<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from______to______
COMMISSION FILE NUMBER: 0-452
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1093240
(State of Incorporation) (IRS Employer Identification Number)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of Principal Executive Offices)
Telephone Number: (517) 423-8411
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Stock Outstanding at April 30, 1997
- -------------------------------------------------------------------------------
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,410,438
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
(Dollars in millions) MARCH 31, December 31,
1997 1996
============================================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 239.6 $ 277.7
Accounts receivable, trade, less allowance for doubtful
accounts of $6.7 million in 1997 and 1996 292.4 204.5
Inventories 256.5 275.2
Deferred income taxes 37.4 36.6
Other current assets 13.3 10.4
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 839.2 804.4
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $446.5 million in 1997
and $448.3 million in 1996 531.0 529.1
EXCESS OF COST OVER ACQUIRED NET ASSETS 51.3 56.0
DEFERRED INCOME TAXES 11.1 13.6
PREPAID PENSION EXPENSE 49.4 46.7
OTHER ASSETS 28.9 22.8
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,510.9 $1,472.6
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 120.0 $ 114.3
Income taxes payable 15.5 0.1
Short-term borrowings 15.5 19.8
Accrued liabilities 128.3 120.5
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 279.3 254.7
LONG-TERM DEBT 14.2 14.4
NON-PENSION POSTRETIREMENT BENEFITS 179.8 178.4
- ------------------------------------------------------------------------------------------------------------
PRODUCT WARRANTY AND SELF-INSURED RISKS 30.3 30.2
ACCRUAL FOR ENVIRONMENTAL MATTERS 32.9 33.0
PENSION LIABILITIES 13.5 14.4
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 550.0 525.1
- ------------------------------------------------------------------------------------------------------------
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 908.8 883.8
Foreign currency translation adjustment 0.3 11.9
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 960.9 947.5
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,510.9 $1,472.6
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in millions except per share amounts) ----------------------
1997 1996
==============================================================================================================
<S> <C> <C>
NET SALES $479.6 $496.2
Costs and expenses:
Cost of sales and operating expense 407.3 426.3
Selling and administrative expense 27.0 24.9
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME 45.3 45.0
Other income (expense):
Interest expense (1.4) (1.9)
Interest income and other, net 4.9 5.1
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 48.8 48.2
Taxes on income 17.3 17.2
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 31.5 $ 31.0
==============================================================================================================
NET INCOME PER SHARE $ 1.44 $ 1.42
==============================================================================================================
CASH DIVIDENDS DECLARED PER SHARE $ 0.30 $ 0.26
==============================================================================================================
</TABLE>
Note: Certain amounts previously reported have been reclassified to conform
with the current presentation.
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and subject to year end adjustments)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in millions) ----------------------
1997 1996
=============================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31.5 $ 31.0
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17.2 15.7
Accounts receivable (92.7) (100.3)
Inventories 15.0 12.2
Payables and accrued expenses 39.8 43.2
Other (7.3) (1.6)
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS 3.5 0.2
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22.0) (33.8)
Business acquisition, net of cash acquired (5.6) --
- -------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (27.6) (33.8)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (6.6) (5.7)
Increase (Decrease) in borrowings, net (2.8) 9.7
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (9.4) 4.0
- -------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4.6) (2.2)
- -------------------------------------------------------------------------------------------------------------
(DECREASE) IN CASH AND CASH EQUIVALENTS (38.1) (31.8)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 277.7 261.6
- -------------------------------------------------------------------------------------------------------------
END OF PERIOD $239.6 $229.8
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The December 31, 1996 condensed balance sheet
data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report for the fiscal
year ended December 31, 1996. Due to the seasonal nature of the
Company's business, the results of operations for the interim period
are not necessarily indicative of the results for the entire fiscal
year.
The financial data required in this Form 10-Q by Rule 10.01 of
Regulation S-X have been reviewed by Ciulla, Smith & Dale, LLP, the
Company's independent certified public accountants, as described in
their report contained elsewhere herein.
2. Inventories consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) MARCH 31, December 31,
1997 1996
============================================================================================
<S> <C> <C>
Raw material and work in process $144.0 $155.1
Finished goods 92.8 101.4
Supplies 19.7 18.7
--------------------------------------------------------------------------------------------
$256.5 $275.2
============================================================================================
</TABLE>
3. 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 March 31, 1997 and December 31, 1996, the Company
had an accrual of $30.1 million for estimated costs associated with
the cleanup of certain polychlorinated biphenyl (PCB) contamination at
this Superfund Site. The Company has based the estimated cost of
cleanup on ongoing engineering studies, including samples taken in the
Sheboygan River, and on assumptions as to the nature, extent and areas
that will have to be remediated. 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 by late 1997, but the ultimate
resolution of the matter may take much longer. The ultimate costs to
the Company will be dependent upon factors beyond its control. These
factors include the scope and methodology of the remedial action
requirements to be established by the EPA (in consultation with the
Wisconsin Department of Natural Resources (WDNR)), rapidly changing
technology, and the outcome of any related litigation.
Page 5
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
The Company, in cooperation with the WDNR, 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.
The WDNR has requested that the Company and other interested parties
join it in a cooperative effort to clean up PCB contamination in the
watershed of the south branch of the Manitowoc River, downstream of
the Company's New Holstein, Wisconsin facility. The Company has
cooperated to date with the WDNR in investigating the scope and range
of the contamination. The WDNR has not identified the parties it
believes are responsible for such contamination. The Company has
provided for preliminary investigation expenses. Although
participation in a cooperative remediation effort is under
consideration, it is not possible at this time to reasonably estimate
the cost of any such participation.
In addition to the above mentioned sites, the Company is also
currently participating with the EPA and various state agencies at
certain other sites to determine the nature and extent of any remedial
action which may be necessary with regard to such other sites. Based
on limited preliminary data and other information currently available,
the Company has no reason to believe that the level of expenditures
for potential remedial action necessary at these other sites will have
a material effect on its financial position.
4. Various lawsuits and claims, including those involving ordinary
routine litigation incidental to its business, to which the Company is
a party, are pending, or have been asserted, against the Company.
Although the outcome of these matters cannot be predicted with
certainty, and some may be disposed of unfavorably to the Company,
management has no reason to believe that their disposition will have a
materially adverse effect on the consolidated financial position of
the Company.
Page 6
<PAGE> 7
On Moore, Smith & Dale Letterhead
May 8, 1997
INDEPENDENT ACCOUNTANTS' REPORT
Tecumseh Products Company
Tecumseh, Michigan
We have reviewed the consolidated condensed balance sheet of Tecumseh
Products Company and Subsidiaries as of March 31, 1997, and the related
consolidated condensed statements of income and cash flows for the three months
ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We have conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 18, 1997, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1996, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
CIULLA, SMITH & DALE, LLP
Certified Public Accountants
Southfield, Michigan
Page 7
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated earnings for the first quarter of 1997 rose slightly to $31.5
million or $1.44 per share as compared to $31.0 million or $1.42 per share for
1996. First quarter sales of $479.6 million decreased 3% as compared to the
same period in 1996. Continued lagging sales in European markets and decreased
demand for room air conditioning in the U.S. were the major contributors to the
sales decline.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in millions) March 31,
------------------------
1997 1996
========================================================================================================
<S> <C> <C>
NET SALES:
Compressor Products $278.9 $312.7
Engine and Power Train Products 169.6 154.3
Pump Products 31.1 29.2
- --------------------------------------------------------------------------------------------------------
Total Net Sales $479.6 $496.2
========================================================================================================
OPERATING INCOME:
Compressor Products $26.7 $26.0
Engine and Power Train Products 17.1 17.2
Pump Products 3.9 4.3
Corporate expenses (2.4) (2.5)
- --------------------------------------------------------------------------------------------------------
Total Operating Income 45.3 45.0
Interest expense (1.4) (1.9)
Interest income and other, net 4.9 5.1
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME $48.8 $48.2
========================================================================================================
</TABLE>
NOTE: Certain amounts previously reported have been reclassified to conform
with the current presentation.
Page 8
<PAGE> 9
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
Compressor Products
Worldwide Compressor Products sales for the first quarter of 1997 were $278.9
million, down 11% as compared to the same period in 1996. European compressor
sales were substantially down due to continued weakness in the European
economy. As expected, North American sales of compressors were also down due
primarily to declines in the room air conditioning market after last summer's
unseasonably cool weather in key regions of the U.S. These sales declines were
offset, in part, by sales gains made by our Brazilian compressor operations,
Tecumseh do Brasil.
First quarter Compressor Products operating margins improved from 8.3% in 1996
to 9.6% in 1997 as a result of the cost-cutting measures taken primarily by the
European and North American compressor operations.
Engine and Power Train Products
Worldwide Engine and Power Train Products first quarter sales of $169.6 million
provided a 10% increase over the prior year period. The increase resulted from
stronger North American lawn and garden sales, which were partially offset by
weaker sales in the Company's European engine operations.
Operating margins decreased from 11.1% in the first quarter of 1996 to 10.1% in
the first quarter of 1997. Start-up costs at the new engine production
facility in Georgia and relatively weak results in our European engine
operations were primary contributors to the margin decline.
Pump Products
Pump Products sales for the first quarter of 1997 increased 7% to $31.1
million, largely due to stronger water gardening sales.
Page 9
<PAGE> 10
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
In early April, the Company announced that it completed the acquisition of 50%
of Siel Compressors Ltd. of Hyderabad Andhra Pradesh, India. Siel Compressors
Ltd. is a leading manufacturer of hermetic compressors for the Indian air
conditioning industry. This acquisition is a significant step in the Company's
strategy to become India's pre-eminent hermetic compressor supplier for both air
conditioning and refrigeration applications. India's vast and growing middle
class, with its low saturation in refrigeration and air conditioning, is
expected to provide growth opportunities for years to come.
The Company continued to maintain a strong and liquid financial position.
Working capital of $559.9 million at March 31, 1997 was up from $549.7 million
at December 31, 1996, and the ratio of current assets to current liabilities
approximated 3.0. First quarter capital spending of $22.0 million included
expenditures for a new electric motor manufacturing facility in Mississippi and
additional equipment for a new engine manufacturing facility in Georgia. Total
capital spending for 1997 should approximate $130-150 million, including the
previously announced acquisitions in India. Working capital requirements and
planned capital expenditures for the remainder of 1997 and early 1998 are
expected to be financed through internally available funds, although the
Company may utilize long-term financing arrangements in connection with various
state investment incentives.
UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
securities laws. In addition, forward-looking statements may be made orally in
the future by or on behalf of the Company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand for air
conditioners, lawn and garden products and snow throwers; financial market
changes, including interest rates and foreign exchange rates; economic trend
factors such as housing starts; governmental regulations; availability of
materials; actions of competitors; and the Company's ability to profitably
develop, manufacture and sell both new and existing products.
Page 10
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
TECUMSEH PRODUCTS COMPANY
-------------------------
(Registrant)
Dated: May 14, 1997 By: /s/ JOHN H. FOSS
------------------- ----------------------------------
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
Page 11
<PAGE> 12
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 239,600
<SECURITIES> 0
<RECEIVABLES> 299,100
<ALLOWANCES> 6,700
<INVENTORY> 256,500
<CURRENT-ASSETS> 839,200
<PP&E> 977,453
<DEPRECIATION> 446,500
<TOTAL-ASSETS> 1,510,900
<CURRENT-LIABILITIES> 279,300
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 939,000
<TOTAL-LIABILITY-AND-EQUITY> 1,510,900
<SALES> 479,600
<TOTAL-REVENUES> 484,500
<CGS> 407,300
<TOTAL-COSTS> 410,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 48,800
<INCOME-TAX> 17,300
<INCOME-CONTINUING> 31,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,500
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
</TABLE>