<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from______to______
COMMISSION FILE NUMBER: 0-452
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1093240
(State of Incorporation) (IRS Employer Identification Number)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of Principal Executive Offices)
Telephone Number: (517) 423-8411
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Stock Outstanding at July 31, 1996
- -------------------------------------------------------------------------------
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,410,438
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
(Dollars in millions) JUNE 30, December 31,
1996 1995
======================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $244.9 $261.6
Accounts receivable, trade, less allowance for doubtful
accounts of $7.1 million in 1996 and $6.9 million in 1995 300.4 225.5
Inventories 249.4 260.0
Deferred income taxes 34.4 33.9
Other current assets 9.4 10.2
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 838.5 791.2
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $433.5 million in 1996
and $419.1 million in 1995 505.5 477.0
EXCESS OF COST OVER ACQUIRED NET ASSETS 57.5 60.9
DEFERRED INCOME TAXES 19.6 19.9
PREPAID PENSION EXPENSE 41.9 37.6
OTHER ASSETS 22.0 21.0
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,485.0 $1,407.6
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 136.6 $ 129.5
Income taxes payable 10.3 7.5
Short-term borrowings 8.4 13.5
Accrued liabilities 141.6 119.4
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 296.9 269.9
LONG-TERM DEBT 13.7 14.7
NON-PENSION POSTRETIREMENT BENEFITS 176.9 174.0
PRODUCT WARRANTY AND SELF-INSURED RISKS 31.1 30.0
ACCRUAL FOR ENVIRONMENTAL MATTERS 27.7 27.3
PENSION LIABILITIES 15.0 14.6
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 561.3 530.5
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 16,410,438 shares 16.4 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued and outstanding 5,470,146 shares 5.5 5.5
Capital in excess of par value 29.9 29.9
Retained earnings 861.5 808.0
Foreign currency translation adjustment 10.4 17.3
- ------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 923.7 877.1
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,485.0 $1,407.6
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE> 3
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
(Dollars in millions Three Months Ended Six Months Ended
except per share amounts) June 30, June 30,
-------------------- ------------------
1996 1995 1996 1995
=====================================================================================================
<S> <C> <C> <C> <C>
INCOME:
Net sales $ 490.9 $ 467.3 $ 987.1 $ 940.9
Interest income 4.9 7.3 10.2 15.5
Other income 1.9 3.0 4.0 4.6
- ------------------------------------------------------------------------------------------------------
TOTAL INCOME 497.7 477.6 1,001.3 961.0
- ------------------------------------------------------------------------------------------------------
EXPENSES:
Cost of sales and operating expenses 416.7 395.1 845.2 796.9
Selling and administrative expenses 25.4 24.0 50.3 47.8
Interest expense 1.7 2.0 3.6 4.0
Other expenses 0.1 -- 0.2 0.1
- ------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 443.9 421.1 899.3 848.8
- ------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 53.8 56.5 102.0 112.2
Taxes on income 19.9 21.2 37.1 42.0
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 33.9 $ 35.3 $ 64.9 $ 70.2
======================================================================================================
NET INCOME PER SHARE $ 1.55 $ 1.62 $ 2.97 $ 3.21
======================================================================================================
CASH DIVIDENDS DECLARED
PER SHARE $ 0.26 $ 0.25 $ 0.52 $ 0.50
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in millions) June 30,
---------------------------
1996 1995
========================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64.9 $ 70.2
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 31.8 30.6
Accounts receivable (77.4) (77.6)
Inventories 9.6 (11.3)
Payables and accrued expenses 36.4 53.4
Other (2.4) 0.9
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 62.9 66.2
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59.8) (64.9)
- --------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (59.8) (64.9)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (11.4) (10.9)
Decrease in borrowings, net (5.6) (0.3)
- --------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (17.0) (11.2)
- --------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2.8) 3.5
- --------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (16.7) (6.4)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 261.6 283.2
- --------------------------------------------------------------------------------------------------------
END OF PERIOD $ 244.9 $ 276.8
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The December 31, 1995 condensed balance sheet
data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report for the fiscal
year ended December 31, 1995. Due to the seasonal nature of the
Company's business, the results of operations for the interim period
are not necessarily indicative of the results for the entire fiscal
year.
The financial data required in this Form 10-Q by Rule 10.01 of
Regulation S-X have been reviewed by Ciulla, Smith & Dale, LLP, the
Company's independent certified public accountants, as described in
their report contained elsewhere herein.
2. Inventories consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) JUNE 30, December 31,
1996 1995
=======================================================================================
<S> <C> <C>
Raw material and work in process $144.7 $162.8
Finished goods 87.7 80.4
Supplies 17.0 16.8
---------------------------------------------------------------------------------------
$249.4 $260.0
=======================================================================================
</TABLE>
3. The Company has been named by the U.S. Environmental Protection Agency
(EPA) as a potentially responsible party in connection with the
Sheboygan River and Harbor Superfund Site in Wisconsin. At June 30,
1996, the Company had an accrual of $30.5 million ($30.1 million at
December 31, 1995) 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.
Page 5
<PAGE> 6
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
The EPA has indicated it expects to issue a record of decision on the
cleanup of the Sheboygan River and Harbor Site in the second
half of 1996, but the ultimate resolution of the matter may take much
longer. Ultimate costs to the Company will be dependent upon factors
beyond its control such as the scope and methodology of the remedial
action requirements to be established by the EPA (in consultation with
the State of Wisconsin), rapidly changing technology, and the outcome
of any related litigation.
The Company, in cooperation with the Wisconsin Department of Natural
Resources, is conducting an investigation of soil and groundwater
contamination at the Company's Grafton, Wisconsin plant. Certain test
procedures are underway to assess the extent of contamination and to
develop remedial options for the site. While the Company has
provided for estimated investigation and on-site remediation costs, the
extent and timing of future off-site remediation requirements, if any,
are not presently determinable.
In addition to the above mentioned sites, the Company also is currently
participating with the EPA and various state agencies at certain other
sites to determine the nature and extent of any remedial action
which may be necessary with regard to such other sites. Based on
limited preliminary data and other information currently available, the
Company has no reason to believe that the level of expenditures for
potential remedial action necessary at these other sites will have a
material effect on its financial position.
4. Various lawsuits and claims, including those involving ordinary
routine litigation incidental to its business, to which the Company is
a party, are pending, or have been asserted, against the Company.
Although the outcome of these matters cannot be predicted with
certainty, and some may be disposed of unfavorably to the Company,
management has no reason to believe that their disposition will have a
materially adverse effect on the consolidated financial position of
the Company.
Page 6
<PAGE> 7
August 7, 1996
INDEPENDENT ACCOUNTANTS' REPORT
Tecumseh Products Company
Tecumseh, Michigan
We have reviewed the consolidated condensed balance sheet of Tecumseh
Products Company and Subsidiaries as of June 30, 1996, and the related
consolidated condensed statements of income and cash flows for the three months
and six months ended June 30, 1996 and 1995. These financial statements are
the responsibility of the Company's management.
We have conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 16, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1995, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
CIULLA, SMITH & DALE, LLP
Certified Public Accountants
Southfield, Michigan
Page 7
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's sales for the second quarter of 1996 reached $490.9 million and
were 5% higher than the same period in 1995. Net income of $33.9 million, or
$1.55 per share, was 4% lower than the 1995 second quarter earnings of $35.3
million principally due to lower after-tax net interest income which decreased
$1.3 million or $.06 per share. First half sales of $987.1 million were 5%
higher than the same period in 1995 and net income of $64.9 million, or $2.97
per share, was down 8% from the first half of 1995. Again, much of the
earnings decline was due to lower net interest income.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
--------------------- -----------------------
1996 1995 1996 1995
====================================================================================================
<S> <C> <C> <C> <C>
NET SALES:
Compressor Products $318.9 $318.8 $631.6 $602.1
Engine and Power Train Products 146.3 125.2 300.6 285.8
Pump Products 25.7 23.3 54.9 53.0
- ----------------------------------------------------------------------------------------------------
TOTAL NET SALES $490.9 $467.3 $987.1 $940.9
====================================================================================================
INCOME BEFORE INCOME TAXES:
Compressor Products $ 33.1 $ 37.0 $ 58.9 $ 63.4
Engine and Power Train Products 16.2 13.4 33.4 33.9
Pump Products 3.7 3.2 8.0 8.0
Corporate Expenses (2.4) (2.4) (4.9) (4.6)
Net Interest Income 3.2 5.3 6.6 11.5
- ----------------------------------------------------------------------------------------------------
TOTAL INCOME BEFORE
INCOME TAXES $ 53.8 $ 56.5 $102.0 $112.2
====================================================================================================
</TABLE>
Page 8
<PAGE> 9
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Compressor Products
The Company's worldwide Compressor Products sales for the second quarter of
1996 were $318.9 million, essentially even with the previous year period.
First half sales of $631.6 million were up 5% compared to the first half of
1995. For both the first half and second quarter of 1996, sales of compressors
produced in North America showed solid gains, particularly in the domestic
markets, but were offset by weaker sales of compressors produced in operations
located overseas.
First half sales gains were driven by strong North American demand for two
recently introduced products, a small rotary room air conditioning compressor
and a household refrigeration compressor. Company sales of compressors for the
domestic central unitary air conditioning market also continued to experience
solid gains. U.S. demand for air conditioning product remains high due to
strong housing starts and consumer reaction to last summer's record heat.
European operations and markets experienced sales declines in the first half
and second quarter of 1996 as a result of an overall economic weakness and cool
spring weather in Europe. In Brazil, strong demand for refrigeration products
continued.
Compressor Products operating margin was 10.4% for the second quarter of 1996
as compared to 11.6% for 1995. Factors affecting margins were primarily higher
costs associated with new product sales.
For the second quarter of 1996, the Company's Brazilian subsidiary contributed
16% of consolidated compressor sales and 25% of segment operating profit,
versus 17% of consolidated compressor sales and 23% of segment operating profit
for the same period in 1995. The operating results for the Company's Brazilian
subsidiary remained strong, due to continued high levels of domestic demand for
refrigeration products. Although Brazil's current economic program has been
successful in controlling inflation and lifting consumer confidence, it has
also resulted in an artificially strong currency which is expected to continue
to exert pressure on operating margins.
Page 9
<PAGE> 10
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Engine and Power Train Products
Worldwide Engine and Power Train Products sales were $146.3 million in the
second quarter of 1996, a 17% increase as compared to the same period in 1995.
North American operations posted strong sales gains due to a previous seasonal
delay in production start-ups by certain lawn and garden customers, increased
sales of utility engines and modest gains in snow thrower engine sales. These
sales gains were offset in part by weaker sales in the Company's European
engine and North American transmission operations. Sales for the first half of
1996 were $300.6 million, a 5% increase over the prior year period. A strong
second quarter performance in North American operations, as noted above, made
up for slower sales in the first quarter of 1996.
Engine and Power Train Products operating margins were 11.0% for the second
quarter of 1996 as compared to 10.7% for the previous year period. Increased
sales volume and favorable product mix were the major factors influencing
margin gains in the second quarter. First half operating margins decreased
from 11.9% to 11.1% due to higher raw material costs and new facility start-up
costs.
Pump Products
Pump Products sales for the second quarter of 1996 were $25.7 million, a 10%
increase compared to the same period in 1995. First half sales of $54.9
million increased 4% over the prior year period. Recent flooding in key areas
of the U.S. increased demand for pumps.
Second quarter operating margins increased to 14.4% as compared to 13.7%, while
first half margins decreased to 14.6% as compared to 15.1% in 1995. Volume
related margin gains in the second quarter were offset by unrecovered material
cost increases on a year-to-date basis.
Interest Income
Interest income net of interest expense decreased $2.1 million for the second
quarter and $4.9 million for the first half of 1996 compared to the same
periods in 1995, due in large part to lower financial income reported by the
Company's Brazilian subsidiary. Late in the second quarter of 1995, the
Company lowered its cash position in Brazil to provide some protection from
potential currency devaluations.
Page 10
<PAGE> 11
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial position.
Working capital of $541.6 million at June 30, 1996 was up from $521.3 million
at December 31, 1995, and the ratio of current assets to current liabilities
approximated 2.8. First half capital spending of $59.8 million included
expenditures for a new engine facility in Georgia, and expansion of the TP
compressor line and installation of a new small rotary compressor line in
Brazil. Total capital spending for 1996 should approximate $120-140 million.
Working capital requirements and planned capital expenditures for the remainder
of 1996 and 1997 are expected to be financed through internally available
funds, although the Company may utilize long-term financing arrangements in
connection with various state investment incentives.
Page 11
<PAGE> 12
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Tecumseh Products Company was held on
April 24, 1996. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitation.
All of the management's nominees for directors as listed in the proxy statement
were elected with the following votes.
<TABLE>
<CAPTION>
VOTES
DIRECTOR VOTES FOR WITHHELD
------------------- ----------- ---------
<S> <C> <C>
Kenneth G. Herrick 5,054,161 19,841
Todd W. Herrick 5,054,311 19,691
John H. Foss 5,052,911 21,091
Peter M. Banks 5,052,545 21,457
Jon E. Barfield 5,052,911 21,091
J. Russell Fowler 5,052,911 21,091
John W. Gelder 5,052,911 21,091
Stephen L. Hickman 5,052,911 21,091
Dean E. Richardson 5,052,711 21,291
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
TECUMSEH PRODUCTS COMPANY
-------------------------
(Registrant)
Dated: August 14, 1996 By: /s/ JOHN H. FOSS
---------------------- ------------------------------
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 244,900
<SECURITIES> 0
<RECEIVABLES> 307,500
<ALLOWANCES> 7,100
<INVENTORY> 249,400
<CURRENT-ASSETS> 838,500
<PP&E> 939,000
<DEPRECIATION> 433,500
<TOTAL-ASSETS> 1,485,000
<CURRENT-LIABILITIES> 296,900
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 901,800
<TOTAL-LIABILITY-AND-EQUITY> 1,485,000
<SALES> 987,100
<TOTAL-REVENUES> 1,001,300
<CGS> 845,200
<TOTAL-COSTS> 895,500
<OTHER-EXPENSES> 200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,600
<INCOME-PRETAX> 102,000
<INCOME-TAX> 37,100
<INCOME-CONTINUING> 64,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,900
<EPS-PRIMARY> 2.97
<EPS-DILUTED> 2.97
</TABLE>
