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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, 1995 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
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Securities Registered Pursuant to Section 12(b) of the Act: Securities Registered Pursuant to 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
Class A Common Stock, $1.00 Par Value
None None 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
Registrant disclaims the existence of control and, accordingly, believes that
as of March 1, 1996, 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 1, 1996, held an
aggregate of 2,279,244 shares of Class B Common Stock might be regarded as
"affiliates" of Registrant as that word is defined in Rule 405 under the
Securities Exchange Act of 1934, as amended. If such persons are "affiliates,"
the aggregate market value as of March 1, 1996 (based on the closing price of
$52.75 per share, as reported on the NASDAQ National Market System on such
date) of the 3,190,902 shares then issued and outstanding held by
non-affiliates was approximately $168,320,081.
Numbers of shares outstanding of each of the Registrant's
classes of Common Stock at March 15, 1996:
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, 1995 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 1996 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 13
2. Properties 14
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 15
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 16
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
10. Directors and Executive Officers of the Company 17
11. Executive Compensation 17
12. Security Ownership of Certain Beneficial Owners and Management 17
13. Certain Relationships and Related Transactions 17
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
Signatures 23
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. The Company's products are sold in
over 100 countries around the world.
The Company groups its products into three principal industry
segments: Compressor Products, Engine and Power Train Products, and Pump
Products.
Compressor Products include a broad range of air conditioning
and refrigeration compressors 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 1995,
sales to customers outside the United States represented approximately 50% of
total consolidated net sales. Additionally, a substantial
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portion of the Company's products are manufactured overseas. Compressor
products are 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 1995, approximately 36% 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. Though SICOM has experienced favorable
operating results for the past several years, its performance over the longer
term has sometimes varied dramatically from year to year as a result of
unstable conditions in Brazil. For example, in 1990 SICOM incurred significant
losses due to a government imposed economic stabilization program. In
comparison to its domestic operations, the Company believes its Brazilian
business offers the potential for greater rewards but with a correspondingly
higher degree of risk.
On November 21, 1995, the Company announced that it has signed
a memorandum of understanding with Siel Limited of New Delhi, India, for the
creation of a joint venture to manufacture refrigeration and air conditioning
compressors in India. Subject to execution of a mutually satisfactory
definitive agreement and all necessary approvals, the Company and Siel plan a
substantial expansion of Siel's existing compressor manufacturing facility in
Hyderabad, India, which currently builds compressors under a license agreement
with the Company. Once
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expanded and fully equipped, the facility is expected to produce over one
million compressors annually.
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.
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 HFC-134a, a
non-CFC refrigerant. During 1995 the Company continued to increase its
production of compressor products that utilize this and other non-ozone
depleting refrigerants. The new TP compressor, which uses refrigerant HFC-134a,
experienced significant sales gains in the U.S. household refrigerator and
freezer market in 1995.
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 1995 the Company continued to
ramp up 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 its principal unitary air
conditioning competitors do, which the Company believes puts it at a
competitive disadvantage. The
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Company has made a significant investment in a scroll compressor facility in
Tecumseh, Michigan and since late 1994 has been producing limited amounts of
scroll product for development and testing. Recent design modifications in
response to customer feedback from field testing, have delayed commercial
production of this product. Further customer field tests will be conducted
during the summer of 1996, but the Company does not expect this line to
significantly contribute to revenues before 1997.
MANUFACTURING OPERATIONS
Compressor Products manufactured in the Company's U.S. plants
accounted for approximately 50% of 1995 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 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 and the "L'Unite
Hermetique" brand.
The Company sells its Compressor Products in North America
primarily through its own sales staff. Major OEM customers are assigned to
sales staff on an account basis. Other customers (aftermarket wholesalers and
smaller commercial OEM's) are served by sales personnel assigned to specified
geographic regions. 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 and for household refrigeration
and freezers 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.
The Company has 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
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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 1995, the two largest
customers for Compressor Products accounted for 9.3% and 8.6%, respectively, of
consolidated net sales of the Company's Compressor Products, or 6.1% and 5.7%,
respectively, of consolidated net sales. Loss of either of these customers
could have a material adverse effect on the results of operations of the
Compressor Products segment and, at least temporarily, on the Company's
business as a whole. Generally, the Company does not enter into long-term
contracts with its customers in this segment. However, the present business
relationships with all major customers have existed for a substantial period of
time.
In 1995, approximately 37% 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.
Copeland Corporation and other compressor manufacturers have had a scroll
compressor as part of their product lines for some time. During 1995, Carrier
Corporation, a subsidiary of United Technologies Corporation, a major OEM which
also produces scroll compressors, announced a joint venture to produce scroll
compressors with Bristol, which the Company believes will further intensify
competition in this important market. As discussed in the product line
section, the Company has made a significant investment in a scroll compressor
facility in Tecumseh, Michigan and is currently testing scroll products of its
own design. The Company believes that successful introduction of this product
is necessary to maintain its participation in the unitary compressor market.
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In the domestic room air conditioning compressor market, the
Company competes primarily with foreign companies, which import compressors to
the United States but also have U. S. manufacturing capabilities. The Company
also competes to a lesser extent with U. S. manufacturers. Competitors include
Matsushita Electric Industrial Corporation and Sanyo Electric Trading Company,
among others.
In the domestic markets for water coolers, dehumidifiers,
vending machines, refrigerated display cases and other commercial refrigeration
products, the Company competes primarily with manufacturers from the Far East,
Europe and South America, and to a lesser extent, the United States.
Competitors include Matsushita Electric Industrial Corporation, Danfoss Inc.,
Embraco, S.A. and Copeland Corporation, among others.
The household refrigerator and freezer market is vertically
integrated with white good producers manufacturing a substantial portion of
their compressor needs. The non-captive portion of the household refrigerator
and freezer segment is substantially dominated by Far Eastern manufacturers,
which import compressors to the United States but are also increasing U.S.
manufacturing capabilities. Non-captive and captive competitors include
Matsushita Electric Industrial Corporation, Embraco S.A., Danfoss Inc. and AB
Electrolux, among others.
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 Far East
manufacturers, most of which are substantially larger and have greater
resources than the Company.
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.
Competitors include AB Electrolux, Embraco S.A. and Danfoss Inc., among others.
SICOM sells the major portion of its manufactured compressors
in Brazil and other Latin American countries and competes directly with Embraco
S.A. in Brazil and with Embraco and several other foreign manufacturers in
Latin America.
The ability to successfully bring new products to market in a
timely manner has rapidly become a critical factor in competing in the
compressor products business as a result of, among other things, the imposition
of energy efficiency standards and environmental regulations.
NEW REGULATORY REQUIREMENTS
Chloroflourocarbon compounds ("CFCs"), the primary
refrigerants used in household refrigerators and freezers and in commercial
refrigeration equipment, have been identified as one of the leading factors
causing depletion of the Earth's ozone layer. Under a 1992 international
agreement, production of CFCs in developed countries was phased out January 1,
1996. The
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U.S. government has approved several replacement refrigerants, including
HFC-134a, HFC-404A, and HFC-507, among others. The Company began producing
compressors using alternative refrigerants for the commercial refrigeration
market in late 1992 and for the refrigerator and freezer market during 1994.
The Company believes that its rapid development of product using non-CFC
refrigerant technology has improved its competitive position in these markets.
Hydrochlorofluorocarbon compounds ("HCFCs") are used as a
refrigerant in air conditioning systems. Under a 1992 international agreement,
HCFCs will be banned from new equipment beginning in 2010. The Company
believes, however, that in practice, the replacement of HCFCs will accelerate
due to the expected availability of alternative refrigerants with better
performance characteristics than HCFCs. It is not presently possible to
estimate the level of expenditures which will be required to meet industry
trends or the effect on the Company's competitive position.
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. These standards have not been finalized, and are expected to be
issued in 1997 for staggered implementation starting in 1999 and running
through 2005. It is not presently possible to estimate the level of
expenditures which will be required to meet the new standards or the effect on
the Company's competitive position.
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, generators, pumps and
certain self-propelled vehicles. 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. In
June of 1995 the Company announced the purchase and planned expansion of a
manufacturing facility in Douglas, Georgia. The Douglas facility will build
reduced exhaust emission engines and carburetors and is expected to commence
limited production in 1996. Operations of the Company in this segment are
partially vertically integrated as the Company produces most of its plastic
parts and carburetors, as well as a substantial portion of the aluminum
diecastings used in its engines and power train products.
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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 6% of the Company's 1995 consolidated net sales and approximately
21% 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 1995 and 5% of the Company's 1995
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.
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.
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.
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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 standards have an effective date of September 1, 1996, but contain
provisions that permit manufacture of non-conforming engines through September
1, 1997. The Company believes that it will be prepared to meet the EPA phase I
standards with competitively priced engines. Negotiations of the EPA Phase II
standards are currently in process. 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
agricultural, marine and transportation industries and in a variety of
commercial and industrial end products. MP Pumps sells both to OEMs, which
incorporate its pumps into their end products, and through an extensive network
of distributors located throughout the United States, which sell to end-users.
A limited number of pumps are also sold to departments and agencies of the U.S.
government. Most of MP Pumps' products are sold in the United States. MP
Pumps markets its products through its own sales staff under the "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.
BACKLOG, CUSTOMERS AND SEASONAL VARIATIONS
Most of the Company's production is against short-term
purchase orders, and backlog is not significant to its business.
In 1995, 11% of consolidated sales represented engine and
compressor sales to customers under the common control of AB Electrolux.
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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 $30.1
million, $27.8 million and $24.9 million during 1995, 1994 and 1993 on research
activities relating to the development of new products and the development of
improvements to existing products. None of this research was customer
sponsored.
ENVIRONMENTAL LEGISLATION
The Company has been named by the EPA as a potentially
responsible party in connection with the Sheboygan River and Harbor Superfund
Site in Wisconsin. The Company is also participating with the EPA and various
state agencies in investigating possible remedial action that may be necessary
at other sites. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and Note
9 of the Notes to Consolidated Financial Statements in the Company's Annual
Report to Shareholders for the year ended December 31, 1995 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, 1995, 1994 and 1993 appear under the
caption "Business Segment Data" of the Company's Annual Report to Shareholders
for the year ended December 31, 1995 and are incorporated herein by reference.
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EMPLOYEES
On December 31, 1995 the Company employed approximately 15,600
persons, 47% of which were employed in foreign locations. Approximately 4,200
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 1995,
the maximum number of persons employed at one time was approximately 16,000 and
the minimum was 15,200.
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, 74 Chairman of the Board of Directors (1) Since 1966
Todd W. Herrick, 53 President and Chief Executive Officer (2) Since 1974
John H. Foss, 53 Vice President, Treasurer, and Chief Since 1979
Financial Officer
Harry L. Hans, 62 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.
(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.
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ITEM 2. PROPERTIES
The Company's headquarters are located in Tecumseh Michigan, approximately 50
miles southwest of Detroit. At December 31, 1995 the Company had 29 principal
properties worldwide occupying approximately 7.2 million square feet with the
majority, approximately 6.8 million square feet devoted to manufacturing. Ten
facilities with approximately 2.6 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.
<TABLE>
<CAPTION>
Approximate Floor
Industry Segment Area in Square Feet
---------------- -------------------
<S> <C>
Compressor Products 4,870,000
Engine and Power Train Products 1,748,000
Pump Products and Other 481,000
</TABLE>
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, 1995, both of which are
incorporated herein by reference. As pointed out in Note 9, the ultimate costs
to the Company will be dependent upon factors beyond its control such as the
scope and methodology of the remedial action requirements to be established by
the EPA (in consultation with the State of Wisconsin), rapidly changing
technology, and the outcome of any related litigation.
In addition to the matter discussed in the preceding paragraph, the
Company is currently participating with the EPA and various state agencies at
certain other sites to determine the nature and extent, if any, of any remedial
action which may be required of the Company with regard to such other sites.
Various lawsuits and claims, including those involving ordinary routine
litigation incidental to its business, to which the Company is a party, are
pending, or have been asserted,
14
<PAGE> 15
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 1995 to a vote of
security holders through the solicitation of proxies or otherwise.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information under the captions "Financial Summary" and "Information
Concerning Equity Securities" of the Company's Annual Report to Shareholders
for year ended December 31, 1995 is incorporated herein by reference. As of
March 1, 1996, there were 1,041 holders of record of the Company's Class A
common stock and 927 holders of the Class B common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Data" of the
Company's Annual Report to Shareholders for the year ended December 31, 1995 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the Company's Annual Report
to Shareholders for the year ended December 31, 1995 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, 1995 is incorporated
herein by reference. See Item 14 of this report for financial statement
schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
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 1996
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 1996 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 1996 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 1996 Annual Meeting of Shareholders is incorporated herein by reference.
17
<PAGE> 18
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, 1995:
- Report of Independent Accountants
- Consolidated Balance Sheets as of December 31, 1995 and 1994
- Statements of Consolidated Income for the years ended December
31, 1995, 1994 and 1993
- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993
- Statements of Consolidated Cash Flows for the years ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
Schedule Form 10-K
Number Description Page Reference
------ ----------- --------------
<S> <C> <C>
II Valuation and Qualifying Accounts 22
</TABLE>
Schedules other than those listed above are omitted because they are either not
applicable or are not required.
18
<PAGE> 19
(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)
</TABLE>
19
<PAGE> 20
(3) Exhibits (continued):
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
(10)(c) Amendment No. 2 to Amended and Restated Class B Rights Agreement (filed as Exhibit 4 to Form 8-A/A Amendment No. 3
dated June 22, 1993 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991 (Commission File No.
0-452) and incorporated herein by reference)
(10)(d) Class A Rights Agreement (filed as Exhibit 4 to Form 8-A registering Class A Common Stock Purchase Rights dated April
22, 1992 (Commission File No. 0-452) and incorporated herein by reference)
(10)(e) Amendment No. 1 to Class A Rights Agreement (filed as Exhibit 4 to Form 8 Amendment No. 1 dated October 2, 1992 to
Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992 (Commission File No. 0-452) and
incorporated herein by reference)
(10)(f) Amendment No. 2 to Class A Rights Agreement (filed as Exhibit 4 to Form 8-A/A Amendment No. 2 dated June 22, 1993 to
Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992 (Commission File No. 0-452) and
incorporated herein by reference)
(10)(g) Description of Death Benefit Plan (management contract or compensatory plan or arrangement) (filed as Exhibit (10)(f)
to Annual Report on Form 10-K for the year ended December 31, 1992 (Commission File No. 0-452) and incorporated
herein by reference)
(10)(h) Management Incentive Plan, as amended through November 22, 1995 (management contract or compensatory plan or
arrangement)
(10)(i) Supplemental Executive Retirement Plan effective January 1, 1995 (management contract or compensatory plan or
arrangement) (filed as Exhibit (10)(l) to Annual Report on Form 10-K for the year ended December 31, 1994 (Commission
File No. 0-452) and incorporated herein by reference)
(11) (not applicable)
(12) (not applicable)
</TABLE>
20
<PAGE> 21
(3) Exhibits (continued):
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
(13) Portions of Tecumseh Products Company Annual Report to Shareholders for the year ended December 31, 1995,
incorporated by reference herein
(16) (not applicable)
(18) (not applicable)
(21) Subsidiaries of the Company
(22) (not applicable)
(23) Report and Consent of Certified Public Accountants
(24) (not applicable)
(27) Financial Data Schedule
(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.
21
<PAGE> 22
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------------------------------------------------------------------------------------------
Additions
-------------------------------
Balance at Charged to Charged to Additions Balance at
Beginning Costs and Other and End of
Description of Period Expenses Accounts (Deductions) Period
--------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts, deducted from
accounts receivable in the
balance sheet: (A)
<S> <C> <C> <C> <C>
1995 $5.8 $1.5 ($0.4) $6.9
1994 $5.3 $0.9 ($0.4) $5.8
1993 $4.4 $1.7 ($0.8) $5.3
</TABLE>
Notes:
(A) Represents the total of accounts charged against the allowance for
doubtful accounts and adjustments from the translation of foreign
currency.
22
<PAGE> 23
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 /s/ Todd W. Herrick
----------------------------------------
Todd W. Herrick
President and Chief Executive Officer
Dated: March 27, 1996
23
<PAGE> 24
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.
<TABLE>
<CAPTION>
Date
Signature Office of signing
--------- ------- ----------
<S> <C> <C>
- --------------------------- Chairman of the March 27, 1996
Kenneth G. Herrick Board of Directors
/s/ Todd W. Herrick
- --------------------------- President, Chief March 27, 1996
Todd W. Herrick Executive Officer
(Principal Executive
Officer) and Director
/s/ Peter M. Banks
- --------------------------- Director March 27, 1996
Peter M. Banks
/s/ Jon E. Barfield
- --------------------------- Director March 27, 1996
Jon E. Barfield
/s/ John H. Foss
- --------------------------- Vice President, Treasurer March 27, 1996
John H. Foss and Chief Financial Officer
(Principal Accounting
and Principal Financial
Officer) and Director
/s/ J. Russell Fowler
- --------------------------- Director March 27, 1996
J. Russell Fowler
/s/ John W. Gelder
- --------------------------- Director March 27, 1996
John W. Gelder
/s/ Stephen L. Hickman
- --------------------------- Director March 27, 1996
Stephen L. Hickman
/s/ Dean E. Richardson
- --------------------------- Director March 27, 1996
Dean E. Richardson
</TABLE>
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
(10)(h) Management Incentive Plan, as amended through November 22, 1995
(management contract or compensatory plan or arrangement)
(13) Portions of the Company's Annual Report to Shareholders
for the year ended December 31, 1995, incorporated by reference herein
(21) Subsidiaries of the Company
(23) Report and Consent of Certified Public Accountants
(27) Financial Data Schedule
</TABLE>
25
<PAGE> 1
EXHIBIT 10(h)
TECUMSEH PRODUCTS COMPANY
MANAGEMENT INCENTIVE PLAN
[As amended through November 22, 1995]
I. Purposes of the Plan
The purposes of the Tecumseh Products Company Management
Incentive Plan (the "Plan") are to provide a means to attract, reward and
retain strong management, to encourage teamwork among members of management and
excellence in the performance of their individual responsibilities, and to
align the interests of key managers participating in the Plan with the
interests of shareholders by offering an incentive compensation vehicle that is
based upon the growth in shareholders' equity and the value and profitability
of Tecumseh Products Company. The first awards under the Plan shall be made in
1995, based on 1994 performance of the employee, his group, and the Company.
II. Definitions
In this Plan, the following terms shall have the meanings set
forth below:
(a) "Account" means the cumulative record of an
Employee's Phantom Share allocations as adjusted in the manner
described in the Plan.
(b) "Allocation Date" means the December 31st as
of which a Phantom Share allocation is made on behalf of an
Employee pursuant to this Plan.
(c) "Board" means the Board of Directors of the
Company.
(d) "Committee" means the Executive Compensation
Committee of the Board, or such other committee as the Board
may subsequently appoint to administer the Plan. All the
Directors serving on the Committee at any given time shall be
"disinterested persons", as that term is used in Securities
and Exchange Commission Rule 16(b)(3) (or any successor
regulation) as in effect at such time ("Rule 16(b)(3)"), and
the number of Directors serving on the Committee at any given
time shall be no less than the minimum number then required by
Rule 16(b)(3).
(e) "Class A Common Stock" means the Class A
Common Stock, $1.00 par value per share, of the Company.
(f) "Class B Common Stock" means the Class B
Common Stock, $1.00 par value per share, of the Company.
<PAGE> 2
(g) "Company" means Tecumseh Products Company, a
Michigan corporation.
(h) "Employee" means a person who is employed by
an Employer and who has been selected by the Committee to
participate in the Plan.
(i) "Employer" means the Company, any of its
present subsidiary corporations, any corporation which becomes
a controlled subsidiary of the Company provided the Committee
determines to extend coverage thereto, and/or any successor(s)
to such corporation(s). The Committee shall be deemed to have
extended coverage to a subsidiary if an employee of such
subsidiary is awarded an allocation under this Plan.
(j) "Phantom Share" means an allocation credited
to an Employee's Account and maintained in such Account
together with any prior or subsequent allocations made on
behalf of such Employee. The value of an Employee's Account
shall be adjusted from time to time, as provided in the Plan.
An allocation of Phantom Shares shall confer only such rights
as are specified in the Plan. Employees who receive Phantom
Share allocations shall not (as a consequence of such
allocations) be treated as shareholders under the Articles of
Incorporation or By-Laws of the Company or under applicable
law.
(k) The following terms are defined elsewhere in
the Plan:
<TABLE>
<S> <C>
"Class Year"........................ Art. VI(a);
"Company Change in Control"......... Art. IX;
"Reason"........................ Art. VII(b).
</TABLE>
III. Factors to be Considered in Phantom Share Allocations
In making any decisions as to the Employees to whom Phantom
Share allocations shall be made and as to the amount of each allocation, the
Committee shall take into account such factors as the duties and
responsibilities of the respective Employees, their present and potential
contributions to the success of the Employer, and the financial success of the
Company during the year. Not later than the end of April of each calendar year
with respect to which allocations may be made, the Committee shall establish
targeted group allocations and targeted financial results, and may establish
targeted individual allocations, for that year. Actual Phantom Share
allocations for such calendar year shall be based on the attainment of
specified types and combinations of performance measurement criteria, which may
differ as to various Employees or classes thereof, and from time to time. Such
criteria may include, without limitation, (i) the attainment of certain
performance levels by, and measured against objectives of, the Company, the
individual Employee, and/or a group of Employees, (ii) net income
-2-
<PAGE> 3
growth, (iii) increases in operating efficiency, (iv) completion of specified
strategic actions, (v) the recommendation of the Chief Executive Officer, and
(vi) such other factors as the Committee shall deem important in connection
with accomplishing the purposes of the Plan, provided that any relevant
decisions shall be made in its own discretion solely by the Committee.
However, no Employee or group of Employees shall receive an actual Phantom
Share allocation greater than the applicable targeted individual allocation (if
any) or group allocation for a given year, unless due to extraordinary
circumstances the Committee deems it appropriate (in its sole discretion) to
make allocations to one or more Employees or groups of Employees in excess of
his/their targeted individual allocation(s). The maximum aggregate number of
Phantom shares that may be awarded and allocated to the accounts of all
Employees with respect to any calendar year shall be equal to two percent (2 %)
of the number of shares of Class A Common Stock which are issued an outstanding
on the last day of such calendar year. Such maximum shall not apply to Phantom
Shares resulting from deemed reinvestment of amounts corresponding to
dividends, pursuant to Article IV, subsection (a)(ii).
IV. Valuation of Phantom Share Accounts; Accounting Treatment
(a) Except as otherwise provided in (b) below or in
Article IX, Accounts shall be valued as follows:
(i) Each Phantom Share allocation shall have an
initial dollar value at which it shall be credited to the
Employee's Account as of the last day of the calendar year for
which such allocation was made. Such allocation shall then be
converted into a share amount corresponding to the number of
whole and fractional (to the nearest hundredth) shares of
Class A Common Stock that could be purchased at the price
determined as of such date in the manner described in (b)
below.
(ii) Each share of Phantom Stock, which has been
allocated as of the record date applicable to a declared
dividend on Class A Common Stock, shall be credited with the
amount of any such per-share cash dividend paid to Class A
shareholders, and the total amount credited shall thereupon be
deemed reinvested in additional shares of Phantom Stock at the
Class A Common Stock's closing price on the date said dividend
is paid. Any such dividends (and/or additional dividends
thereon) shall vest when and only if the associated Phantom
Shares vest.
(b) The price of Phantom Shares comprising the Account
(adjusted pursuant to (c) below) shall be computed as the average of the
closing prices of Class A Common Stock on the last trading day of each of the
twelve calendar months which precede or coincide with the valuation date;
provided that if any stock splits, stock- on-stock dividends or other capital
adjustments have occurred
-3-
<PAGE> 4
during the period beginning with the first such trading day and ending on the
valuation date, then the closing prices used in the averaging computation shall
also be adjusted as the Committee, in the reasonable exercise of its
discretion, believes to be equitable and appropriate. As used in the
preceding sentence, a "trading day" is one for which such sale prices are
reported on the NASDAQ national market reporting system.
(c) If, between the time an award is made and the date an
Account is paid, any change shall occur in the market price of the Company's
Class A Common Stock outstanding as the result of any stock split or any
stock-on-stock dividend, then the number of Phantom Shares in the Account shall
be adjusted in proportion to the adjustment in the price of Class A Common
Stock. In the event of any other change in the number or character of the
outstanding securities of the Company as the result of any recapitalization,
reclassification, merger or any analogous change in capitalization or of any
distribution to holders of the Company's Class A Common Stock other than a cash
or stock dividend, the Committee shall make such adjustments, if any, in the
number and/or kind of any Phantom Shares then allocated to the Account or
thereafter becoming allocated to the Account as the Committee, in the
reasonable exercise of its discretion, believes to be equitable and
appropriate.
V. Terms and Conditions of Allocations to Accounts
Each Phantom Share allocation to the Account of an Employee
shall be subject to the following terms and conditions:
(a) Each allocation shall continue in effect for an
indefinite period from the applicable Allocation Date until
subsequently paid or forfeited, as hereinafter provided.
(b) The Company shall maintain records for each
Employee's Account and shall furnish him a summary thereof
upon request, but not more frequently than once a year.
(c) Except as provided herein with respect to
transfers to the Company or another Employer, an Employee's
interest in his Account shall not be transferable other
than by will or the laws of descent and distribution. During
the Employee's lifetime, an Account shall be paid only to the
Employee, except that, in the event of the Employee's
incapacity, the Committee may permit payment to the Employee's
guardian or legal representative. The Committee also shall
permit the payment, upon the Employee's death, to one or more
beneficiaries designated by the Employee in a manner
authorized by the Committee, and otherwise to his estate.
-4-
<PAGE> 5
VI. Vesting and Payment
(a) Each Phantom Share allocation made by the Company
shall be assigned a "Class Year" corresponding to the calendar year in which
the Allocation Date occurs. Such allocations shall be 0% vested in the year
for which they are made, and shall not become vested until the fifth December
31 following the end of the Class Year. For example: Allocations made with
respect to Class Year 1994 shall be 0% vested when allocated, 0% vested on
December 31, 1995, 0% vested on December 31, 1996, etc., but shall become 100%
vested on December 31, 1999. The provisions of Article VII shall generally
govern the forfeiture of allocations which are not vested and, in certain
circumstances, even those which are otherwise fully vested. Except as
otherwise provided in Article VII, allocations to the Account of an Employee
shall not be forfeited during his continued employment with an Employer.
(b) Accounts shall be paid, to the extent of the portion
then vested and payable, within 30 days following each December 31st.
VII. Retirement and Other Termination of Employment
(a) Upon an Employee's completion of five (5) full
calendar years of service with an Employer following the end of the calendar
year for which an award is made, the relevant portion of his Account shall
become fully vested and may thereupon be paid in accordance with Article VI(b),
using the December 31st value applicable to the date when such portion became
fully vested. Any unpaid vested portion of an Account shall be subject to
forfeiture solely as a result of termination of employment for one or more
Reasons specified in Article VII(b), as determined by the Committee.
(b) If the employment of an Employee to whom Phantom
Share allocations have been made shall be terminated by his Employer for any
Reason denominated below (which shall be determined by the Committee), his
entire Account whether or not to any extent otherwise vested shall be forfeited
simultaneously with such termination of employment.
Such "Reason", for the sole purpose of determining whether an
Employee's otherwise vested benefits are to be forfeited, shall be deemed to
exist where -
(i) The Employee, after receiving written notice of prior
breach from his Employer, again breaches any material
written rules, regulations or policies of the
Employer now existing or hereafter arising which are
uniformly applied to all employees of the Employer or
which rules, regulations and policies are promulgated
for general application to executives, officers or
directors of the Employer; or
-5-
<PAGE> 6
(ii) The Employee willfully and repeatedly fails to
substantially perform the duties of his employment
(other than any such failure resulting from his
incapacity due to physical or mental illness) after a
written demand for substantial performance is
delivered to him by his immediate supervisor, which
demand specifically identifies the manner in which
the supervisor believes that the Employee has not
substantially performed his duties; or
(iii) The Employee is repeatedly or habitually intoxicated
or under the influence of drugs while on the premises
of the Employer or while performing his employment
duties, after receiving written notice thereof from
the Employer, such that the Committee determines in
good faith that the Employee is impaired in
performing the duties of his employment; or
(iv) The Employee is convicted of a felony under state or
federal law, or commits a crime involving moral
turpitude; or
(v) The Employee embezzles any property belonging to the
Employer such that he may be subject to criminal
prosecution therefor or the Employee intentionally
and materially injures the Employer, its personnel or
its property.
Nothing in this Plan shall alter the at-will nature of the Employee's
employment relationship with his Employer. Nothing in this Plan shall confer
upon any Employee the right to continue in the employ of any Employer.
(c) Except as provided in Article VII(d) regarding
retirement, if an Employee to whom Phantom Share allocations have been made
shall voluntarily terminate his employment with the Employer or shall be
terminated by the Employer for no reason or for any reason whatsoever other
than for one or more Reasons specified in Article VII(b) and otherwise than as
provided for in Article VIII hereof, his Account shall be forfeited according
to the vesting schedule of Article VI(a), except for that portion (if any)
which the Committee, in its sole and absolute discretion, permits him to
retain. Nothing in this Plan shall alter the at- will nature of the Employee's
employment relationship with his Employer. Nothing in this Plan shall confer
upon any Employee the right to continue in the employ of any Employer.
(d) Notwithstanding Article VI(a), an Employee's Phantom
Share allocations shall become 100% vested upon his normal, early, or
disability retirement under the pension or retirement plan sponsored by his
Employer. However, such vested allocations shall only become payable following
the date they would have otherwise vested under Article VI, i.e. within 30 days
after the fifth December 31 following each Allocation Date.
-6-
<PAGE> 7
(e) Prior to any payment pursuant to (a), (c) or (d),
above, the Employee's account shall be adjusted as provided in Article IV.
(f) So long as the Employee shall continue to be an
employee of the Employer, his Account shall not be affected by any change of
duties or position. Nothing in the Plan shall confer upon any Employee any
right to continue in the employ of the Employer or to receive future Phantom
Share allocations or accruals thereon nor shall anything in the Plan interfere
with the right of the Employer to terminate an Employee's employment at any
time whether or not for cause. The adoption of the Plan shall not constitute a
contract between the Company or its subsidiaries and any Employee. No Employee
shall receive any right to be granted an award hereunder nor shall any such
award be considered as compensation under any other employee benefit plan of
the Company except as otherwise determined by the Committee.
(g) Any payment or distribution to an Employee under this
Plan which is not claimed by the Employee, his beneficiary, or other person
entitled thereto within three years after becoming payable shall be forfeited
and canceled and shall remain with the Company, and no other person shall have
any right thereto or interest therein. The Company shall not have any duty to
give notice that amounts are payable under this Plan to any person other than
the Employee and his beneficiary (or contingent beneficiary) in the event there
are benefits payable after the Employee's death.
VIII. Death, Disability or Incapacity of an Employee
(a) Any payment or distribution due to an Employee under this
plan on account of death or on account of termination of employment for
disability or retirement where the terminated Employee dies before receiving
the full amount to which he is entitled hereunder, shall be made to the
beneficiary and/or contingent beneficiary designated by the Employee to receive
such payments in the event of his death, in a written designation of
beneficiary filed with the Company prior to his death. In the event of the
Employee's failure to file such a designation or its ineffectiveness for any
reason such payments shall be made to the Employee's surviving spouse, or if
the Employee is not survived by a spouse, in equal shares to his then surviving
issue, per stirpes, or if he is not survived by any issue, then to the
Employee's estate.
(b) Upon the total and permanent disability of an Employee to
whom Phantom Shares have been allocated, as determined solely by the Committee,
his Account shall become fully vested and payable, and shall be valued as of
December 31 of the year in which the Committee determines that the Employee is
totally and permanently disabled; payment shall be made within 30 days
thereafter. For these purposes, "total and permanent disability" means an
impairment or illness of a physical or mental nature, or both, which results in
the Employee's being unable to perform the normal duties of his employment
consistent with the standards of his
-7-
<PAGE> 8
Employer for a period of at least ninety (90) consecutive business days.
(c) Upon the death of an active Employee, his Account shall
become fully vested and payable, with its value determined as of December 31 of
the year of the Employee's death and payment shall be made within 30 days
thereafter. Upon the death of a disabled or retired Employee who has not
received payment of his entire Account, the unpaid balance of such Account
shall become payable at its value on the following December 31 and payment
shall be made within 30 days thereafter.
IX. The Effect of a Company Change in Control
(a) Rights under this Plan shall be affected as hereinafter
described by a Company Change in Control. A "Company Change in Control,"
solely for the purposes of this Plan, shall mean one or more of the following
events:
(i) The acquisition, after December 31, 1994, of
beneficial ownership of 25% or more of the Company's Class A
Common Stock or Class B Common Stock then outstanding by any person
(including a group, within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "1934 Act")), other than:
(A) the trustee of any Company-sponsored employee
benefit plan,
(B) the Company or any of its subsidiaries,
(C) Kenneth G. Herrick, his descendants, or trusts
for the benefit of such individuals, or
(D) trusts or foundations established by Kenneth G. Herrick
or by any of the descendants or trusts mentioned in (C),
above.
(ii) The first purchase, after December 31, 1994, under
a tender offer or exchange offer for 25% or more of the Company's
Class A Common Stock or Class B Common Stock then outstanding, other
than an offer by:
(A) the trustee of any Company-sponsored employee benefit plan,
(B) the Company or any of its subsidiaries,
(C) Kenneth G. Herrick, his descendants, or trusts for the
benefit of such individuals, or
-8-
<PAGE> 9
(D) trusts or foundations established by Kenneth G.
Herrick or by any of the descendants or trusts mentioned in
(C), above.
(iii) The first day on which less than a majority
of the total membership of the Board shall be Continuing
Directors;
(iv) The effective date of a transaction (or a
group of related transactions) in which more than 50 % in fair
market value of the assets of the Company, or of the
particular subsidiary for which a given Employee's services
are principally performed, are disposed of pursuant to a
partial or complete liquidation, a spin-off, a sale of assets
or otherwise. In the event this provision applies to a
particular subsidiary, only those Employees whose services are
principally performed for that subsidiary shall be deemed to
be affected by such Change in Control; or
(v) The date on which the shareholders of the
Company approve a merger or consolidation of the Company with
any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 51% of
the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger of consolidation.
(b) For purposes of this Article IX, the following terms
shall have the following meanings:
(i) "Continuing Director" shall mean any director
of the Company who either (1) is a member of the Board on the
date this Plan is adopted by the Board and has not terminated
membership on the Board, or (2) is recommended or elected to
the Company's Board of Directors by at least three-quarters of
the Continuing Directors.
(ii) "Person" shall mean a person as defined in
Section 3(a)(9) of the 1934 Act, "beneficial ownership" shall
be determined in accordance with Rule 13d-3 promulgated under
the 1934 Act or any successor regulation, the term "group"
shall mean a group as described in Rule 13d-5 promulgated
under the 1934 Act or any successor regulation, and the
formation of a group hereunder shall have the effect described
in paragraph (b) of said Rule 13d-5 or any successor
regulation. Anything hereinabove to the contrary
notwithstanding, however: (a) relationships by blood,
adoption or marriage between or among two or more persons
shall not be deemed to constitute any of such persons a member
of a
-9-
<PAGE> 10
group with any other such persons; (b) action taken or agreed
to be taken by any person acting in his official capacity as
an officer or director of the Company shall not be deemed to
constitute such person a member of a group with any other
person, and (c) formation of a group shall not constitute an
acquisition by the group (or any member thereof) of beneficial
ownership of any shares of the Company's Class B ("voting")
common stock beneficially owned by any member of such group
and acquired by such group member in an Excluded Acquisition.
(iii) "Excluded Acquisition" means any acquisition
of shares of voting common stock from the Company (whether or
not for consideration) or from any person by operation of law
(including but not limited to the laws of descent and
distribution), by will, by gift or by foreclosure of a
security interest given to secure a bona fide loan, or any
acquisition consummated prior to January 1, 1994.
(c) At the time a Company Change in Control takes effect
with respect to an Employer, the Account of each affected Employee shall become
fully vested and immediately payable, and the provisions of Article VII(b)(i)
and (ii) shall not be effective for three months thereafter with respect to any
affected Employee. At the time a Company Change in Control takes effect with
respect to the Company, every Employee's Account shall become fully vested and
immediately payable, and the provisions of Article VII(b)(i) and (ii) shall not
be effective for three months thereafter.
(d) If cash or other valuable consideration is paid to
holders of Class A Common Stock in connection with a Company Change in Control,
then the Company shall pay a like amount of cash for each Phantom Share
(determined as set forth in Article IV) held in an Employee's Account (or the
cash value per share of noncash consideration) as is received (per share) by
the holders of Class A Common Stock. If such payment to the holders of Class A
Common Stock is by way of purchase of their Class A Common Stock (or some
portion thereof) then a corresponding percentage of each Account shall be
deemed to have been paid off in consideration of the above-referenced payment
by the Company to Employees.
(e) It is this Plan's intent not to make "excess
parachute payments," as defined in Section 280G of the Internal Revenue Code of
1986, as it may be amended or superseded (the "Code"), which would be
nondeductible for Federal income tax purposes by the Company. Consequently, if
payments resulting solely from the operation of this Article would be
nondeductible by the Company for Federal income tax purposes due to Section
280G of the Code, as being in excess of reasonable compensation or three times
the base amount specified in Section 280G(b)(3), such payments shall be reduced
by the smallest amount required so that no payments are nondeductible under
Section 280G of the Code. If any payments previously made to or for the
benefit of an Employee from this Plan or any other plan or agreement are
subsequently determined to be nondeductible because of Section 280G of the
Code, such Employee shall be required to promptly repay the Company, at its
request, the smallest amount necessary so that, after giving effect to such
repayments to the Company, no payments to or for the benefit of the
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<PAGE> 11
Employee (or the smallest amount possible) will be nondeductible under said
Section 280G; provided, however, that any such repayments, adjusted for the
time value of such amounts under the principles of Section 1274(b)(4) of the
Code, may not exceed the amount of payments originally made from this Plan or
any other plan or agreement. The Committee may establish procedures to carry
out the provisions of this paragraph.
(f) The terms and provisions of this Article IX shall
become effective only in the event of a Company Change in Control as defined in
this Article of the Plan.
X. The Committee As Plan Administrator
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall make all decisions concerning
Employees to be selected to receive allocations under the Plan, the amount of
the allocation to be made to each participating Employee and the time when such
allocations shall be made. The Committee's interpretation of the Plan and any
action it takes with respect to Phantom Share allocations pursuant thereto
shall be final and binding upon all affected parties. The Committee shall have
the authority, subject to the provisions of the Plan, to establish, adopt,
revise or repeal rules, regulations and procedures with respect to the Plan.
XI. Amendment, Suspension, or Termination of the Plan
The Committee or the Board may amend this Plan at any time,
provided that any amendment by the Committee shall be consistent with the
Plan's original design and purpose. No such amendment shall impair rights
under the Plan with respect to Phantom Shares allocated prior to the date of
such amendment. The Board may at any time terminate or suspend this Plan;
provided that no such action shall impair rights under the Plan with respect to
Phantom Shares allocated prior to the date of such action; provided also that
in the event of termination of the Plan, the Committee (in its sole discretion)
may accelerate the time of vesting and/or date of payment applicable to
outstanding Accounts.
XII. No Guarantee
The Company has only a contractual obligation to pay Accounts.
The satisfaction of payment obligations is to be made solely out of the general
corporate funds of the Company, which shall at all times remain subject to the
claims of its creditors. Further, amounts credited to an Employee's Account
shall neither be segregated for the purpose of securing the Company's liability
nor be held by the Company in trust for the Employee.
-11-
<PAGE> 12
The Board, upon the recommendation of the Committee, may
authorize the creation of trusts or other arrangements to facilitate or ensure
payment of the obligations under the Plan, provided that such trusts and
arrangements are consistent with the "unfunded" status of the Plan (unless the
Committee determines otherwise). An Employee shall have no right, title, or
interest whatsoever in or to any investments which the Company 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 Company and the
Employee or any other person. To the extent that any person acquires a right
to receive payments from the Company under this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid in cash from the general funds of
the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payments of such amounts.
XIII. Restrictions on Transfer of Benefits
Neither the Employee nor any other person shall have any right
to commute, sell, assign, transfer, alienate, pledge, anticipate, mortgage or
otherwise encumber, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, or interest therein
which are, and all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to garnishment, attachment, seizure or sequestration for
the payment of any debts, judgments, alimony or separate maintenance owed by
the Employee or any other person, nor be transferable by operation of law in
the event of the Employee's or any other person's bankruptcy or insolvency.
Notwithstanding the above, the Company shall have the right to
deduct from all amounts paid to, or on behalf of, a Participant any taxes
required by law to be withheld in respect of Accounts under this Plan or any
reductions under Article XV of this Plan.
XIV. Protective Provisions
An Employee 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 Committee for purposes of the
Plan. If an Employee neglects or refuses so to cooperate, the Company shall
have no further obligation to such Employee or his beneficiaries under the
Plan.
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<PAGE> 13
XV. Obligations to Company
If an Employee becomes entitled to a distribution of benefits
under the Plan, and if at such time the Employee has outstanding any debt,
obligation, or other liability representing an amount owing to the Company,
then the Company may offset such amount owed to it against the amount of
benefits otherwise distributable. Such determination shall be made by the
Company.
XVI. Release and Non-Disclosure/Non-Competition Agreements
Any payment to an Employee or his beneficiary in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Company with respect to such payment,
and the Company may require such Employee or his beneficiary, as a condition
precedent to such payment, to execute a receipt and release to such effect.
Additionally, as a condition precedent to commencement of payments hereunder,
and in consideration of such payments, an Employee may be required to execute
and acknowledge a general release of all claims against the Company (and the
Employer, if not the Company) in such form as the Company may then require.
Upon termination of the Employee's employment, at retirement or otherwise, the
Employee (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
may then require. In that event, five per cent (5%) of each payment to the
Employee or his beneficiary pursuant to the Plan shall be deemed a payment by
the Company for such agreement.
XVII. General
(a) 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.
(b) 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 XVIII, the Company, the Employers and the 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 Committee
with respect to any actions relating to this Plan made in good faith by such
bodies or their members.
(c) 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 Committee shall have the power to
modify such
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<PAGE> 14
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.
(d) Any notice or filing required or permitted to be given under
this Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail: (a) to the Company or the Committee at the
principal office of the Company, directed to the attention of the Chairman of
the Committee, and (b) to the Employee at his last known home address on file
with the Company's personnel office. Such notice shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification. It shall be the
Employee's responsibility to inform the Company's personnel office, in writing,
of any change in his home address.
XVIII. Claims and Disputes
(a) Claims for benefits under the Plan shall be made in writing to
the Committee. The Employee may furnish the Committee with any written
material he believes necessary to perfect his claim.
(b) 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 Committee, may review pertinent documents, and may
submit issues and comments in writing. The claimant's written request for
review must be submitted to the Committee within sixty (60) days after receipt
by the claimant of written notification of the denial of a claim. A decision
by the Committee shall be made promptly, and not later than sixty (60) days
after the 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.
(c) 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 VII 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 Employee (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
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<PAGE> 15
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 hereinabove provided in
(d) 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 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 Employee or his beneficiary shall
retain legal counsel and/or incur other costs and expenses in connection with
enforcement of any of the Employee's rights under this Plan, the Employee 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; except that the arbitrators in their discretion may award
reasonable attorneys fees and reasonable costs to the Employee in an
arbitration initiated by the Employee following a Change in Control, to enforce
the Employee's rights under this Plan, provided the Employee is the prevailing
party in such arbitration.
(d) Any arbitration shall be conducted as follows:
(i) 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 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.
(ii) 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.
(iii) 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.
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<PAGE> 16
(iv) 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.
XIX. Limitations of Action
Every asserted claim to benefits or right of action by or on behalf
of any Employee, past, present, or future, or any spouse, child, beneficiary or
legal representative thereof, against the Company or any subsidiary thereof
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 Employee's termination of employment, or (iii)
six months after notice is given to or on behalf of the Employee of the amount
payable from the Employee's Account under this Plan.
WITNESS execution of this plan document on behalf of the Company by its duly
authorized officer.
TECUMSEH PRODUCTS COMPANY
By /s/ JOHN H. FOSS
---------------------------
Its Vice President and
Chief Financial Officer
Dated: November 22 , 1995
-------------
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<PAGE> 1
EXHIBIT 13
FINANCIAL SUMMARY
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Net sales $1,716.0 $1,533.4 $1,314.2
Net income 119.2 120.3 81.4
% of net sales 6.9% 7.8% 6.2%
Capital expenditures 127.4 136.2 51.1
Total assets 1,407.6 1,289.8 1,132.7
Stockholders' equity 877.1 785.5 686.8
Return on average
stockholders' equity 14.3% 16.3% 12.3%
Per share of common stock:
Net income $5.45 $5.50 $3.72
Cash dividends declared 1.61 1.35 1.15
Book value 40.09 35.90 31.39
Average number of employees 15,600 14,400 12,400
</TABLE>
Note: The above per share amounts have been adjusted as necessary to reflect
the 100% stock dividend paid June 30, 1993.
<PAGE> 2
Tecumseh Products Company and Subsidiaries
BUSINESS SEGMENT DATA
(Dollars in millions)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Income Before
Net Sales Income Taxes
------------------------------ -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- --------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Compressor
Products . . . . . $1,131.9 $881.2 $809.4 $114.8 $87.3 $71.7
Engine & Power
Train
Products . . . . . 497.6 563.8 426.9 51.4 80.3 40.9
Pump
Products . . . . . . . 86.5 88.4 77.9 11.1 13.1 11.6
Corporate
Expenses . . . . - - - (10.3) (11.5) (9.9)
Net Interest
Income . . . . . . . - - - 21.0 22.7 13.5
-------- -------- -------- ------ ------ ------
Total . . . . . . . $1,716.0 $1,533.4 $1,314.2 $188.0 $191.9 $127.8
======== ======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Capital
Year End Assets Expenditures Depreciation
------------------------------ ------------------------ ------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressor
Products . . . . . $729.0 $609.3 $485.5 $96.3 $119.2 $36.8 $45.4 $41.7 $39.4
Engine & Power
Train
Products . . . . . 271.4 249.1 206.6 27.4 14.6 13.7 12.7 13.1 12.3
Pump
Products . . . . . . 42.6 42.9 35.7 3.7 2.4 0.6 1.1 0.9 0.8
Corporate . . . . . . 364.6 388.5 404.9 - - - - - -
-------- -------- -------- ------ ------ ----- ----- ------ ------
Total . . . . . . . . $1,407.6 $1,289.8 $1,132.7 $127.4 $136.2 $51.1 $59.2 $55.7 $52.5
======== ======== ======== ====== ====== ===== ===== ====== ======
</TABLE>
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
Income Before
Net Sales Income Taxes Year End Assets
------------------------------ ------------------------ ------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- ------ ------ ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America . . . . $1,134.4 $1,104.8 $930.5 $127.8 $135.3 $95.4 $942.4 $876.7 $812.7
Europe . . . . . . . . . 365.4 280.5 260.7 13.4 9.6 (1.6) 321.8 279.6 246.1
Brazil . . . . . . . 216.2 148.1 123.0 47.3 47.6 34.6 147.0 134.1 78.5
Inter-area:
North America . . . . 25.2 13.8 11.6 - - - - - -
Europe . . . . . . . 7.6 3.1 0.1 - - - - - -
Brazil . . . . . 56.5 39.5 23.8 - - - - - -
Eliminations . . . . . (89.3) (56.4) (35.5) (0.5) (0.6) (0.6) (3.6) (0.6) (4.6)
-------- -------- -------- ------ ------ ----- ----- ------ ------
Total . . . . . . . . $1,716.0 $1,533.4 $1,314.2 $188.0 $191.9 $127.8 $1,407.6 $1,289.8 $1,132.7
======== ======== ======== ====== ====== ====== ======== ======== ========
</TABLE>
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Export sales of domestic operations were $258.2, $213.2,
and $206.2 million in 1995, 1994 and 1993, respectively. Of these sales,
approximately two-thirds were to customers in the Far and Middle East.
In 1995, 11% of consolidated sales represented engine and compressor sales
to customers under common control.
The Company's share of net unremitted earnings of its foreign subsidiaries
was $9.6 million in 1995, $44.2 million in 1994, and $14.0 million in 1993.
Accumulated unremitted earnings of foreign subsidiaries at December 31, 1995
were $128.4 million.
12
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Tecumseh Products Company is a full-line, independent global
manufacturer of hermetic compressors for air conditioning and refrigeration
products, gasoline engines and power train components for lawn and garden
applications and pumps. The Company's products are sold in over 100 countries
around the world.
Products are grouped into three principal industry segments:
Compressor Products, Engine and Power Train Products, and Pump Products.
1995 COMPARED TO 1994
Sales for 1995 reached a record level $1,716.0 million and were 12%
higher than 1994. Net income of $119.2 million, or $5.45 per share, declined
slightly from the $5.50 per share earned in 1994. The 1995 results also
included a favorable foreign tax adjustment of approximately $1.3 million. The
lower comparative earnings were due to weather-related reductions in engine
sales, lower margins from foreign operations and new compressor product
start-up costs.
COMPRESSOR PRODUCTS
The Company's worldwide Compressor Products sales for 1995 reached
$1,131.9 million and were 28% higher than 1994. The dynamics affecting sales
were new product introductions, a worldwide weather-related shortage of room
air conditioning compressors and rising demand in emerging nations. Management
believes these same factors will have a positive influence on sales in the
Compressor Products segment for 1996.
Significant sales gains for the year were seen in the North American
household refrigeration market as production of our new Brazilian-built TP
compressor continued to increase. Rising demand in the emerging economies of
Asia/Pacific contributed to considerable growth of U.S. exports in 1995 as
compared to 1994. European compressor operations also reported double-digit
sales growth.
The Company's Brazilian subsidiary, SICOM Ltda., reported a 46%
increase in sales for 1995. In 1995, SICOM accounted for 13% of consolidated
sales and 26% of consolidated net income. Brazilian domestic demand for
refrigeration products remained strong during 1995 despite a mid-year easing in
economic activity. 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.
Compressor Products operating margins were 10.1% for 1995 as compared
to 9.9% for 1994. New product start-up costs and currency-driven reductions in
export margins of the Company's Brazilian and French operations offset the
favorable effects of increased sales volumes.
On November 21, 1995, the Company announced that it has signed a
memorandum of understanding with Siel Limited of New Delhi, India, for the
creation of a joint venture to manufacture refrigeration and air conditioning
compressors in India. Subject to execution of a mutually satisfactory
definitive agreement and all necessary approvals, the Company and Siel plan a
substantial expansion of Siel's existing compressor manufacturing facility in
Hyderabad, India, which currently builds compressors under a license agreement
with Tecumseh Products Company. Once expanded and fully equipped, the facility
is expected to produce over one million compressors annually.
Progress continues on the introduction of the new scroll compressor,
which is expected to have modest sales in 1996. The recent and ongoing
investments in new products, major capacity expansion programs and the
compressor joint venture in India are all part of the Company's strategic plan
to meet expected growth in worldwide demand for refrigeration and air
conditioning products, especially in the emerging economies of the Asia/Pacific
and South American regions. Short-term earnings growth may be somewhat slowed
but the Company expects significant long-term benefits from its new products
and increased presence in the growing global markets.
ENGINE AND POWER TRAIN PRODUCTS
Worldwide Engine and Power Train Products sales of $497.6 million
declined 12% as compared to 1994. A cool spring in the North East and North
Central U.S., consumer economic uncertainty and summer drought caused several
lawn and garden customers to curtail production. Snow engine sales were also
lower as compared to exceptionally strong sales in 1994. The reduced sales
volume, particularly in the higher margin snow engine product, and higher raw
material costs caused 1995 operating margins to decrease to 10.3% as compared
to 14.2% in 1994.
The level of snow engine sales in 1995 was considerably higher than
historical annual averages, despite a 25% unit decrease from 1994 sales. The
early 1996 record snowfall in the eastern U.S. will certainly deplete
inventories throughout the distribution system, but the Company cannot
ascertain whether 1996 snow engine sales will reach the levels of 1995 until
the second half of this year.
The Company announced in June of 1995 the purchase and planned
expansion of a manufacturing facility in Douglas, Georgia. The Douglas
facility will build reduced exhaust emission engines and carburetors and is
expected to commence limited production in 1996.
PUMP PRODUCTS
Pump Products 1995 sales of $86.5 million were slightly down as
compared to $88.4 million in 1994. The decrease was due in part to comparably
lower sales to an industrial customer who had completed an equipment
replacement program in the prior year.
INTEREST INCOME
Interest income for 1995 was slightly lower than 1994, primarily due
to lower financial income reported by the Company's Brazilian subsidiary.
During 1995 the Company reduced its Brazilian cash balances in order to provide
some protection from currency devaluation.
INCOME TAX
The effective tax rate was 36.6% for 1995 as compared to 37.3% for
1994. The 1995 tax rate includes a favorable foreign tax adjustment of $1.3
million.
13
<PAGE> 4
1994 COMPARED TO 1993
Sales for 1994 of $1,533.4 million 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 was 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'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 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'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
increased consumer confidence and drove 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. 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. 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 profit margin for this segment improved from 9.6% in 1993 to
14.2% in 1994, primarily due to the favorable impact of higher sales volume and
a more profitable product mix.
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.
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.
14
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial
position. Working capital of $521.3 million at December 31, 1995 was up from
$504.2 million at the end of 1994, and the ratio of current assets to current
liabilities was 2.9. Capital expenditures for 1995 continued at a strong level
and included completion of an expanded rotary compressor facility in
Mississippi, significant progress on the new scroll program in Michigan,
expansion of the new TP compressor line in Brazil and initial expenditures for
a new engine facility in Georgia. Total capital spending for 1996 should
approximate $125-150 million as the Company completes the Georgia engine
facility and expands new product manufacturing in overseas facilities. In
addition, there will also be an initial investment in the Hyderabad, India
joint venture. Working capital requirements and planned capital and investment
expenditures for 1996 and early 1997 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 has a $100 million revolving credit facility which is
available for general corporate purposes.
The U.S. Environmental Protection Agency (EPA) is developing emission
standards for utility engines which include the two- and four-cycle engines
produced by the Company. The development consists of two phases. Phase I
standards have an effective date of September 1, 1996, but contain provisions
that permit manufacture of non-conforming engines through September 1, 1997.
The Company believes that it will be prepared to meet the EPA Phase I standards
with competitively priced engines. Negotiations of the EPA Phase II standards
are currently in process. 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, 1995, the Company had an accrual of $30.1 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
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.
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,
---------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INCOME:
Net sales $1,716.0 $1,533.4 $1,314.2
Interest income 29.0 29.2 17.5
Other income 13.4 6.8 5.6
-------- -------- --------
1,758.4 1,569.4 1,337.3
-------- -------- --------
EXPENSES:
Cost of sales and operating expenses 1,467.9 1,279.5 1,124.0
Selling and administrative expenses 94.3 88.8 78.4
Interest expense 8.0 6.5 4.0
Other expenses 0.2 2.7 3.1
-------- -------- --------
1,570.4 1,377.5 1,209.5
-------- -------- --------
INCOME BEFORE TAXES ON INCOME 188.0 191.9 127.8
Taxes on income 68.8 71.6 46.4
-------- -------- --------
NET INCOME $119.2 $120.3 $81.4
======== ======== ========
NET INCOME PER SHARE $5.45 $5.50 $3.72
===== ===== =====
</TABLE>
The above per share amounts have been adjusted as necessary to reflect the
100% stock dividend paid June 30, 1993.
The accompanying notes are an integral part of these statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
Common Stock Foreign
--------------------------- Capital Currency Total
Class A Class B in Excess Retained Translation Stockholders'
$1 par value $1 par value of Par Value Earnings Adjustment Equity
------------ ------------ ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Net income 119.2 119.2
Cash dividends (35.2) (35.2)
Translation adjustments 7.6 7.6
------------ ------------ ------------ -------- ----------- -------------
Balance, December 31, 1995 $16.4 $5.5 $29.9 $808.0 $17.3 $877.1
============ ============ ============ ======== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in millions)
December 31,
-------------------
ASSETS 1995 1994
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $261.6 $283.2
Accounts receivable, trade, less allowance for doubtful
accounts of $6.9 million in 1995 and $5.8 million 1994 225.5 191.6
Inventories 260.0 235.3
Deferred income taxes 33.9 38.4
Other current assets 10.2 7.8
-------- --------
TOTAL CURRENT ASSETS 791.2 756.3
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and land improvements 9.0 7.9
Buildings 149.0 127.9
Machinery and equipment 738.1 645.7
-------- --------
896.1 781.5
Less, accumulated depreciation 419.1 379.1
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 477.0 402.4
-------- --------
EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated
amortization of $14.5 million in 1994 and $12.4 million in 1994 60.9 58.0
DEFERRED INCOME TAXES 19.9 21.4
PREPAID PENSION EXPENSE 37.6 31.8
OTHER ASSETS 21.0 19.9
-------- --------
TOTAL ASSETS $1,407.6 $1,289.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $129.5 $116.5
Income taxes payable 7.5 5.1
Short-term borrowings 13.5 11.7
Accrued liabilities:
Employee compensation 34.0 29.6
Product warranty and self-insured risks 30.2 32.3
Other 55.2 56.9
-------- --------
TOTAL CURRENT LIABILITIES 269.9 252.1
LONG-TERM DEBT 14.7 9.1
NON-PENSION POSTRETIREMENT BENEFITS 174.0 169.8
PRODUCT WARRANTY AND SELF-INSURED RISKS 30.0 29.5
ACCRUAL FOR ENVIRONMENTAL MATTERS 27.3 30.7
PENSION LIABILITIES 14.6 13.1
-------- --------
TOTAL LIABILITIES 530.5 504.3
-------- --------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 16,410,438 shares 16.4 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued and outstanding 5,470,146 shares 5.5 5.5
Capital in excess of par value 29.9 29.9
Retained earnings 808.0 724.0
Foreign currency translation adjustment 17.3 9.7
-------- --------
TOTAL STOCKHOLDERS' EQUITY 877.1 785.5
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,407.6 $1,289.8
======== ========
</TABLE>
The accompanying notes are an integral part of the statements.
<PAGE> 9
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $119.2 $120.3 $81.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 59.2 55.7 52.5
Accounts receivable (31.2) (26.6) (2.1)
Inventories (21.6) (58.2) (5.0)
Payables and accrued expenses 12.1 28.0 18.6
Other (5.3) 8.0 (4.1)
------ ------ ------
Cash Provided By Operations 132.4 127.2 141.3
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (127.4) (136.2) (51.1)
------ ------ ------
Cash Used In Investing Activities (127.4) (136.2) (51.1)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (35.2) (29.5) (25.2)
Proceeds from borrowings 10.9 9.5 0.9
Repayments of borrowings (4.5) (15.4) (10.4)
------ ------ ------
Cash Used In Financing Activities (28.8) (35.4) (34.7)
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2.2 14.4 (5.9)
------ ------ ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (21.6) (30.0) 49.6
CASH AND CASH EQUIVALENTS:
Beginning of period 283.2 313.2 263.6
------ ------ ------
End of period $261.6 $283.2 $313.2
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
BUSINESS DESCRIPTION -- Tecumseh Products Company is a full-line,
independent global manufacturer of hermetic compressors for air conditioning
and refrigeration products, gasoline engines and power train components for
lawn and garden applications, and pumps. The Company's products are sold in
over 100 countries around the world.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company and its subsidiaries. The Company's investments in
unconsolidated affiliates are accounted for on the equity basis. All
significant inter-company transactions and balances have been eliminated.
CASH EQUIVALENTS -- Cash equivalents consist of short-term investments which
are readily convertible into cash.
INVENTORIES -- Inventories are valued at the lower of cost or market,
generally on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT -- Expenditures for additions, major renewals
and betterments are capitalized and expenditures for maintenance and repairs
are charged to expense as incurred. For financial statement purposes,
depreciation is determined using the straight-line basis 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 (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
ENVIRONMENTAL EXPENDITURES -- Expenditures for environmental safekeeping are
expensed or capitalized as appropriate. Costs associated with remediation
activities are expensed. Liabilities relating to probable remedial activities
are recorded when the costs of such activities can be reasonably estimated.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts during the reporting period
and at the date of the financial statements. Actual results could differ from
those estimates.
NOTE 2. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's Canadian and European
subsidiaries are translated into U.S. dollars at current exchange rates and
revenues and expenses are translated at average monthly exchange rates. The
resulting translation adjustments are recorded in a separate component of
stockholders' equity:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994
---- -----
<S> <C> <C>
Balance at January 1 $9.7 $1.8
Effect of balance sheet translations:
Amount 11.3 11.6
Tax effect (3.7) (3.7)
------ ------
Balance at December 31 $17.3 $9.7
===== =====
</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 gain (loss) is included in other income (expense) and was $4.8
million, $(1.1) million, and $(2.0) million in 1995, 1994, and 1993,
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.
Net pension expense of the Company's domestic defined benefit plans
include the following components:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned
during year $5.2 $6.2 $5.3
Interest cost on projected
benefit obligations 17.1 16.3 16.5
Actual (gain) loss on assets (85.0) 6.0 (43.6)
Net amortization and deferral 57.2 (32.8) 17.2
------ ------ -----
Net pension expense (credit) $(5.5) $(4.3) $(4.6)
====== ====== ======
</TABLE>
20
<PAGE> 11
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>
(Dollars in millions) 1995 1994
--------------- ---------------
Over- Under- Over- Under-
Funded Funded funded funded
Plans Plans Plans Plans
------ ------ ------ ------
<S> <C> <C> <C> <C>
Plan assets at fair value $423.2 $0.8 $353.3 $0.4
------ ------ ------ ------
Actuarial present value of
benefit obligation:
Vested benefits 236.6 0.9 209.3 0.4
Non-vested benefits 14.1 0.2 12.3 --
------ ------ ------ ------
Accumulated benefit
obligation 250.7 1.1 221.6 0.4
Effect of projected future
salary increases 21.6 -- 18.7 --
------ ------ ------ ------
Projected benefit obligation 272.3 1.1 240.3 0.4
------ ------ ------ ------
Projected benefit obligation
(in excess of) or less
than plan assets 150.9 (0.3) 113.0 --
Unrecognized prior
service cost 10.5 0.1 11.5 --
Unrecognized net (gain)loss (107.0) 0.2 (73.8) --
Unrecognized net transition
(asset) obligation (16.8) -- (18.9) --
------ ------ ------ ------
Prepaid pension expense $37.6 $ -- $31.8 $ --
====== ====== ====== ======
</TABLE>
Assumptions used in accounting for the domestic defined benefit plans
were:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Measurement of projected benefit
obligation:
Discount rate 6.25% 7.25%
Long-term rate of compensation increases 5.00% 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 $2.5, $1.8, and $2.2 million
in 1995, 1994 and 1993, respectively. The net liability recorded in the
consolidated balance sheet was $14.6 and $13.1 million for 1995 and 1994,
respectively.
Consolidated pension expense (credit) of $0.1 million in 1995, $(0.1)
million in 1994, and $(0.3) million in 1993 includes amounts associated with
the domestic and foreign defined benefit plans described above and certain
defined contribution plans.
NOTE 4. NON-PENSION POSTRETIREMENT BENEFIT PLANS
The Company sponsors a retiree health care benefit plan, including
retiree life insurance, for eligible salaried retirees and their eligible
dependents. The Company also sponsors at certain divisions, retiree health
care benefit plans for eligible hourly retirees and their eligible dependents.
Some of the hourly retiree health care plans include retiree life insurance.
The retiree health care plans are unfunded and provide for coordination of
benefits with Medicare and any other insurance plan covering a participating
retiree or dependent. The plans have lifetime maximum benefit restrictions and
pay a stated percentage of covered, medically necessary expenses incurred by
the eligible retiree after applicable deductibles are met. Some of the plans
are contributory, with some retiree contributions adjusted annually. The
Company has reserved the right to interpret, change or eliminate these benefit
plans.
Effective January 1, 1992, the Company adopted the accrual accounting
method prescribed in SFAS No. 106 for its non-pension postretirement benefit
plans. As permitted under the provisions of this standard, the expense
attributable to service rendered through December 31, 1991, has been fully
recognized as of the date of adoption.
The components of the net periodic postretirement benefit cost were:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost-benefits
earned during year $3.6 $ 3.9 $ 3.7
Interest cost on accumulated
postretirement benefit
obligation 8.9 8.9 10.3
Net amortization and
deferral (3.7) (1.6) (1.0)
----- ----- -----
Net postretirement health
care costs $8.8 $11.2 $13.0
===== ===== =====
</TABLE>
The total of accrued postretirement benefit obligation is presented
below as of December 31:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $51.5 $51.5
Active, eligible employees 24.3 24.6
Active, not yet eligible employees 56.6 52.7
------ ------
132.4 128.8
Unrecognized plan amendment gain 12.9 14.8
Unrecognized net actuarial gain 34.8 32.5
------ ------
Accrued postretirement benefit cost
in excess of plan assets $180.1 $176.1
====== ======
Assumptions used:
Discount rate 6.25% 7.50%
Health care cost trend rate 8.00% 11.00%
Ultimate health care cost trend rate
in 2003 5.00% 5.50%
</TABLE>
At December 31, 1995 and 1994 respectively, $6.1 and $6.3 million were
included in Accrued Liabilities, Other.
-21-
<PAGE> 12
Actual health care cost trend rates for 1994 and 1995 were lower than
anticipated and the Company reduced its trend rates in 1995 accordingly. 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, 1995 by $19.2 million and the aggregate
of the service and interest cost components of net postretirement health care
cost for the year then ended by $2.5 million.
NOTE 5. INCOME TAXES
Consolidated income before taxes consist of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
United States $125.8 $132.8 $94.1
Foreign 62.2 59.1 33.7
------ ------- ------
$188.0 $191.9 $127.8
====== ======= ======
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Current:
U.S. federal $34.7 $53.8 $32.7
State and local 6.4 7.8 4.4
Foreign income and
withholding taxes 25.6 14.7 12.8
------ ------- ------
66.7 76.3 49.9
------ ------- ------
Deferred:
U.S. federal 0.5 (4.2) (5.3)
Foreign 1.6 (0.5) 1.8
------ ------- ------
2.1 (4.7) (3.5)
------ ------- ------
Provision for income
taxes $68.8 $71.6 $46.4
Income taxes paid ======= ======= =======
$59.4 $80.7 $43.8
======= ======= =======
</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% to pre-tax income is as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Income taxes at U.S. statutory
rate $65.8 $67.2 $44.7
Excess of foreign taxes over
the U.S. statutory rate 0.2 -- 0.4
State and local income taxes 4.1 5.1 2.9
Foreign losses without tax
benefit -- -- 1.0
Deferred U.S. tax rate changes -- -- (1.6)
Tax benefits from
Foreign Sales Corporation (1.7) (1.0) (1.1)
Other 0.4 0.3 0.1
----- ----- ------
$68.8 $71.6 $46.4
===== ===== ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1995 1994
------ ------
<S> <C> <C>
Deferred tax assets:
Non-pension postretirement benefits $66.5 $65.1
Product warranty and self-insured
risks 22.4 20.7
Net operating loss carryforwards 8.3 10.1
Provision for environmental matters 13.4 14.4
Other accruals and miscellaneous 23.6 26.6
------ ------
134.2 136.9
Valuation allowance 9.5 11.2
------ ------
Total deferred tax assets 124.7 125.7
------ ------
Deferred tax liabilities:
Tax over book depreciation 39.7 39.8
Pension 13.9 11.9
Other 17.3 14.2
------ ------
Total deferred tax
liabilities 70.9 65.9
------ ------
Net deferred tax assets $53.8 $59.8
====== ======
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards
attributable to foreign operations for income tax purposes of $22.6 million
which expire from 1996 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) 1995 1994
<S> <C> <C>
------- ------
Raw materials and work in process $162.8 $147.6
Finished goods 80.4 74.3
Supplies 16.8 13.4
------- ------
$260.0 $235.3
======= ======
</TABLE>
NOTE 7. BUSINESS SEGMENT DATA
Business segment data is presented on page 12 of this report.
22
<PAGE> 13
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 $11.3 million (at 5.6%) at December 31, 1995, and $7.2 million
(at 6.5%) at December 31, 1994.
Long-term debt consists of the following:
1. Unsecured borrowings, primarily with banks, by foreign subsidiaries with
interest rates ranging from 7.9% to 8.5%. The U.S. dollar equivalent of
these borrowings was $4.6 and $6.9 million at December 31, 1995 and 1994,
respectively.
2. A $5.4 million variable-rate bank repurchase agreement (effective
interest rate of 6.19 % at December 31, 1995), due in 1997.
3. $6.9 million ($1.2 millon in 1994) variable-rate Industrial Development
Revenue Bonds (effective interest rate of 6.25% at December 31, 1995)
payable in quarterly installments from 1996 to 2020.
Scheduled maturities of long-term debt outstanding at December 31, 1995, are
as follows:
1996--$2.2 million; 1997--$6.2 million;
1998--$0.2 million; 1999--$0.2 million;
2000 and beyond--$8.1 million.
Interest paid was $8.6 million in 1995, $6.4 million in 1994 and $3.6 million
in 1993.
The Company has obtained a $100 million revolving credit facility for general
corporate purposes. The facility has a three-year term which may be extended
annually with the consent of the participating banks. Under the facility, the
Company may select among various interest rate arrangements. As of December 31,
1995, the Company had not made any borrowings under this facility.
NOTE 9. ENVIRONMENTAL MATTERS
The Company has been named by the EPA as a potentially responsible party in
connection with the Sheboygan River and Harbor Superfund Site in Wisconsin. At
December 31, 1995, the Company had an accrual of $30.1 million ($31.9 million
at December 31, 1994) 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 Har
bor. 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.
-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, 1995 and 1994, respectively, were $20.6
million and $24.8 million with discount rates, respectively of 8.25 and 7.5
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, 1995 and 1994 respectively, the Company had $62.6 million and
$62.8 million in foreign exchange contracts outstanding.
The carrying value of cash and cash equivalents, receivables, accounts
payable and the aggregate value of forward exchange contracts approximates fair
value due to the short maturity of these instruments. The carrying value of
short and long-term debt approximates fair value based on discounting the
projected cash flows using market rates available for similar maturities.
NOTE 12. STOCKHOLDERS' EQUITY
The shares of Class A common stock and Class B common stock are substantially
identical except as to voting rights. Class A common stock has no voting
rights except the right to i) vote on any amendments that could adversely
affect the Class A Stock Protection Provision and ii) vote in other limited
circumstances, primarily involving mergers and acquisitions, as required by
law.
A Shareholders' Rights Plan is in effect for each class of stock. These
plans protect shareholders against unsolicited attempts to acquire control of
the Company that do not offer an adequate price to all shareholders. The
rights are not currently exercisable, but would become exercisable at an
exercise price of $80 per share, subject to adjustment, if certain events
occurred relating to a person or group acquiring or attempting to acquire 10%
or more of the outstanding shares of Class B common stock. The rights have no
voting or dividend privileges and are attached to, and do not trade separately
from the Class A and Class B common stock. The rights expire January 23, 2001.
As of December 31, 1995, 16,410,438 shares of Class A common stock and
5,470,146 share of Class B common stock were reserved for future exercise under
the plans.
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.
/s/
Todd W. Herrick
President and Chief Executive Officer
/s/
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, 1995 and 1994, and the
related statements of consolidated income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994 and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/
Ciulla, Smith & Dale, LLP
Certified Public Accountants
February 16, 1996
Southfield, Michigan
25
<PAGE> 16
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in millions except per share data
Years Ended December 31,
1995 1994 1993 1992(a)
---- --- ------- ------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,716.0 $1,533.4 $1,314.2 $1,258.5
Net income before accounting
changes 119.2 120.3 81.4 52.3
Cumulative effect of changes
in accounting principles - - - (95.0)
Net income (loss) 119.2 120.3 81.4 (42.7)
- ------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Net income before accounting
changes $5.45 $5.50 $3.72 $2.39
Cumulative effect of accounting
changes - - - (4.34)
Net income (loss) 5.45 5.50 3.72 (1.95)
Cash dividends declared 1.61 1.35 1.15 0.80
- ------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $261.6 $283.2 $313.2 $263.6
Working capital (d) 521.3 504.2 473.6 420.4
Net property, plant and equipment 477.0 402.4 320.4 322.9
Total assets 1,407.6 1,289.8 1,132.7 1,078.6
Long-term debt 14.7 9.1 11.2 14.4
Stockholders' equity 877.1 785.5 686.8 639.8
- ------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $127.4 $136.2 $51.1 $56.6
Depreciation and amortization 59.2 55.7 52.5 53.6
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1991 1990(b) 1989(c) 1988 1987 1986
------- ---------- -------- ------- -------- -------
Dollars in millions except per share data
Years Ended December 31,
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,197.2 $1,318.1 $1,509.8 $1,093.5 $951.2 $821.1
Net income before accounting
changes 42.5 14.2 82.6 70.2 71.6 50.7
Cumulative effect of changes
in accounting principles - - - - - -
Net income (loss) 42.5 14.2 82.6 70.2 71.6 50.7
- ------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Net income before accounting
changes $1.94 $0.65 $3.77 $3.21 $3.27 $2.32
Cumulative effect of accounting
changes - - - - - -
Net income (loss) 1.94 0.65 3.77 3.21 3.27 2.32
Cash dividends declared 0.80 0.80 1.11 1.05 1.05 0.99
- ------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END)
Cash and cash equivalents $256.4 $240.3 $187.2 $163.0 $218.1 $184.2
Working capital (d) 403.1 414.3 397.3 340.4 329.3 286.9
Net property, plant and equipment 324.3 304.9 280.0 251.8 210.3 199.8
Total assets 1,055.4 1,032.2 1,034.1 900.0 764.0 677.5
Long-term debt 17.9 23.6 19.9 14.3 11.3 9.4
Stockholders' equity 712.8 692.2 682.3 618.0 575.7 517.9
- ------------------------------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $85.8 $64.8 57.5 37.7 41.7 60.9
Depreciation and amortization 49.9 49.6 43.9 30.5 29.3 27.8
- ------------------------------------------------------------------------------------------------------
</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 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) The 1989 data reflect completion of the acquisitions of L'Unite Hermetique
S.A on December 30, 1988 and Tecumseh Europa S.p.A. on July 25, 1989.
(d) Working capital is the excess of current assets over current liabilities.
<PAGE> 17
INFORMATION CONCERNING EQUITY SECURITIES
The Company's Class A and Class B common stock trades on the Nasdaq Stock
Market under the symbols TECUA and TECUB, respectively.
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------- -----------------------------------------------------
Sales Price Sales Price
----------------------------------- ----------------------------------------
Class A Class B Cash Class A Class B Cash
------- ------- Dividends ------- ------- Dividends
Quarter Ended High Low High Low Declared High Low High Low Declared
- ------------- ---- --- ---- --- --------- ---- --- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 50 1/4 44 49 1/2 44 1/2 0.25 52 1/4 45 1/4 62 3/4 45 1/4 $0.20
June 30 52 3/4 43 1/4 52 42 1/2 0.25 52 3/4 44 1/4 60 1/4 47 1/2 0.20
September 30 53 1/4 43 1/2 52 1/4 42 1/2 0.25 55 1/2 46 3/4 54 46 0.20
December 31 54 46 1/4 53 45 3/4 0.86 50 3/4 40 3/8 49 3/4 39 0.75
Shareholders of record
at December 31, 1,045 940 1,042 1,010
</TABLE>
<PAGE> 18
QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- --------- --------
1995
<S> <C> <C> <C> <C> <C>
Net sales $473.6 $467.3 $392.7 $382.4 $1,716.0
Gross profit 71.8 72.2 53.5 50.6 248.1
Net income $34.9 $35.3 $24.9 $24.1 $119.2
====== ====== ====== ====== ========
Net income per share $1.59 $1.62 $1.14 $1.10 $5.45
====== ====== ====== ====== ========
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
====== ====== ====== ====== ========
</TABLE>
<PAGE> 1
EXHIBIT (21)
Tecumseh Products Company Report on
Form 10-K for the period ended
December 31, 1995
Subsidiaries of the Company
The following is a list of subsidiaries of the Company as of December 31,
1995 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
Douglas Products, Inc. Georgia
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
Tecumseh Deutschland GmbH Germany
Tecumseh 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, 1995
of our report dated February 16, 1996 which appears on page 25 of the Annual
Report to Shareholders for the year ended December 31, 1995.
Our audit also included the related financial schedule for the three years
ended December 31, 1995 listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
CIULLA, SMITH & DALE, LLP
Southfield, Michigan
February 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 261,600
<SECURITIES> 0
<RECEIVABLES> 232,400
<ALLOWANCES> 6,900
<INVENTORY> 260,000
<CURRENT-ASSETS> 791,200
<PP&E> 896,100
<DEPRECIATION> 419,100
<TOTAL-ASSETS> 1,407,600
<CURRENT-LIABILITIES> 269,900
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 855,200
<TOTAL-LIABILITY-AND-EQUITY> 1,407,600
<SALES> 1,716,000
<TOTAL-REVENUES> 1,758,400
<CGS> 1,467,900
<TOTAL-COSTS> 1,467,900
<OTHER-EXPENSES> 200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 188,000
<INCOME-TAX> 68,800
<INCOME-CONTINUING> 119,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,200
<EPS-PRIMARY> 5.45
<EPS-DILUTED> 5.45
</TABLE>
