SICOM accounted for 9% of 1993 consolidated sales (8% in 1992)
and 27% of 1993 consolidated net income (15% in 1992).
The Company's compressor sales within the United States were up by 17%
for 1993 compared to 1992. A significant portion of the sales increase came in
the unitary air conditioning market. The Company's U.S. compressor exports for
1993 were 17% below the 1992 record levels due primarily to continued
restrictions on foreign currency in China. In addition, the Company's sales
volume and prices were impaired by an excess inventory of rotary air
conditioning compressors in the Far East following an unusually cool summer in
Japan.
Sales for Tecumseh's European compressor operations were down over
20% in 1993 resulting in a small operating loss for the year. The sales
decline reflected continued weak economic conditions in Europe along with a
currency-related reduction in market share in the refrigerator compressor
market. Manufacturers in Italy and Spain increased their sales volume through
aggressive pricing following the depreciation of the currencies in those
countries beginning in mid-1992.
ENGINE AND POWER TRAIN PRODUCTS
Sales for 1993 were up 19% over the prior year. The increase was due
to improved industry conditions for walk-behind and riding lawn equipment as
well as some gain in share. Industry sales of snow throwers doubled in 1993
after several disappointing seasons for a market where Tecumseh is the dominant
supplier.
The profit gain for the Engine and Power Train Products was primarily
a result of the increase in sales volume compared to 1992. In addition,
Tecumseh's Italian-based European engine operation benefited in 1993 from a
depreciated lira along with the positive effect of a 15% work force reduction
in late 1992.
PUMP PRODUCTS
The Company's Pump Products sales for 1993 increased 26% over 1992
reflecting abnormally high sump pump sales in areas affected by the 1993
floods, along with continued growth in water gardening pump products.
INTEREST INCOME
Interest income for 1993 was considerably below the previous year's
level due principally to SICOM's lower financial income. Real interest rates
declined in Brazil in late 1992 in the government's attempt to boost consumer
spending. In addition, the Company reduced cash balances held in Brazil during
1993 through dividend remittance and other transactions.
INCOME TAX
The effective income tax rate was 36% for 1993 as compared to 41% for
1992. The rate decline was primarily a result of a tax refund in Brazil along
with a reduction in net operating losses at the Company's Italian engine
subsidiary. The Company recorded a net favorable adjustment for the increase
in the U.S. corporate tax rate from 34% to 35%, due to its large deferred tax
asset position.
14
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial
position. Working capital of $504.2 million at December 31, 1994 was up from
$473.6 million at the end of 1993, and the ratio of current assets to current
liabilities was 3.0. Capital expenditures for 1994 were significantly higher
than 1993 due to the funding of a scroll compressor manufacturing facility
along with the purchase (and retooling) of rotary compressor manufacturing
equipment from General Electric. Total capital spending for 1995 should
approximate $150-175 million as the Company completes the scroll and rotary
programs, expands productive capacity for its TP refrigeration compressor, and
expands capacity of both its engine and pump businesses. Working capital
requirements and planned capital expenditures for 1995 and early 1996 are
expected to be financed primarily through internally available funds, although
the Company may utilize long-term financing arrangements in connection with
state investment incentives. In addition, the Company obtained a $100 million
revolving credit facility in July 1994 which has a three-year term and is
available for general corporate purposes.
Pursuant to the National Appliance Energy Conservation Act, the U.S.
government will require higher energy efficiency ratings on room air
conditioning products and on refrigerator and freezer products. Final
regulations are expected to be issued in 1995 for implementation in 1998. It
is not presently possible to estimate the level of expenditures which will be
required to meet the new standards nor the effect on the Company's
competitive position.
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. The development consists of two phases. Phase I
is expected to be published in May 1995 with an effective date as early as
August 1, 1996, but the EPA may accommodate an industry requested 1997
effective date. The Company believes that it will be prepared to meet the EPA
Phase I standards with competitively priced engines. The California Air
Resources Board (CARB) has mandated exhaust emission standards for utility
engines. These standards became effective January 1, 1995, followed by a
non-enforcement period of approximately six to eight months. An adequate
cross-section of the Company's engine products have or will be modified to meet
the 1995 CARB requirements. Current negotiations of the EPA Phase II standards
are expected to be completed by June 1995 with a proposed rule issued in early
1996. It is not currently possible to determine the compliance cost thereof
nor the impact on the competitive position of the Company.
The Company has been named by the EPA as a potentially responsible
party in connection with the Sheboygan River and Harbor Superfund Site in
Wisconsin. At December 31, 1994, the Company had an accrual of $31.9 million
for estimated costs associated with the cleanup of certain PCB contamination at
this Superfund Site. The Company has based the estimated cost of cleanup on
ongoing engineering studies, including engineering samples taken in the
Sheboygan River, and assumptions as to the areas that will have to be
remediated along with the nature and extent of the remediation that will be
required. Significant assumptions underlying the estimated costs are that
remediation will involve innovative technologies, including (but not limited
to) bioremediation near the Company's plant site and along the Upper River, and
only natural armoring and bioremediation in the Lower River and Harbor. The
Company has been informed by the EPA that it expects to issue a record of
decision on the cleanup of the Sheboygan River and Harbor site late in 1995,
but ultimate resolution of the matter may take much longer. The ultimate costs
to the Company will be dependent upon factors beyond its control such as the
scope and methodology of the remedial action requirements to be established by
the EPA (in consultation with the State of Wisconsin), rapidly changing
technology, and the outcome of any related litigation.
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.
15
<PAGE> 6
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INCOME:
Net sales $1,533.4 $1,314.2 $1,258.5
Interest income 29.2 17.5 24.6
Other income 6.8 5.6 3.6
-------- -------- --------
1,569.4 1,337.3 1,286.7
-------- -------- --------
EXPENSES:
Cost of sales and operating expenses 1,279.5 1,124.0 1,109.3
Selling and administrative expenses 88.8 78.4 78.8
Interest expense 6.5 4.0 6.0
Other expenses 2.7 3.1 4.2
-------- -------- --------
1,377.5 1,209.5 1,198.3
-------- -------- --------
INCOME BEFORE TAXES ON INCOME
AND CHANGES IN ACCOUNTING PRINCIPLES 191.9 127.8 88.4
Taxes on income 71.6 46.4 36.1
-------- -------- --------
INCOME BEFORE CHANGES IN ACCOUNTING PRINCIPLES 120.3 81.4 52.3
Cumulative effect of changes in accounting
for non-pension postretirement benefits
and income taxes (Note 1.) - - (95.0)
-------- -------- --------
NET INCOME (LOSS) $120.3 $81.4 ($42.7)
======== ======== ========
Net income per share before changes in accounting principles $5.50 $3.72 $2.39
Cumulative effect of changes in accounting
for non-pension postretirement benefits and
income taxes (Note1.) - - (4.34)
-------- -------- --------
NET INCOME (LOSS) PER SHARE $5.50 $3.72 ($1.95)
======== ======== ========
</TABLE>
The above per share amounts have been adjusted as necessary to reflect the 100%
stock dividend paid June 30, 1993 and the 100% stock dividend paid May 29,
1992.
The accompanying notes are an integral part of these statements.
16
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------ FOREIGN
CLASS B CAPITAL CURRENCY TOTAL
CLASS A OR PRIOR IN EXCESS RETAINED TRANSLATION STOCKHOLDERS'
$1 PAR VALUE $1 PAR VALUE OF PAR VALUE EARNINGS ADJUSTMENT EQUITY
------------ ------------ ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $5.5 $29.9 $653.6 $23.8 $712.8
Net income (loss) (42.7) (42.7)
Cash dividends (17.5) (17.5)
Dividend of Class A common 5.5 (5.5) -
Translation adjustments (12.8) (12.8)
---- ----- ----- ------ ----- ------
BALANCE, DECEMBER 31, 1992 5.5 5.5 29.9 587.9 11.0 639.8
Net income 81.4 81.4
Cash dividends (25.2) (25.2)
Dividend of Class A common 10.9 (10.9) -
Translation adjustments (9.2) (9.2)
---- ----- ----- ------ ----- ------
BALANCE, DECEMBER 31, 1993 16.4 5.5 29.9 633.2 1.8 686.8
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
===== ===== ===== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
December 31,
----------------------------------------
ASSETS 1994 1993
------------ --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $283.2 $313.2
Accounts receivable, trade, less allowance for doubtful
accounts of $5.8 million in 1994 and $5.3 million 1993 191.6 158.0
Inventories 235.3 174.9
Deferred income taxes 38.4 30.1
Other current assets 7.8 7.3
-------- --------
TOTAL CURRENT ASSETS 756.3 683.5
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and land improvements 7.9 7.5
Buildings 127.9 106.3
Machinery and equipment 645.7 539.7
-------- --------
781.5 653.5
Less, accumulated depreciation 379.1 333.1
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 402.4 320.4
-------- --------
EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated
amortization of $12.4 million in 1994 and $10.5 million in 1993 58.0 54.5
DEFERRED INCOME TAXES 21.4 29.0
PREPAID PENSION EXPENSE 31.8 27.2
OTHER ASSETS 19.9 18.1
-------- --------
TOTAL ASSETS $1,289.8 $1,132.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $116.5 $88.1
Income taxes payable 5.1 9.9
Short-term borrowings 11.7 14.0
Accrued liabilities:
Employee compensation 29.6 20.5
Product warranty and self-insured risks 32.3 31.8
Other 56.9 45.6
-------- --------
TOTAL CURRENT LIABILITIES 252.1 209.9
LONG-TERM DEBT 9.1 11.2
NON-PENSION POSTRETIREMENT BENEFITS 169.8 161.3
PRODUCT WARRANTY AND SELF-INSURED RISKS 29.5 26.3
ACCRUAL FOR ENVIRONMENTAL MATTERS 30.7 25.4
PENSION LIABILITIES 13.1 11.8
-------- --------
TOTAL LIABILITIES 504.3 445.9
-------- --------
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 724.0 633.2
Foreign currency translation adjustment 9.7 1.8
-------- --------
TOTAL STOCKHOLDERS' EQUITY 785.5 686.8
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,289.8 $1,132.7
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
18
<PAGE> 9
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 120.3 $ 81.4 ($42.7)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of changes in accounting for non-
pension postretirement benefits and income taxe - - 95.0
Depreciation and amortization 55.7 52.5 53.6
Accounts receivable (26.6) (2.1) 21.8
Inventories (58.2) (5.0) (19.6)
Payables and accrued expenses 28.0 18.6 (19.3)
Other 8.0 (4.1) 4.5
------- ------ ------
Cash Provided By Operations 127.2 141.3 93.3
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (136.2) (51.1) (56.6)
------- ------ ------
Cash Used In Investing Activities (136.2) (51.1) (56.6)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (29.5) (25.2) (17.5)
Proceeds from borrowings 9.5 0.9 2.1
Repayments of borrowings (15.4) (10.4) (9.0)
------- ------ ------
Cash Used In Financing Activities (35.4) (34.7) (24.4)
------- ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 14.4 (5.9) (5.1)
------- ------ ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (30.0) 49.6 7.2
CASH AND CASH EQUIVALENTS:
Beginning of period 313.2 263.6 256.4
------- ------ ------
End of period $ 283.2 $313.2 $263.6
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements
19
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its subsidiaries. The Company's
investments in unconsolidated affiliates are accounted for on the equity
basis. All significant inter-company transactions and balances have been
eliminated.
CASH EQUIVALENTS -- Cash equivalents consist of short-term investments which
are readily convertible into cash. The carrying amount approximates market
value because of the short duration of these instruments.
INVENTORIES -- Inventories are valued at the lower of cost or market,
generally on the first-in, first-out basis.
INCOME TAXES -- Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". The cumulative effect of this change in accounting for income
taxes was to increase 1992 net income by $1.5 million, or $.07 per share. SFAS
No. 109 requires an asset and liability approach to financial accounting and
reporting for income taxes. The difference between the financial statement and
tax basis of assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those differences that have future
tax consequences using the currently enacted tax laws and rates that apply to
the periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset to
the amount that will more likely than not be realized. Income tax expense is
the current tax payable for the period plus or minus the net change in the
deferred tax assets and liabilities.
PROPERTY, PLANT AND EQUIPMENT -- Expenditures for additions, major renewals
and betterments are capitalized and expenditures for maintenance and repairs
are charged to expense as incurred. For financial statement purposes,
depreciation is determined using the straight-line basis except for certain
highly automated and specialized machinery which is depreciated using the units
of production method.
EXCESS OF COST OVER ACQUIRED NET ASSETS -- Assets and liabilities related to
business combinations accounted for as purchases are recorded at fair value.
The excess of cost over the net tangible assets acquired is being amortized on
a straight-line basis over forty years.
PRODUCT WARRANTY -- Provision is made for the estimated cost of maintaining
product warranties at the time the product is sold.
SELF-INSURED RISKS -- Provision is made for the estimated costs of known and
anticipated claims under the deductible portions of the Company's liability,
disability and workers' compensation insurance policies. In addition,
provision is made for the estimated cost of postemployment benefits at
employment separation, in accordance with Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits".
NON-PENSION POSTRETIREMENT BENEFITS -- Effective January 1, 1992, the
Company adopted the accrual accounting method prescribed in SFAS No. 106 for
its non-pension postretirement benefit plans. As permitted under the
provisions of this standard, the expense attributable to service rendered
through December 31, 1991 has been fully recognized as of the date of adoption.
This non-cash transition effect of the unfunded obligation was a charge of
$96.5 million to 1992 earnings, net of approximately $54.3 million of income
tax effects, reducing earnings per share by $4.41. Prior to 1992, non-pension
postretirement benefits were recognized on a claims incurred basis.
ENVIRONMENTAL EXPENDITURES -- Expenditures for environmental safekeeping are
expensed or capitalized as appropriate. Costs associated with remediation
activities are expensed. Liabilities relating to probable remedial activities
are recorded when the costs of such activities can be reasonably estimated.
RECLASSIFICATIONS -- Certain amounts included in the 1993 and 1992 financial
statements have been reclassified to conform with the 1994 presentation.
NOTE 2. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's Canadian and European
subsidiaries are translated into U.S. dollars at current exchange rates and
revenues and expenses are translated at average monthly exchange rates. The
resulting translation adjustments are recorded in a separate component of
stockholders' equity:
<TABLE>
<CAPTION>
1994 1993
(Dollars in millions) ------ ------
<S> <C> <C>
Balance at January 1 $ 1.8 $ 11.0
Effect of balance sheet
translations:
Amount 11.6 (12.0)
Tax effect (3.7) 2.8
----- ------
Balance at December 31 $ 9.7 $ 1.8
===== ======
</TABLE>
For the Company's Brazilian subsidiary, which operates in a highly
inflationary economy, inventory and plant and equipment and related income
statement items are translated at historical exchange rates while other assets
and liabilities are translated at current exchange rates. The resulting
translation adjustment is included in other expense and was $1.1 million, $2.0
million, and $2.1 million in 1994, 1993, and 1992, 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-
<PAGE> 11
Net pension expense of the Company's domestic defined benefit plans
include the following components:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in millions) ------- ------- -------
<S> <C> <C> <C>
Service cost - benefits
earned during year $ 6.2 $ 5.3 $ 4.8
Interest cost on projected
benefit obligations 16.3 16.5 15.7
Actual (gain) loss on assets 6.0 (43.6) (25.1)
Net amortization and deferral (32.8) 17.2 (1.1)
------ ------ ------
Net pension expense (credit) $ (4.3) $ (4.6) $ (5.7)
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
(Dollars in millions) --------------- --------------
OVER- UNDER- Over- Under-
FUNDED FUNDED funded funded
PLANS PLANS Plans Plans
------ ---- ------ ----
<S> <C> <C> <C> <C>
Plan assets at fair value $353.3 $0.4 $373.3 $0.9
------ ---- ------ ----
Actuarial present value of
benefit obligation:
Vested benefits 209.3 0.4 228.9 0.9
Non-vested benefits 12.3 -- 16.5 0.1
Accumulated benefit ------ ---- ------ ----
obligation 221.6 0.4 245.4 1.0
Effect of projected
future salary increases 18.7 21.1 --
------ ---- ------ ----
Projected benefit obligation 240.3 0.4 266.5 1.0
------ ---- ------ ----
Projected benefit obligation
(in excess of) or less
than plan assets 113.0 -- 106.8 (0.1)
Unrecognized prior
service cost 11.5 -- 12.6 --
Unrecognized net (gain) loss (73.8) -- (71.3) 0.1
Unrecognized net transition
(asset) obligation (18.9) -- (20.9) --
------ ---- ------ ----
Prepaid pension expense $ 31.8 $ -- $ 27.2 $ --
====== ==== ====== ====
</TABLE>
Assumptions used in accounting for the domestic defined benefit plans were:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Measurement of projected benefit obligation:
Discount rate 7.25% 6.25%
Long-term rate of compensation increases 5.50% 5.50%
Long-term rate of return on plan assets 7.50% 7.50%
</TABLE>
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 $1.8, $2.2, and $2.3 million
in 1994, 1993 and 1992, respectively. The net liability recorded in the
consolidated balance sheet was $13.1 and $11.8 million for 1994 and 1993,
respectively.
Consolidated pension expense (credit) of $(0.1) million in 1994, $(0.3)
million in 1993, and $(1.5) million in 1992 includes amounts associated with
the domestic and foreign defined benefit plans described above and certain
defined contribution plans.
NOTE 4. NON-PENSION POSTRETIREMENT BENEFIT PLANS
The Company sponsors a retiree health care benefit plan, including retiree
life insurance, for eligible salaried retirees and their eligible dependents.
The Company also sponsors at certain divisions, retiree health care benefit
plans for eligible hourly retirees and their eligible dependents. Some of the
hourly retiree health care plans include retiree life insurance. The retiree
health care plans are unfunded and provide for coordination of benefits with
Medicare and any other insurance plan covering a participating retiree or
dependent. The plans have annual lifetime maximum benefit restrictions and
pay a stated percentage of covered, medically necessary expenses incurred by
the eligible retiree after applicable deductibles are met. Some of the plans
are contribu tory, with some retiree contributions adjusted annually. The
Company has reserved the right to interpret, change or eliminate these benefit
plans.
The components of the net periodic postretirement benefit cost were:
<TABLE>
<CAPTION> 1994 1993 1992
(Dollars in millions) ------ ------ ------
<S> <C> <C> <C>
Service cost-benefits
earned during year $ 3.9 $ 3.7 $ 4.6
Interest cost on accumulated
postretirement benefit
obligation 8.9 10.3 10.9
Net amortization and deferral (1.6)) (1.0) --
----- ----- -----
Net postretirement health care
costs (before tax effect) $11.2 $13.0 $15.5
===== ===== =====
</TABLE>
The total of accrued postretirement benefit obligation is presented below as
of December 31:
<TABLE>
<CAPTION> 1994 1993
(Dollars in millions) ------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 51.5 $ 57.7
Active, eligible employees 24.6 34.7
Active, not yet eligible employees 52.7 60.7
------ ------
128.8 153.1
Unrecognized plan amendment gain 14.8 4.0
Unrecognized net actuarial gain 32.5 10.2
------ ------
Accrued postretirement benefit cost
in excess of plan assets $176.1 $167.3
====== ======
Assumptions used:
Discount rate 7.5% 6.5%
Health care cost trend rate 11.0% 11.5%
Ultimate health care cost trend rate
in 2003 5.5% 4.5%
</TABLE>
At December 31, 1994 and 1993 respectively, $6.3 and $6.0 million were
included in Accrued Liabilities, Other.
-21-
<PAGE> 12
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, 1994 by $17.8 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 and cumulative effect of changes in
accounting principles consist of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
United States $132.8 $ 94.1 $76.4
Foreign 59.1 33.7 12.0
------ ------ -----
$191.9 $127.8 $88.4
====== ====== =====
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Current:
U.S. federal $53.8 $32.7 $23.5
State and local 7.8 4.4 3.4
Foreign income and
withholding taxes 14.7 12.8 11.7
----- ----- -----
76.3 49.9 38.6
----- ----- -----
Deferred:
U.S. federal (4.2) (5.3) (1.7)
Foreign (0.5) 1.8 (0.8)
----- ----- -----
(4.7) (3.5) (2.5)
----- ----- -----
Provision for income taxes $71.6 $46.4 $36.1
===== ===== =====
Income taxes paid $80.7 $43.8 $46.4
===== ===== =====
</TABLE>
A reconciliation between the actual income tax expense provided and the
income tax expense computed by applying the statutory federal income tax rate
of 35% in 1994 and 1993 and 34% in 1992 to pre-tax income is as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Income taxes at U.S. statutory rate $67.2 $44.7 $30.0
Excess of foreign taxes over
the U.S. statutory rate -- 0.4 3.0
State and local income taxes 5.1 2.9 2.2
Foreign losses without tax benefit -- 1.0 2.5
Deferred income tax rate changes -- (1.6) --
Tax benefits from
Foreign Sales Corporation (1.0) (1.1) (0.9)
Federal tax refund -- -- (1.4)
Other 0.3 0.1 0.7
----- ----- -----
$71.6 $46.4 $36.1
===== ===== =====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993
------ ------
<S> <C> <C>
Deferred tax assets:
Non-pension postretirement benefits $ 65.1 $ 61.9
Product warranty and self-insured risks 20.7 18.8
Net operating loss carryforwards 10.1 9.4
Provision for environmental matters 14.4 10.9
Other accruals and miscellaneous 26.6 25.9
------ ------
136.9 126.9
Valuation allowance 11.2 15.2
------ ------
Total deferred tax assets 125.7 111.7
------ ------
Deferred tax liabilities:
Tax over book depreciation 39.8 37.6
Pension 11.9 10.2
Other 14.2 4.8
------ ------
Total deferred tax liabilities 65.9 52.6
------ ------
Net deferred tax assets $ 59.8 $ 59.1
====== ======
</TABLE>
At December 31, 1994, the Company had net operating loss carryforwards
attributable to foreign operations for income tax purposes of $28.0 million
which expire from 1995 to 1999 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:
<TABLE>
<CAPTION>
(Dollars in millions) 1994 1993
------ ------
<S> <C> <C>
Raw materials and work in process $147.6 $107.2
Finished goods 74.3 56.2
Supplies 13.4 11.5
------ ------
$235.3 $174.9
====== ======
</TABLE>
-22-
<PAGE> 13
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 $7.2 million (at 6.5%) at December 31, 1994, and $10.5 million
(at 5.5%) at December 31, 1993.
Long-term debt consists of the following:
1. Unsecured borrowings, primarily with banks, by foreign subsidiaries with
interest rates ranging from 7.9% to 10.3%. The U.S. dollar equivalent of
these borrowings was $6.9 and $9.2 mil-lion at December 31, 1994 and
1993, respectively.
2. A $5.5 million variable-rate bank repurchase agreement (effective
interest rate of 6.69% at December 31, 1994), due in 1997.
3. $1.2 million variable-rate Industrial Development Revenue Bonds
(effective interest rate of 6.44% at December 31, 1994) payable in
quarterly installments from 1995 to 2020.
Scheduled maturities of long-term debt outstanding at December 31, 1994, are
as follows:
1995--$4.5 million; 1996--$1.6 million;
1997--$6.1 million; 1998--$0.1 million;
1999 and beyond--$1.3 million.
Interest paid was $6.4 million in 1994, $3.6 million in 1993 and $5.2 million
in 1992.
The carrying value of short and long-term debt at December 31, 1994 and 1993
approximated fair market value.
In 1994, the Company 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, 1994, the Company had not made any borrowings under this
facility.
NOTE 9. ENVIRONMENTAL MATTERS
The Company has been named by the U.S. Environmental Protection Agency (EPA)
as a potentially responsible party in connection with the Sheboygan River and
Harbor Superfund Site in Wisconsin. At December 31, 1994, the Company had an
accrual of $31.9 million ($26.4 million at December 31, 1993) for the estimated
costs associated with the cleanup of certain PCB contamination at this
Superfund Site. The Company has based the estimated cost of cleanup on ongoing
engineering studies, including engineering samples taken in the Sheboygan
River, and assumptions as to the areas that will have to be remediated along
with the nature and extent of the remediation that will be required.
Significant assumptions underlying the estimated costs are that remediation
will involve innovative technologies, including (but not limited to)
bioremediation near the Company's plant site and along the Upper River, and
only natural armoring and bioremediation in the Lower River and Harbor. The
increase in the accrual during 1994 reflects updated cost factors and an
additional provision in the second quarter for identified groundwater
pollution. The provision for additional costs was substantially offset by
insurance settlements received during the second quarter of 1994. The EPA has
indicated it expects to issue a record of decision on the cleanup of the
Sheboygan River and Harbor Site late in 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.
On June 16, 1994, the Wisconsin Supreme Court, in an unrelated case, held
that insurance coverage was not available for environmental cleanup costs to
the extent the cleanup is done to prevent or mitigate future injury. A motion
for reconsideration has been denied. In a separate matter the Court in the
Company's insurance coverage action has ruled that Michigan Law should be
applied. The Company, in establishing its accrual for environmental cleanup
costs, has not provided for any potential additional recovery of these
estimated cleanup costs.
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.
-23-
<PAGE> 14
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. RISK CONCENTRATION
Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash investments and accounts receivable. The
Company places its cash investments in investment grade, short-term debt
instruments and limits the amount of credit exposure to any one commercial
issuer. Concentrations of credit risk with respect to receivables are
limited due to the large number of customers in the Company's customer base,
and their dispersion across different industries and geographic areas.
A portion of export accounts receivable of the Company's Brazilian
subsidiary, SICOM, are sold with recourse. Factored Brazilian export accounts
receivable balances at December 31, 1994 and 1993, respectively, were $24.8
million and $23.1 million with discount rates, respectively of 7.5 and 4.5
percent. The Company maintains an allowance for losses based upon the expected
collectability of all accounts receivable, including receivables sold.
The Company enters into forward exchange contracts to hedge certain foreign
currency transactions for periods consistent with the expected cash flows of
the underlying transactions. All foreign exchange contracts 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, 1994 and 1993 respectively, the Company had $62.8 million and
$44.6 million in foreign exchange contracts outstanding. The aggregate value
of these contracts at December 31, 1994 and 1993 approximated fair market
value.
NOTE 12. STOCKHOLDERS' EQUITY
Prior to April 22, 1992, the Company had only a single class of stock, common
stock, $1.00 par value. On April 22, 1992, the common stock was redesignated
as the Class B common stock, and the Class A common stock was authorized. On
May 29, 1992, the Company paid a dividend of one share of Class A common stock
on each outstanding share of Class B common stock. The Class A common stock
became eligible for trading on June 1, 1992. On June 30, 1993, the Company
paid a dividend of one share of Class A common stock on each outstanding share
of common stock.
The shares of Class A common stock and Class B common stock are 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.
In 1991, the Company adopted a Shareholders' Rights Plan. This plan was
amended in 1992 to clarify the effect of the Company's reclassification of the
existing common stock to voting Class B common stock. In addition, in 1992,
the Company adopted a new plan for the distribution of a Class A Right for each
share of the newly created Class A common stock. Each Right entitles the
registered holder, subject to the terms of the corresponding Rights Agreement,
to purchase from the Company one share of the corresponding class of common
stock at an exercise price of $80.00 per share, subject to adjustment.
The Rights are not currently exercisable, but would become exercisable if
certain events occurred relating to a person or group (Acquiring Person)
acquiring or attempting to acquire 10% or more of the outstanding shares of
Class B common stock. In the event that the Rights become exercisable, each
Right (except for Rights beneficially owned by the Acquiring Person, which
become null and void) would entitle the holder to purchase, for the exercise
price then in effect, shares of the Company's corresponding class of common
stock having a value of twice the exercise price.
The Rights may be redeemed by the Board of Directors in whole, but not in
part, at a price of $.0025 per Right. The Rights have no voting or dividend
privileges and are attached to, and do not trade separately from the Class A
and Class B common stock. The Rights expire on January 23, 2001.
As of December 31, 1994, 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 Rights Agreements.
-24-
<PAGE> 15
MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF
TECUMSEH PRODUCTS COMPANY
Management is responsible for the integrity and objectivity of the financial
statements and other information presented in this annual report. The
statements were prepared in accordance with generally accepted accounting
principles and, where necessary, include certain amounts based on management's
best estimate and judgment to reflect the expected effects of events and
transactions that have not been completed. All financial information in the
annual report is consistent with the financial statements.
Management has established and maintains a system of internal accounting
controls to provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization.
These controls are documented by written policies and procedures that are
communicated to employees with significant roles in the financial reporting
process. This system is continually reviewed and evaluated and modified to
reflect current conditions.
The Audit Committee of the Board of Directors, composed primarily of outside
Directors, is responsible for monitoring the Company's accounting and reporting
practices. The Audit Committee meets regularly with management, the internal
auditors, and the independent public accountants to review the work of each and
to assure that each is carrying out its responsibilities. Both the independent
public accountants and the internal auditors have unrestricted access to the
Audit Committee with and without management's representative present, to
discuss the results of their examinations and their opinions on the adequacy of
internal accounting controls and the quality of financial reporting.
The independent public accountants are engaged to express an opinion on the
Company's financial statements. Their opinion is based on procedures which
they believe to be sufficient to provide reasonable assurance that the
financial statements contain no material errors.
Todd W. Herrick
President and Chief Executive Officer
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
INDEPENDENT ACCOUNTANT'S REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
TECUMSEH PRODUCTS COMPANY
We have audited the accompanying consolidated balance sheets of Tecumseh
Products Company and Subsidiaries as of December 31, 1994 and 1993, and the
related statements of consolidated income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tecumseh
Products Company and Subsidiaries at December 31, 1994 and 1993 and the
consolidated results of operations and cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
/s/
Moore, Smith & Dale
Certified Public Accountants
February 17, 1995
Southfield, Michigan
25
<PAGE> 16
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992(a) 1991 1990(b)
---- ---- ------- ---- -------
(Dollars in millions except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,533.4 $1,314.2 $1,258.5 $1,197.2 $1,318.1
Net income before accounting
changes 120.3 81.4 52.3 42.5 14.2
Cumulative effect of changes
in accounting principles - - (95.0) - -
-------- -------- -------- -------- --------
Net income (loss) 120.3 81.4 (42.7) 42.5 14.2
PER SHARE OF COMMON STOCK:
Net income before accounting
changes $5.50 $3.72 $2.39 $1.94 $0.65
Cumulative effect of accounting
changes - - (4.34) - -
----- ----- ----- ----- -----
Net income (loss) 5.50 3.72 (1.95) 1.94 0.65
Cash dividends declared 1.35 1.15 0.80 0.80 0.80
Balance Sheet Data (at period
end):
Cash and cash equivalents $ 283.2 $313.2 $263.6 $256.4 $240.3
Working capital (c) 504.2 473.6 420.4 403.1 414.3
Net property, plant and equipment 402.4 320.4 322.9 324.3 304.9
Total assets 1,289.8 1,132.7 1,078.6 1,055.4 1,032.2
Long-term debt 9.1 11.2 14.4 17.9 23.6
Stockholders' equity 785.5 686.8 639.8 712.8 692.2
OTHER DATA:
Capital expenditures $ 136.2 $51.1 $56.6 $85.8 $64.8
Depreciation and amortization 55.7 52.5 53.6 49.9 49.6
</TABLE>
Note: The above per share amounts have been adjusted as necessary to
reflect the 100% stock dividend paid June 30, 1993 and the 100% stock
dividend paid May 29, 1992.
(a) Reflects cumulative effect of adoption of Statement of Financial
Accounting Standards (SFAS) No. 106, Accounting for Non-pension
Postretirement Benefits, and SFAS No. 109, Accounting for Income Taxes.
(b) The 1990 results include a nonrecurring provision for environmental
cleanup of $19.2 million after income taxes, or $0.88 per share.
(c) Working capital is the excess of current assets over current
liabilities.
26
<PAGE> 17
Tecumseh Products Company and Subsidiaries
INFORMATION CONCERNING EQUITY SECURITIES
The Company's Class A and Class B common stock are traded on the NASDAQ Stock
Market under the the symbols TECA and TECB, respectively. The high and
low market prices and dividends per share presented below have been adjusted as
necessary to reflect the 100% stock dividend paid June 30, 1993. The stock
dividend is further discussed in Note 12.
<TABLE>
<CAPTION>
1994
------------------------------------------------------------------------------------
Sales Price
-----------------------------------------------------------------
Class A Class B Cash
------- ------- Dividends
Quarter Ended High Low High Low Declared
------------- ------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C>
March 31 52 1/4 45 1/4 62 3/4 45 1/4 $0.20
June 30 52 3/4 44 1/4 60 1/4 47 1/2 0.20
September 30 55 1/2 46 3/4 54 46 0.20
December 31 50 3/4 40 3/8 49 3/4 39 0.75
Shareholders of record
at December 31, 1,042 1,010
<CAPTION>
1993
------------------------------------------------------------------------------------
Sales Price
-----------------------------------------------------------------
Class A Class B Cash
------- ------- Dividends
Quarter Ended High Low High Low Declared
------------- ------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C>
March 31 32 1/2 26 3/4 33 1/4 28 1/2 $0.20
June 30 37 30 1/2 37 1/2 31 5/8 0.20
Seotenber 30 38 3/4 31 1/4 43 35 0.20
December 31 47 1/4 36 47 1/2 38 0.55
Shareholders of record
at December 31, 1,087 1,054
</TABLE>
QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------------------
First Second Third Fourth Total
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1994
Net sales $386.4 $424.8 $355.0 $367.2 $1,533.4
Gross profit 62.8 73.4 55.8 61.9 253.9
Net income $29.0 $35.9 $26.9 $28.5 $120.3
====== ====== ====== ====== ========
Net income per share $1.32 $1.64 $1.23 $1.31 $5.50
====== ====== ====== ====== ========
1993
Net sales $341.6 $368.6 $301.8 $302.2 $1,314.2
Gross profit 46.7 56.2 38.7 48.6 190.2
Net income $17.9 $24.3 $18.4 $20.8 $81.4
====== ====== ====== ====== ========
Net income per share $0.82 $1.11 $0.84 $0.95 $3.72
====== ====== ====== ====== ========
</TABLE>
The above per share amounts have been adjusted as necessary to reflect the 100%
stock dividend paid June 30, 1993.
27
<PAGE> 1
EXHIBIT (21)
Tecumseh Products Company Report on
Form 10-K for the period ended
December 31, 1994
Subsidiaries of the Company
The following is a list of subsidiaries of the Company as of December 31,
1994 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.
<TABLE>
<CAPTION>
State or Country
Name of Organization
---- ---------------
<S> <C>
MP Pumps, Inc. Michigan
Ottawa Machine & Tool Co. Michigan
Sociedade Intercontinental de Compressores
Hermeticos -- SICOM Ltda. Brazil
Tec Kold International Company, Ltd. Lichteinstein
Tecumseh Products Company of Canada, Ltd. Canada
Tecumseh Products Company, Engine & Transmission
Group, Dunlap Operations, Inc. Tennessee
Tecumseh France S.A. France
L'Unite Hermetique S.A. France
Societe Des Moteurs Electriques
de Normandie S.A. France
Tecumseh Services EURL France
Tecumseh Products Company, International
Division, Inc. (FSC) Virgin Islands
Tecumseh Europa, S.p.A. Italy
Society T.I.G.E.R. France
Tecnamotor Deutschland Vertrieb GmbH Germany
Tecnamotor U.K. Limited United Kingdom
Little Giant Pump Co. Oklahoma
Trenton Division, Inc. Tennessee
Vitrus, Inc. Rhode Island
</TABLE>
<PAGE> 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, 1994 of
our report dated February 17, 1995 which appears on page 25 of the annual
report to shareholders for the year ended December 31, 1994.
The audit referred to in the above-mentioned report also included the related
financial schedule for the three years ended December 31, 1994 listed in the
accompanying index. In our opinion, the financial schedule presents fairly the
information required to be set forth therein.
MOORE, SMITH & DALE
Southfield, Michigan
February 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 283,200
<SECURITIES> 0
<RECEIVABLES> 197,400
<ALLOWANCES> 5,800
<INVENTORY> 235,300
<CURRENT-ASSETS> 756,300
<PP&E> 781,500
<DEPRECIATION> 379,100
<TOTAL-ASSETS> 1,289,800
<CURRENT-LIABILITIES> 252,100
<BONDS> 0
<COMMON> 21,900
0
0
<OTHER-SE> 763,600
<TOTAL-LIABILITY-AND-EQUITY> 1,289,800
<SALES> 1,533,400
<TOTAL-REVENUES> 1,569,400
<CGS> 1,279,500
<TOTAL-COSTS> 1,279,500
<OTHER-EXPENSES> 2,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,500
<INCOME-PRETAX> 191,900
<INCOME-TAX> 71,600
<INCOME-CONTINUING> 120,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,300
<EPS-PRIMARY> 5.50
<EPS-DILUTED> 5.50
</TABLE>
