<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 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.
<TABLE>
Class of Stock Outstanding at April 30, 1996
------------------------------------- ------------------------------
<S> <C>
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,410,438
</TABLE>
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
(Dollars in millions) MARCH 31, December 31,
1996 1995
==================================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $229.8 $261.6
Accounts receivable, trade, less allowance for doubtful
accounts of $7.0 million in 1996 and $6.9 million in 1995 324.5 225.5
Inventories 247.2 260.0
Deferred income taxes 34.4 33.9
Other current assets 12.4 10.2
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 848.3 791.2
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $425.9 million in 1996
and $419.1 million in 1995 495.3 477.0
EXCESS OF COST OVER ACQUIRED NET ASSETS 59.1 60.9
DEFERRED INCOME TAXES 19.9 19.9
PREPAID PENSION EXPENSE 39.6 37.6
OTHER ASSETS 21.3 21.0
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,483.5 $1,407.6
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $143.8 $129.5
Income taxes payable 27.2 7.5
Short-term borrowings 23.1 13.5
Accrued liabilities 125.9 119.4
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 320.0 269.9
LONG-TERM DEBT 14.4 14.7
NON-PENSION POSTRETIREMENT BENEFITS 175.4 174.0
PRODUCT WARRANTY AND SELF-INSURED RISKS 33.3 30.0
ACCRUAL FOR ENVIRONMENTAL MATTERS 27.7 27.3
PENSION LIABILITIES 14.9 14.6
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 585.7 530.5
- ------------------------------------------------------------------------------------------------------------------
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 833.3 808.0
Foreign currency translation adjustment 12.7 17.3
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 897.8 877.1
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,483.5 $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
except per share amounts) March 31,
------------------
1996 1995
<S> <C> <C>
==========================================================
INCOME:
Net sales $496.2 $473.6
Interest income 5.3 8.2
Other income 2.1 1.6
- ---------------------------------------------------------
TOTAL INCOME 503.6 483.4
- ---------------------------------------------------------
EXPENSES:
Cost of sales and operating expenses 428.5 401.8
Selling and administrative expenses 24.9 23.8
Interest expense 1.9 2.0
Other expenses 0.1 0.1
- ---------------------------------------------------------
TOTAL EXPENSES 455.4 427.7
- ---------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 48.2 55.7
Taxes on income 17.2 20.8
- ---------------------------------------------------------
NET INCOME $31.0 $34.9
=========================================================
NET INCOME PER SHARE $1.42 $1.59
=========================================================
CASH DIVIDENDS DECLARED
PER SHARE $0.26 $0.25
=========================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<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>
Three Months Ended
(Dollars in millions) March 31,
1996 1995
<S> <C> <C>
=============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $31.0 $34.9
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15.7 15.1
Accounts receivable (100.3) (80.0)
Inventories 12.2 (12.0)
Payables and accrued expenses 43.2 61.6
Other (1.6) 1.6
- -----------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 0.2 21.2
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (33.8) (34.6)
- -----------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (33.8) (34.6)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (5.7) (5.5)
Increase in borrowings, net 9.7 2.1
- -----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4.0 (3.4)
- -----------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2.2) 7.0
- -----------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (31.8) (9.8)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 261.6 283.2
- -----------------------------------------------------------------------------
END OF PERIOD $229.8 $273.4
=============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<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, the Company's independent
certified public accountants, as described in their report contained
elsewhere herein.
2. Inventories consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) MARCH 31, December 31,
1996 1995
==================================================================
<S> <C> <C>
Raw material and work in process $155.5 $162.8
Finished goods 75.4 80.4
Supplies 16.3 16.8
- ------------------------------------------------------------------
$247.2 $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 March 31, 1996, the
Company had an accrual of $30.4 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 6
<PAGE> 6
The EPA has indicated it expects to issue a record of decision on the
cleanup of the Sheboygan River and Harbor Site in the third quarter 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 7
<PAGE> 7
On Ciulla, Smith & Dale Letterhead
May 2, 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 March 31, 1996, and the related
consolidated condensed statements of income and cash flows for the three months
ended March 31, 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.
/s/ Ciulla, Smith & Dale, LLP
- --------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Page 8
<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 consolidated sales increased 5% to a record level of $496.2
million in the first quarter of 1996 as compared to the same period in 1995.
Despite sales gains, consolidated earnings for the first quarter decreased 11%
to $31.0 million, or $1.42 per share, as compared to $1.59 per share for the
first quarter of 1995. As anticipated, earnings were constrained as the
Company continues to expand capacity and develop and introduce new products.
The recent and ongoing investments in new products, major capacity expansion
programs and development of new compressor joint ventures in the Far East are
all part of the Company's strategic plan to meet expected growth in worldwide
demand for refrigeration and air conditioning products. Short-term earnings
growth will be somewhat slowed but the Company expects significant long-term
benefits from its new products and increased presence in the growing global
markets.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions) March 31,
1996 1995
========================================================
<S> <C> <C>
NET SALES:
Compressor Products $312.7 $283.3
Engine and Power Train Products 154.3 160.6
Pump Products 29.2 29.7
- --------------------------------------------------------
TOTAL NET SALES $496.2 $473.6
========================================================
INCOME BEFORE TAXES ON INCOME:
Compressor Products $25.8 $26.4
Engine and Power Train Products 17.2 20.5
Pump Products 4.3 4.8
Corporate Expenses (2.5) (2.2)
Net Interest Income 3.4 6.2
- --------------------------------------------------------
TOTAL INCOME BEFORE
TAXES ON INCOME $48.2 $55.7
========================================================
</TABLE>
Compressor Products
The Company's worldwide Compressor Products sales for the first quarter of 1996
reached $312.7 million and were 10% higher than the previous year period.
Sales of North American produced compressors both for domestic and export
markets showed strong sales gains, driven principally by two factors.
Worldwide demand for room air
Page 9
<PAGE> 9
conditioners remained high as inventories were replenished after the unusually
warm summer of 1995. Sales increases in this sector were primarily in the
Company's recently introduced small rotary compressor. North American
demand for central unitary air conditioners was also strong due to growth in
housing starts. U.S. sales of Brazilian built TP household refrigerator
compressors also had significant gains over the prior year period. European
compressor sales had modest sales gains while the Company's Brazilian subsidiary
continued to experience strong domestic demand for refrigeration products.
Compressor Products operating margin was 8.3% for the first quarter of 1996, as
compared to 9.3% for the first quarter of 1995. Higher costs for components
and raw materials as well as operating inefficiencies and start-up costs
relating to new product sales were the principal factors in this margin
reduction.
For the first quarter of 1996, the Company's Brazilian subsidiary contributed
17% of consolidated compressor sales and 32% of segment operating profit,
versus 18% of consolidated compressor sales and 31% 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.
Engine and Power Train Products
Worldwide Engine and Power Train Products sales were $154.3 million in the
first quarter of 1996, a 4% decrease over the prior year period. The decrease
was due primarily to the lack of snow engine sales in the first quarter of
1996, as compared to unusually high snow engine sales in the first quarter of
1995 to fill depleted distribution channels. The decrease in higher margin
snow product sales, higher raw material costs and new product start-up costs
caused operating margins to decrease to 11.1% as compared to 12.8% in the
prior year period.
Pump Products
Pump Products sales for the first quarter of 1996 were $29.2 million and
were essentially flat with the prior year period. Margins declined somewhat as
a result of unrecovered material cost increases.
Interest Income
Net interest income for the first quarter of 1996 decreased $2.8 million
from the first quarter of 1995 due to lower financial income reported by the
Company's Brazilian subsidiary. During the second quarter of 1995, the Company
reduced its cash position in Brazil to provide some protection from potential
currency devaluations.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial position.
Working
Page 10
<PAGE> 10
capital of $528.3 million at March 31, 1996 was up from $521.3 million
at December 31, 1995, and the ratio of current assets to current liabilities
approximated 2.7. First quarter capital spending of $33.8 million included
expenditures for a new engine facility in Georgia and expansion of the TP
compressor line in Brazil. Total capital spending for 1996 should approximate
$125-150 million. Working capital requirements and planned capital
expenditures for the remainder of 1996 and early 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> 11
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 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: May 8, 1996 By: /s/ JOHN H. FOSS
-------------------- ------------------------
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 12
<PAGE> 12
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 229,800
<SECURITIES> 0
<RECEIVABLES> 331,500
<ALLOWANCES> 7,000
<INVENTORY> 247,200
<CURRENT-ASSETS> 848,300
<PP&E> 921,200
<DEPRECIATION> 425,900
<TOTAL-ASSETS> 1,483,500
<CURRENT-LIABILITIES> 320,000
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 875,900
<TOTAL-LIABILITY-AND-EQUITY> 1,483,500
<SALES> 496,200
<TOTAL-REVENUES> 503,600
<CGS> 428,500
<TOTAL-COSTS> 428,500
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,900
<INCOME-PRETAX> 48,200
<INCOME-TAX> 17,200
<INCOME-CONTINUING> 31,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,000
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
