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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, 1996 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:
<S> <C> <C>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------- 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___
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 February 28, 1997 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 February 28,
1997, 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 February 28, 1997 (based on the
closing price of $55.25 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 $176,297,336.
Numbers of shares outstanding of each of the Registrant's classes of Common
Stock at March 15, 1997:
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, 1996 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 1997 Annual Meeting of
Shareholders has been incorporated herein by reference in Part III hereof. The
Exhibit Index is located on page 23.
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TABLE OF CONTENTS
Item
Page
PART I
1. Business 3
Executive Officers of the Registrant 12
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holder 14
PART II
5. Market for the Company's Common Equity and Related 15
Stockholder Matters
6. Selected Financial Date 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
PART III
10. Directors and Executive Officers of the Company 16
11. Executive Compensation 16
12. Security Ownership of Certain Beneficial Owners and Management 16
13. Certain Relationships and Related Transactions 16
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
Signatures 22
Exhibit Index 24
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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. 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, as well as refrigeration condensing units. The Company's
compressor products range from fractional horsepower models used in small
refrigerators and dehumidifiers to large compressors used in unitary air
conditioning applications. The Company sells compressors in all four
compressor market segments: (I) household refrigerators and freezers; (ii) room
air conditioners; (iii) commercial and residential unitary central air
conditioning systems; and (iv) commercial refrigeration applications including
freezers, dehumidifiers, water coolers 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 sales and manufacturing have become increasingly
important to the Company's business as a whole. In 1996, sales to customers
outside the United States represented approximately 45% of total consolidated
net sales. In addition to North American operations, compressor products are
produced in Brazil and France, while engines are produced in Italy.
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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. Tecumseh do Brasil, Ltd. ("Tecumseh do Brasil"), the Company's Brazilian
compressor subsidiary, sells its products principally in Latin America, 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.
Approximately 33% of the Company's sales to customers outside the U.S. were to
customers of compressor and engine products in Europe. Sales of compressors
are also significant in Latin America, Middle East and the Asian-Pacific
markets.
The Company's dependence on sales in foreign countries entails certain
commercial and political 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 other risks as well,
including 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 Tecumseh do Brasil's performance
on the Company's total operating results. In comparison to its domestic and
European operations, the Company believes its Brazilian business offers the
potential for greater rewards but with a correspondingly higher degree of risk.
In November, 1996, the Company announced that it had signed a memorandum of
understanding with Whirlpool of India, Ltd. to acquire Whirlpool's
refrigeration compressor manufacturing facilities in the state of Haryana,
India, subject to execution of a mutually satisfactory definitive agreement and
all necessary approvals. Under the proposed agreement, Tecumseh will continue
to manufacture the currently produced refrigeration compressor. Over the next
several years, the capacity will be expanded to include a Tecumseh designed
high efficiency CFC-free refrigeration compressor. Once expanded and fully
equipped, the operation will have sufficient capacity to produce over two
million refrigeration compressors annually.
As of this writing, negotiations are ongoing to conclude the previously
announced joint venture with Siel Limited for the production of air
conditioning and commercial refrigeration compressors in Hyderabad Andra
Pradesh, India.
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COMPRESSOR PRODUCTS
The Compressor Products segment is the Company's largest business 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 and
air conditioning products. All of the compressors produced by the Company are
hermetically sealed. The Company's current compressor line includes
reciprocating and rotary designs.
PRODUCT LINE
The Company manufactures and sells a wide variety of traditional, reciprocating
compressors suitable for use in all four compressor market segments. There is
increasing worldwide demand for commercial and household refrigeration and
freezer compressors that utilize HFC-134a, a non-CFC refrigerant. A substantial
majority of the Company's compressor products utilize this and other non-ozone
depleting refrigerants. The TP compressor, which uses refrigerant HFC-134a,
continued to experience significant sales gains in the U.S. household
refrigerator and freezer market in 1996.
The Company produces rotary compressors ranging from 5,000 to 18,000 BTU/hr for
use in room and mobile air conditioning applications. Rotary compressors
generally provide increased operating efficiency, lower equipment space
requirements, and reduced sound levels when compared to reciprocating designs.
A new line of room air conditioning rotary compressors for use primarily in
portable window units and recreational vehicles experienced significant sales
gains in 1996.
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 Company has
made a significant investment in a scroll compressor facility in Tecumseh,
Michigan, where it has experienced delays in the commercial production of this
new type of compressor. The Company is committed to a successful launch of
this product.
MANUFACTURING OPERATIONS
Compressor Products manufactured in the Company's U.S. plants accounted for
approximately 53% of 1996 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 are
purchased from a variety of non-affiliated suppliers. The Company utilizes
multiple sources of supply and the required raw materials and components are
generally available in sufficient quantities.
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SALES AND MARKETING
The Company markets its U.S. and Brazilian built compressors under the
"Tecumseh" brand and French built compressors under 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. The Company's U.S. Export division and Brazilian and
French subsidiaries have their 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
conditioners and for household refrigerators and freezers are to OEMs. Sales
of Compressor Products for unitary central air conditioning systems and
commercial applications include substantial sales to both OEM and aftermarket
customers.
Tecumseh do Brasil's Compressor Products are sold primarily in Brazil and other
Latin American countries. Tecumseh do Brasil also furnishes component parts to
the Company's North American plants and finished compressors for sale in North
America. L'Unite Hermetique, 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 and Co. KG
("Bitzer") of Germany for the purpose of marketing Bitzer's extensive lines of
semi-hermetic and open drive piston and screw-type compressor products in the
United States and Canada. 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 1996, the two largest customers for
Compressor Products accounted for 10.5% and 9.4%, respectively, of segment
sales, or 6.6% and 5.9%, 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 1996, approximately 35% of the Compressor Products produced by the Company
in its U.S. plants were exported to foreign countries. The Company exports to
over 100 countries worldwide. Approximately two-thirds of these exported
products were sold in the Far and Middle East.
COMPETITION
All of the compressor market segments in which the Company operates are highly
competitive. Participants compete on the basis of delivery, efficiency, noise
level, price and reliability. The
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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 OEMs 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 share of the domestic unitary air conditioning
compressor business than either Bristol or the Company.
Over the last several years there has been an industry trend toward the use of
scroll compressors in the unitary air conditioning market. Copeland
Corporation and other compressor manufacturers have had scroll compressors as
part of their product offerings for some time. Carrier Corporation, a
subsidiary of United Technologies and a major OEM which also produces scroll
compressors, has a joint venture to produce scroll compressors with Bristol
Corporation. Early in 1997, two major U.S. central air conditioning
manufacturers, American Standard's Trane air conditioning division and Lennox
International, Inc. announced that Copeland Corporation had joined their
Alliance Scroll manufacturing joint venture.
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 long-term
participation in the central air conditioning market.
In the domestic room air conditioning compressor market, the Company competes
primarily with foreign companies, which export 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, Rotorex, Inc., and Sanyo Electric Trading Company, and
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, and 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 export
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, and
others.
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L'Unite Hermetique sells the major portion of its manufactured compressors in
Western Europe, and competes in those markets primarily with several large
European manufacturers, some of which are captive suppliers, and to a lesser
but increasing extent, with manufacturers from the Far East and Brazil.
Competitors include AB Electrolux, Embraco S.A. and Danfoss, Inc., and others.
Tecumseh do Brasil 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. These factors are
discussed below.
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 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, however, some European countries
are beginning HCFC phase-outs as early as 1998. The Company believes 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 needs or the effect on the Company's competitive
position.
The U.S. National Appliance Energy Conservation Act of 1987 (the "NAECA") will
require higher energy efficiency ratings on room air conditioners,
refrigerators and freezers. These standards have not been finalized, and are
expected to be issued in 1997 for staggered implementation starting in 2000 and
running through 2003. 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.
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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. These 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 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. A line
of battery-operated electric power heads was also introduced in 1996 for
limited applications. The Company's power train products include transmissions,
transaxles and related parts used principally in lawn and garden tractors and
riding lawn mowers.
MANUFACTURING OPERATIONS
The Company manufactures engines and related components in its five plants in
the United States and one plant in Italy. All of the Company's power train
products are manufactured in one facility in the United States. Operations of
the Company in this segment are partially vertically integrated as the Company
produces most of its plastic parts and carburetors, as well as a substantial
portion of the aluminum diecastings used in its engines and power train
products.
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.
North America and Europe are the principal markets for lawn and garden
products.
In 1996, the two largest customers for Engine and Power Train Products
accounted for 20.3% and 19.2%, respectively, of segment sales, or 6.4% and
6.1%, respectively, of consolidated net sales. Loss of either of this
segment'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
and its business as a whole. There are no long-term contracts between the
Company and its major customers, but the present business relationships have
existed for a substantial period of time.
COMPETITION
The Company believes it is the second largest producer of small gasoline
engines in the world and that the largest such producer, with a broader product
range, is Briggs & Stratton Corporation. Other producers of small gasolines
include Kohler Corporation, Toro Company and Honda Corporation, among others.
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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 important. The Company believes that
it competes effectively on these bases.
NEW EMISSION STANDARDS
The U.S. Environmental Protection Agency ("EPA") is developing emission
standards for utility engines which include the two- and four-cycle engines
produced by the Company. Phase I requires compliance with new standards
beginning September 1, 1997. The Company is prepared to produce competitively
priced engines that meet these standards. Negotiations of the EPA Phase II
standards are currently in progress. As an interim measure, in January, 1997,
the Company and other small engine manufacturers signed a Statement of
Principles with the EPA to provide additional air quality benefits by reducing
smog-forming engine emissions. It is not currently possible to determine the
related costs of compliance 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 heating, ventilating and cooling, parts washers, machine
tools, evaporative coolers, sump pumps, 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 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
applications and 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 "MP Pumps"and
"Jaeger" 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.
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BACKLOG, CUSTOMERS AND SEASONAL VARIATIONS
Most of the Company's production is against short-term purchase orders, and
backlog is not significant.
In 1996, 12% of consolidated sales represented engine and compressor sales to
customers under the common control of AB Electrolux.
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. In the conduct of its business, the Company owns and uses 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 $30.4 million,
$30.1 million and $27.8 million during 1996, 1995 and 1994 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, 1996 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, 1996, 1995 and 1994 appear under the caption "Business
Segment Data" of the Company's Annual Report to Shareholders for the year ended
December 31, 1996 and are incorporated herein by reference.
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EMPLOYEES
On December 31, 1996 the Company employed approximately 16,300 persons, 44% of
which were employed in foreign locations. Approximately 4,900 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 1996, the
maximum number of persons employed was approximately 16,700 and the minimum was
16,000. 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 as of December 31,
1996.
<TABLE>
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PERIOD OF SERVICE
NAME AND AGE OFFICE OR POSITION HELD AS AN OFFICER
----------------------- -----------------
<S> <C>
Kenneth G. Herrick, 75 Chairman of the Board of Directors (1) Since 1966
Todd W. Herrick, 54 President and Chief Executive Officer (2) Since 1974
John H. Foss, 54 Vice President, Treasurer, and Chief Since 1979
Financial Officer
Harry L. Hans, 63 Group Vice President - Engine and Power Since 1979
Train Components (3)
</TABLE>
(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.
Retired December 31, 1996.
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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, 1996 the Company had 28 principal
properties worldwide occupying approximately 7.2 million square feet with the
majority, approximately 6.8 million square feet devoted to manufacturing. Nine
facilities with approximately 2.4 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.
Approximate Floor
Industry Segment Area in Square Feet
---------------- -------------------
Compressor Products 4,654,000
Engine and Power Train Products 1,975,000
Pump Products and Other 547,000
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, 1996, 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, against the Company. Although the outcome of
the various lawsuits and claims asserted or pending against
13
<PAGE> 14
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 1996 to a vote of security
holders through the solicitation of proxies or otherwise.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information under the captions "Financial Summary" and "Information
Concerning Equity Securities" of the Company's Annual Report to Shareholders
for year ended December 31, 1996 is incorporated herein by reference. As of a
February 28, 1997, there were 971 holders of record of the Company's Class A
common stock and 908 holders of the Class B common stock. No equity securities
were sold by the Company during the period covered by this report.
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, 1996 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, 1996 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, 1996 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.
15
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information pertaining to directors under the caption "Election of
Directors" in the Company's definitive Proxy Statement relating to its 1997
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 -
Director Compensation" in the Company's definitive Proxy Statement relating to
its 1997 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 - Management's Ownership of Equity Securities" in the Company's
definitive Proxy Statement relating to its 1997 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 1997 Annual Meeting of Shareholders is incorporated herein by reference.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The following described financial statements, notes and report
on pages 16 through 25 of the Company's Annual Report to
Shareholders for the year ended December 31, 1996:
. Statements of Consolidated Income for the years ended
December 31, 1996, 1995 and 1994
. Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994
. Consolidated Balance Sheets as of December 31, 1996
and 1995
. Statements of Consolidated Cash Flows for the years
ended December 31, 1996, 1995 and 1994
. Notes to Consolidated Financial Statements
. Report of Independent Accountants
(2) Financial Statement Schedules:
Schedule Form 10-K
Number Description Page Reference
-------- ----------- ---------------
II Valuation and Qualifying Accounts 21
Schedules other than those listed above are omitted because they are
either not applicable or are not required.
17
<PAGE> 18
(3) Exhibits:
Exhibit
Number Description
------- -----------
(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)
18
<PAGE> 19
(3) Exhibits (continued):
Exhibit
Number Description
------- -----------
(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)
(filed as Exhibit (10)(h) to Annual Report on Form 10-K for
the year ended December 31, 1995 (Commission File No. 0-452)
and incorporated herein by reference)
(10)(i) Third Amendment to Management Incentive Plan, adopted
January 22, 1997 (management contract or compensatory
plan or arrangement)
(10)(j) 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)
19
<PAGE> 20
(3) Exhibits (continued):
Exhibit
Number Description
------- -----------
(11) (not applicable)
(12) (not applicable)
(13) Portions of Tecumseh Products Company Annual Report
to Shareholders for the year ended December 31, 1996,
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
(99) (not applicable)
(b) No Reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this Report.
20
<PAGE> 21
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(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
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts, deducted from
accounts receivable in the
balance sheet: (A)
1996 $6.9 $0.2 ($0.4) $6.7
1995 $5.8 $1.5 ($0.4) $6.9
1994 $5.3 $0.9 ($0.4) $5.8
</TABLE>
Notes:
(A) Represents the total of accounts charged against the allowance for
doubtful accounts and adjustments from the translation of foreign
currency.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TECUMSEH PRODUCTS COMPANY
By____________________________________
Todd W. Herrick
President and Chief Executive Officer
Dated: March 26, 1997
22
<PAGE> 23
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION> Date
Signature Office of signing
--------- ------- ----------
<S> <C> <C>
___________________________ Chairman of the March 26, 1997
Kenneth G. Herrick Board of Directors
___________________________ President, Chief March 26, 1997
Todd W. Herrick Executive Officer
(Principal Executive
Officer) and Director
___________________________ Director March 26, 1997
Peter M. Banks
___________________________ Director March 26, 1997
Jon E. Barfield
___________________________ Vice President, Treasurer March 26, 1997
John H. Foss and Chief Financial Officer
(Principal Accounting
and Principal Financial
Officer) and Director
___________________________ Director March 26, 1997
J. Russell Fowler
___________________________ Director March 26, 1997
John W. Gelder
___________________________ Director March 26, 1997
Stephen L. Hickman
___________________________ Director March 26, 1997
Dean E. Richardson
</TABLE>
23
<PAGE> 24
EXHIBIT INDEX
Exhibit
Number
- -------
(10)(i) Third Amendment to Management Incentive Plan, adopted January 22,
1997 (management contract or compensatory plan or arrangement)
(13) Portions of the Company's Annual Report to Shareholders for the
year ended December 31, 1996, incorporated by reference herein
(21) Subsidiaries of the Company
(23) Report and Consent of Certified Public Accountants
(27) Financial Data Schedule
24
<PAGE> 1
EXHIBIT (10)(I)
THIRD AMENDMENT TO
TECUMSEH PRODUCTS COMPANY
MANAGEMENT INCENTIVE PLAN
Effective January 1, 1997, the Executive Compensation Committee
("Committee") of Tecumseh Products Company (the "Company"), on behalf of the
Company, amends the Company's Management Incentive Plan as follows:
1. Article IV(b) of the Plan is amended to read:
(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 first trading day of
each of the eleven 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 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.
2. Article VI of the Plan is amended to read:
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) Upon an active 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 portion of his Account
which has thereby become vested shall be valued in accordance with
Article IV(b) and paid within 30 days.
3. Article VII of the Plan is amended to read:
VII. Retirement and Other Termination of Employment
----------------------------------------------
(a) 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 -
<PAGE> 2
(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
(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.
(b) Except as provided in Article VII(c) 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(a) 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.
(c) Notwithstanding Article VI(a), an Employee's Phantom
Share allocations shall be 100% vested as of the first day of the month that
includes his last day of active work prior to normal or early 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
31st following each Allocation Date.
(d) Prior to any payment pursuant to (b) or (c), above,
the Employee's account shall be adjusted as provided in Article IV.
(e) 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.
(f) 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
<PAGE> 3
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.
4. Article VIII of the Plan is amended to read:
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 in accordance with Article IV(b) as of
the end of the year in which the Committee determines that the
Employee is totally and permanently disabled; payment shall be made
during the following January. 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 Employer for a period of at least ninety (90)
consecutive business days. An Employee who is "totally and
permanently disabled" within the meaning of the Company's Salaried
Retirement Plan shall be deemed to have a "total and permanent
disability" under this Plan.
(c) Upon the death of an active Employee, his Account
shall become fully vested and payable, and shall be valued in
accordance with Article IV(b) as of the end of the year in which the
Employee's death occurs; payment shall be made during the following
January. Upon the death of a disabled or retired Employee who has not
received payment of his entire Account, the undistributed balance of
such Account shall be valued in accordance with Article IV(b) as of
the end of the year in which the retired Employee's death occurs;
payment shall be made during the following January.
5. Article XIII of the Plan is amended to read:
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. If FICA taxes
become payable due to vesting of an award in circumstances where it is
not practicable (or would create a hardship) to withhold the
employee's share of taxes from regular paychecks during the remainder
of the taxable year, the Committee (or its delegate) may direct the
Company to advance the employee's share of FICA taxes as an interest
free loan, to be withheld from benefit amounts at the time they first
become payable under this Plan.
<PAGE> 4
6. References to Article VII(b) appearing in Article II(k) and Article
IX(c) of the Plan shall be changed to Article VII(a).
7. Except as amended above, the Plan continues in full force and effect.
WITNESS execution of this amendment on behalf of the Company by the Chairman of
the Committee.
TECUMSEH PRODUCTS COMPANY
By /s/ Dean E. Richardson
Committee Chairman
Dated: January 22, 1997
<PAGE> 1
<TABLE>
<CAPTION>
FINANCIAL SUMMARY (Dollars in millions except per share data)
- ------------------------------------------------------------------------------------------------------
1996(a) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,784.6 $1,716.0 $1,533.4 $1,314.2 $1,258.5
- ------------------------------------------------------------------------------------------------------
Net income before
accounting changes 112.6 119.2 120.3 81.4 52.3
% of net sales 6.3% 6.9% 7.8% 6.2% 4.2%
- ------------------------------------------------------------------------------------------------------
Cumulative effect of changes
in accounting for non-
pension postretirement
benefits and income
taxes -- -- -- -- (95.0)
- ------------------------------------------------------------------------------------------------------
Net income (loss) 112.6 119.2 120.3 81.4 (42.7)
- ------------------------------------------------------------------------------------------------------
Capital expenditures 115.2 127.4 136.2 51.1 56.6
- ------------------------------------------------------------------------------------------------------
Total assets 1,472.6 1,407.6 1,289.8 1,132.7 1,078.6
- ------------------------------------------------------------------------------------------------------
Stockholders' equity 947.5 877.1 785.5 686.8 639.8
- ------------------------------------------------------------------------------------------------------
Return on average
stockholders' equity (b) 12.3% 14.3% 16.3% 12.3% 7.7%
- ------------------------------------------------------------------------------------------------------
Per share of common stock:
Net income before
accounting changes $5.15 $5.45 $5.50 $3.72 $2.39
Cumulative effect of
accounting changes -- -- -- -- (4.34)
-------- -------- -------- -------- --------
Net income (loss) 5.15 5.45 5.50 3.72 (1.95)
Cash dividends
declared 1.68 1.61 1.35 1.15 .80
Book value 43.30 40.09 35.90 31.39 29.24
- ------------------------------------------------------------------------------------------------------
Average number of
employees 16,300 15,600 14,400 12,400 12,600
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
NET CAPITAL RETURN ON AVERAGE NET INCOME
SALES EXPENDITURES STOCKHOLDERS' EQUITY(b) PER SHARE (A)
------- -------------- ---------------------- -------------
millions of dollars millions of dollars percentage dollars
<S> <C> <C> <C> <C> <C> <C> <C>
92 1,258.50 92 56.6 92 7.7 92 2.39
93 1,314.20 93 51.1 93 12.3 93 3.72
94 1,533.40 94 136.2 94 16.3 94 5.50
95 1,716.00 95 127.4 95 14.3 95 5.45
96 1,784.60 96 115.2 96 12.3 96 5.15
<CAPTION>
CASH DIVIDENDS
PER SHARE
---------------
dollars
<S> <C>
92 .80
93 1.15
94 1.35
95 1.61
96 1.68
</TABLE>
(a) The 1996 results included a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to
$.15 per share after taxes.
(b) Calculated on net income before accounting changes.
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.
11
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ---------------------------------------------------------------------------
BUSINESS SEGMENT DATA
(Dollars in millions)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Net Sales Operating Profit
----------------------------- ----------------------------
1996 1995 1994 1996 1995 1994
-------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Compressor
Products ..... $1,126.5 $1,131.9 $881.2 $102.7 $114.7 $92.8
Engine & Power
Train
Products ..... 564.1 497.6 563.8 64.5 51.4 80.2
Pump
Products ..... 94.0 86.5 88.4 11.5 11.1 13.1
Corporate
Expenses ..... - - - (10.4) (10.3) (11.4)
Nonrecurring
Charges (*) .. - - - (5.1) - -
-------- --------- -------- -------- -------- -------
Total ........ $1,784.6 $1,716.0 $1,533.4 $163.2 $166.9 $174.7
======== ========= ======== ======== ======== =======
<CAPTION>
Year End Assets Capital Expenditures Depreciation
---------------------------- --------------------------- ---------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressor
Products ..... $741.2 $729.0 $609.3 $77.9 $96.3 $119.2 $49.3 $45.4 $41.7
Engine & Power
Train
Products ..... 296.7 271.4 249.1 35.3 27.4 14.6 14.2 12.7 13.1
Pump
Products ..... 47.9 42.6 42.9 2.0 3.7 2.4 1.1 1.1 .9
Corporate ..... 386.8 364.6 388.5 - - - - - -
-------- -------- -------- ------- ------- ------- ------ ------ ------
Total ........ $1,472.6 $1,407.6 $1,289.8 $115.2 $127.4 $136.2 $64.6 $59.2 $55.7
======== ======== ======== ======= ======= ======= ====== ====== ======
</TABLE>
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
Net Sales Operating Profit Year End Assets
----------------------------- -------------------------- ----------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
-------- -------- -------- ------ ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America .. $1,281.1 $1,159.6 $1,118.6 $121.4 $111.9 $121.4 $1,009.1 $942.4 $876.7
Europe ......... 328.5 373.0 283.6 1.7 12.5 9.8 273.6 321.5 279.4
Brazil ......... 270.1 272.7 187.6 40.1 42.5 43.5 189.9 143.7 133.7
Inter-area :
North America.. (19.7) (25.2) (13.8) - - - - - -
Europe ........ (11.5) (7.6) (3.1) - - - - - -
Brazil ........ (63.9) (56.5) (39.5) - - - - - -
-------- -------- -------- ------ ------ ------- -------- -------- --------
Total ......... $1,784.6 $1,716.0 $1,533.4 $163.2 $166.9 $174.7 $1,472.6 $1,407.6 $1,289.8
======== ======== ======== ====== ====== ======= ======== ======== ========
</TABLE>
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Export sales of domestic operations were $264.1, $258.2,
and $213.2 million in 1996, 1995 and 1994, respectively. Of these sales,
approximately two-thirds were to customers in the Far and Middle East.
In 1996, 12% 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 $8.6 million in 1996, $9.6 million in 1995, and $44.2 million in 1994.
Accumulated unremitted earnings of foreign subsidiaries at December 31, 1996
were $137.0 million.
Certain amounts previously reported have been reclassified to conform with
the current presentation.
(*) The 1996 results included a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to $.15
per share after taxes.
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.
1996 WORLDWIDE SALES
$1.8 BILLION SALES
[PIE CHART]
<TABLE>
<S> <C>
Compressors 63%
Engines 32%
Pumps 5%
</TABLE>
Annual sales for 1996 were $1,784.6 million, up 4% from 1995. 1996 net
income was $112.6 million, or $5.15 per share, after a $5.1 million
nonrecurring charge for environmental and litigation costs. This charge was
equivalent to $.15 per share after taxes. 1995 net income was $119.2 million or
$5.45 per share. In addition to the nonrecurring charge, lower interest income
and weak results from European operations contributed to the lower 1996
earnings.
COMPRESSOR PRODUCTS
1996 VS. 1995
The Company's worldwide Compressor Products sales were $1,126.5 million,
down slightly from $1,131.9 million in 1995. New product development programs
launched over the past several years continued to positively impact sales,
offset by a sales decline in Europe reflecting a weak European economy, cool
weather and an unusually weak refrigerator market.
COMPRESSOR PRODUCTS SALES
[BAR CHART]
<TABLE>
<CAPTION>
dollars in millions
<S> <C>
1994 881.2
1995 1131.9
1996 1126.5
</TABLE>
In North American markets, recently developed products which continued to
gain share included the Brazilian-built TP compressor for household
refrigeration and the RG rotary compressor for room air conditioning. Unitary
air conditioning compressor sales remained strong in domestic and overseas
markets, particularly to export customers in the Middle East.
The Company's Brazilian subsidiary, Tecumseh do Brasil, maintained
comparable year-to-year sales and operating results. Local Brazilian demand
for refrigeration product remained strong throughout the year, but was offset
by generally weaker demand in the rest of South and Central America.
Compressor Products operating margins for 1996 were 9.1% as compared to
10.1% in 1995. Weak sales results in Europe, including an operating loss in
European operations in the fourth quarter of 1996, were the primary contributor
to margin declines.
1995 VS. 1994
Worldwide compressor sales for 1995 reached $1,131.9 million and were 28%
higher than 1994. Sales of new product introductions, a worldwide
weather-related shortage of room air conditioning compressors and rising demand
in emerging nations all contributed to an increase in sales. European and
North American compressor operations reported double-digit sales growth while
the Company's Brazilian subsidiary, Tecumseh do Brasil, reported a 46% increase
in sales for 1995.
Compressor Products operating margins were 10.1% for 1995 as compared to
10.5% in 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 volume.
ENGINE AND POWER TRAIN PRODUCTS
1996 VS. 1995
Worldwide Engine and Power Train Products sales were $564.1 million and
were up 13% as compared to 1995. In North America, heavy snowfall in the
winter of 1995-96 depleted retail inventories of snow throwers, resulting in
continued strong demand for the Company's snow engine product. North American
lawn and garden sales also increased compared to the prior year, despite a
generally down year for the lawn and garden industry as a result of unusually
cool weather this past summer in key regions of the U.S. These sales gains
were offset in part by weaker sales in the Company's European lawn and garden
operations.
[Continued on next page]
13
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENGINE AND POWER TRAIN PRODUCTS SALES
<TABLE>
<CAPTION>
dollars in millions
<S> <C>
1994 563.8
1995 497.6
1996 564.1
</TABLE>
Engine and Power Train Products operating margin was 11.4% for 1996 as
compared to 10.3% for 1995. A small loss experienced by European lawn and
garden operations was more than offset by margin gains from increased sales
volume in North American snow and lawn and garden products.
1995 VS. 1994
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.
PUMP PRODUCTS
1996 Pump Products sales of $94.0 million increased 9% as compared to
1995. 1995 versus 1996 gains were due to increased sales to the plumbing and
HVAC industries. 1995 sales of $86.5 million were slightly down as compared to
$88.4 million in 1994, due in part to comparably lower sales to an industrial
customer who had completed an equipment replacement program in the prior year.
INTEREST INCOME AND INCOME TAX
Interest income and other, net was $20.2 million as compared to $29.1
million in 1995. The decrease was due in large part to lower financial income
reported by the Company's Brazilian subsidiary. During 1995, the Company
lowered its cash position in Brazil to provide some protection from potential
currency devaluations. The effective tax rate for 1996 was 36.4% as compared
to 36.6% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
In November, the Company announced that it had signed a memorandum of
understanding with Whirlpool of India, Ltd. to acquire Whirlpool's
refrigeration compressor manufacturing facilities in the state of Haryana,
India, subject to execution of a mutually satisfactory definitive agreement and
all necessary approvals. Under the proposed agreement, Tecumseh will continue
to manufacture the currently produced refrigeration compressor. Over the next
several years, the capacity will be expanded to include Tecumseh's high
efficiency CFC-free TP refrigeration compressor. Once expanded and fully
equipped, the operation will have sufficient capacity to produce over 2 million
refrigeration compressors annually.
As of this writing, negotiations are ongoing to conclude the previously
announced joint venture with Siel Limited for the production of air
conditioning and commercial refrigeration compressors in Hyderabad Andra
Pradesh, India.
The Company has made a significant investment in a scroll compressor
facility in Tecumseh, Michigan. Delays in the commercial production of this
new type of compressor are being experienced. Design modifications are in
process in response to customer feedback and field testing. The Company is
committed to a successful launch of this product.
The Company continued to maintain a strong and liquid financial position.
Working capital of $549.7 million at December 31, 1996 was up from $521.3
million at the end of 1995, and the ratio of current assets to current
liabilities was 3.2. Capital expenditures for 1996 were $115 million as
compared to $127 million in 1995. Major capital projects for 1996 included
substantial completion of a reduced emission engine facility in Georgia and
initial construction of a compressor electric motors facility in Mississippi.
Total capital spending for 1997 should approximate $130-150 million, including
the Whirlpool acquisition in India and could exceed that upon conclusion of the
joint venture with Siel Limited. Other major capital projects for 1997 include
completion of the electric motors facility in Mississippi, additional equipment
for the new engine manufacturing facility in Georgia, and capacity expansion of
rotary room air conditioning compressor manufacturing overseas. Working
capital requirements and planned capital and investment expenditures for 1997
and early 1998 are expected to be financed primarily through internally
available funds. However, the Company may also utilize long-term financing
arrangements in connection with state
14
<PAGE> 5
investment incentives and may from time to time utilize short-term borrowings
to hedge currency risk and to finance foreign working capital requirements.
The Company maintains a $100 million revolving credit facility that 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. Phase I requires compliance with new standards
beginning September 1, 1997. The Company is prepared to produce competitively
priced engines that meet these standards. Negotiations of the EPA Phase II
standards are currently in process. As an interim measure, in January, 1997,
the Company and other small engine manufacturers signed a Statement of
Principles with the EPA to provide additional air quality benefits by reducing
smog-forming engine emissions. It is not currently possible to determine the
related costs of compliance nor the impact on the competitive position of the
Company.
The Company is subject to various laws relating to the protection of the
environment and is in various stages of investigation or remediation for sites
where contamination has been alleged. (See Note 9 to the financial statements).
Liabilities relating to probable remediation activities are recorded when the
costs of such activities can be reasonably estimated based on the facts and
circumstances currently known. Difficulties exist estimating the future timing
and ultimate costs to be incurred due to uncertainties regarding the status of
laws, regulations, technology and information available. At December 31, 1996
and 1995 the Company had accrued $39.8 million and $36.1 million for
environmental remediation, respectively.
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.
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,
--------------------------------
1996(*) 1995 1994
---------- -------- ---------
<S> <C> <C> <C>
NET SALES .............................. $1,784.6 $1,716.0 $1,533.4
COST AND EXPENSES
Cost of sales and operating expense ... 1,517.8 1,454.8 1,269.9
Selling and admininistrative expense .. 98.5 94.3 88.8
Nonrecurring charges .................. 5.1 - -
---------- -------- ---------
OPERATING INCOME ....................... 163.2 166.9 174.7
OTHER INCOME (EXPENSE)
Interest expense ...................... (6.4) (8.0) (6.5)
Interest income and other, net ........ 20.2 29.1 23.7
---------- -------- ---------
INCOME BEFORE TAXES ON INCOME .......... 177.0 188.0 191.9
TAXES ON INCOME ........................ 64.4 68.8 71.6
---------- -------- ---------
NET INCOME ............................. $ 112.6 $ 119.2 $ 120.3
========== ======== =========
NET INCOME PER SHARE ................... $ 5.15 $ 5.45 $ 5.50
========== ======== =========
</TABLE>
Note: Certain amounts previously reported have been reclassified to conform
with the current presentation.
(*) The 1996 results included a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to $.15
per share after taxes.
The accompanying notes are an integral part of these statements.
16
<PAGE> 7
- ------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in millions)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
-------------------------- 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, 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
Net income .................. 112.6 112.6
Cash dividends .............. (36.8) (36.8)
Translation adjustments ..... (5.4) (5.4)
------------ ------------ ------------ -------- ----------- -------------
BALANCE, DECEMBER 31, 1996 .. $16.4 $5.5 $29.9 $883.8 $11.9 $947.5
============ ============ ============ ======== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
December 31,
----------------
ASSETS 1996 1995
------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 277.7 $ 261.6
Accounts receivable, trade, less allowance for doubtful
accounts of $6.7 million in 1996 and $6.9 million in 1995 ....... 204.5 225.5
Inventories ...................................................... 275.2 260.0
Deferred income taxes ............................................ 36.6 33.9
Other current assets ............................................. 10.4 10.2
-------- --------
TOTAL CURRENT ASSETS ......................................... 804.4 791.2
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and land improvements ....................................... 8.9 9.0
Buildings ........................................................ 162.6 149.0
Machinery and equipment .......................................... 805.9 738.1
-------- --------
977.4 896.1
Less accumulated depreciation .................................... 448.3 419.1
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net ........................... 529.1 477.0
-------- --------
EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated
amortization of $16.5 million in 1996 and $14.5 million in 1995 .. 56.0 60.9
DEFERRED INCOME TAXES ................................................ 13.6 19.9
PREPAID PENSION EXPENSE .............................................. 46.7 37.6
OTHER ASSETS ......................................................... 22.8 21.0
-------- --------
TOTAL ASSETS ................................................. $1,472.6 $1,407.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade .......................................... $114.3 $129.5
Income taxes payable ............................................. .1 7.5
Short-term borrowings ............................................ 19.8 13.5
Accrued liabilities:
Employee compensation ........................................... 37.2 34.0
Product warranty and self-insured risks ......................... 35.2 30.2
Other ........................................................... 48.1 55.2
-------- --------
TOTAL CURRENT LIABILITIES .................................... 254.7 269.9
LONG-TERM DEBT ....................................................... 14.4 14.7
NON-PENSION POSTRETIREMENT BENEFITS .................................. 178.4 174.0
PRODUCT WARRANTY AND SELF-INSURED RISKS .............................. 30.2 30.0
ACCRUAL FOR ENVIRONMENTAL MATTERS .................................... 33.0 27.3
PENSION LIABILITIES .................................................. 14.4 14.6
-------- --------
TOTAL LIABILITIES ............................................ 525.1 530.5
-------- --------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 16,410,438 shares ................ 16.4 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued and outstanding 5,470,146 shares ................. 5.5 5.5
Capital in excess of par value ................................... 29.9 29.9
Retained earnings ................................................ 883.8 808.0
Foreign currency translation adjustment .......................... 11.9 17.3
-------- --------
TOTAL STOCKHOLDERS' EQUITY ................................... 947.5 877.1
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $1,472.6 $1,407.6
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 9
- ------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $112.6 $119.2 $120.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............... 64.6 59.2 55.7
Accounts receivable ......................... 17.5 (31.2) (26.6)
Inventories ................................. (16.3) (21.6) (58.2)
Payables and accrued expenses ............... (15.0) 12.1 28.0
Other ....................................... 2.7 (5.3) 8.0
--------- --------- ---------
Cash Provided By Operations ................ 166.1 132.4 127.2
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (115.2) (127.4) (136.2)
--------- --------- ---------
Cash Used In Investing Activities .......... (115.2) (127.4) (136.2)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ................................ (36.8) (35.2) (29.5)
Proceeds from borrowings ...................... 7.1 10.9 9.5
Repayments of borrowings ...................... (1.1) (4.5) (15.4)
--------- --------- ---------
Cash Used In Financing Activities .......... (30.8) (28.8) (35.4)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ........... (4.0) 2.2 14.4
--------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ....................... 16.1 (21.6) (30.0)
CASH AND CASH EQUIVALENTS:
Beginning of period ......................... 261.6 283.2 313.2
--------- --------- ---------
End of period ............................... $277.7 $261.6 $283.2
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 10
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
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 generally 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.
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>
(Dollars in millions) 1996 1995
----- -----
<S> <C> <C>
Balance at January 1 $17.3 $9.7
Effect of balance sheet translations:
Amount (8.8) 11.3
Tax effect 3.4 (3.7)
----- -----
Balance at December 31 $11.9 $17.3
===== =====
</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 net earnings and was $2.5 million, $4.8
million, and $(1.1) million in 1996, 1995, and 1994, respectively.
NOTE 3. RETIREMENT PLANS
The Company has defined benefit retirement plans that cover substantially
all domestic employees. Plans covering salaried employees generally provide
pension benefits that are based on average earnings and years of credited
service. Plans covering hourly employees generally provide benefits of stated
amounts for each year of service. The Company's funding policy for retirement
plans is to contribute amounts that meet the minimum funding requirements
specified by the Employee Retirement Income Security Act, plus such additional
amounts as the Company may determine to be appropriate. The domestic plan
assets are invested in a diversified portfolio that primarily consists of
equity and fixed income securities.
20
<PAGE> 11
Net pension expense of the Company's domestic defined benefit plans
include the following components:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned
during year $ 6.5 $ 5.2 $ 6.2
Interest cost on projected
benefit obligations 16.9 17.1 16.3
Actual (gain) loss on assets (47.0) (85.0) 6.0
Net amortization and deferral 14.6 57.2 (32.8)
------ ------ ------
Net pension expense (credit) $ (9.0) $ (5.5) $ (4.3)
====== ====== ======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets for the Company's domestic defined benefit
plans at December 31:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995
-------------- ---------------
Over- Under- Over- Under-
funded funded funded funded
Plans Plans Plans Plans
------ ------ ------- ------
<S> <C> <C> <C> <C>
Plan assets at fair value $455.6 $ .4 $ 423.2 $ .8
------ ------ ------- ------
Actuarial present value of
benefit obligation:
Vested benefits 235.9 .8 236.6 .9
Non-vested benefits 14.2 .3 14.1 .2
------ ------ ------- ------
Accumulated benefit
obligation 250.1 1.1 250.7 1.1
Effect of projected future
salary increases 21.2 .5 21.6 -
------ ------ ------- ------
Projected benefit obligation 271.3 1.6 272.3 1.1
------ ------ ------- ------
Projected benefit obligation
(in excess of) or less than
plan assets 184.3 (1.2) 150.9 (.3)
Unrecognized prior
service cost 9.5 .9 10.5 .1
Unrecognized net (gain)loss (132.3) .3 (107.0) .2
Unrecognized net transition
(asset) obligation (14.8) - (16.8) -
------ ------ ------- ------
Prepaid pension expense $ 46.7 $ - $ 37.6 $ -
====== ====== ======= ======
</TABLE>
Assumptions used in accounting for the domestic defined benefit plans were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Measurement of projected benefit obligation:
Discount rate 6.50% 6.25%
Long-term rate of compensation
increases 5.00% 5.00%
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 $2.1, $2.5, and $1.8 million
in 1996, 1995 and 1994, respectively. The net liability recorded in the
consolidated balance sheet was $14.4 and $14.6 million for 1996 and 1995,
respectively.
Consolidated pension expense (credit) of $(3.3) million in 1996, $0.1
million in 1995, and $(0.1) million in 1994 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) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost-benefits
earned during year $ 4.2 $ 3.6 $ 3.9
Interest cost on accumulated
postretirement benefit obligation 8.3 8.9 8.9
Net amortization and deferral (3.2) (3.7) (1.6)
----- ----- -----
Net postretirement health care
costs $ 9.3 $ 8.8 $11.2
===== ===== =====
</TABLE>
[Continued on next page]
21
<PAGE> 12
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [continued]
The total of accrued postretirement benefit obligation is presented below
as of December 31:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995
------ ------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 50.0 $ 51.5
Active, eligible employees 26.0 24.3
Active, not yet eligible employees 59.7 56.6
------ ------
135.7 132.4
Unrecognized plan amendment gain 11.7 12.9
Unrecognized net actuarial gain 37.0 34.8
------ ------
Accrued postretirement benefit cost
in excess of plan assets $184.4 $180.1
====== ======
Assumptions used:
Discount rate 6.50% 6.25%
Health care cost trend rate 7.60% 8.00%
Ultimate health care cost trend rate
in 2004 5.00% 5.00%
</TABLE>
At December 31, 1996 and 1995 respectively, $6.0 and $6.1 million were
included in Accrued Liabilities, Other.
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, 1996 by $20.3 million and the aggregate
of the service and interest cost components of net postretirement health care
cost for the year then ended by $2.3 million.
NOTE 5. INCOME TAXES
Consolidated income before taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
United States $131.4 $125.8 $132.8
Foreign 45.6 62.2 59.1
------ ------ ------
$177.0 $188.0 $191.9
====== ====== ======
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
U.S. federal $ 37.4 $ 34.7 $ 53.8
State and local 6.2 6.4 7.8
Foreign income and
withholding taxes 14.0 25.6 14.7
------ ------ ------
57.6 66.7 76.3
------ ------ ------
Deferred:
U.S. federal 8.5 .5 (4.2)
Foreign (1.7) 1.6 (.5)
------ ------ ------
6.8 2.1 (4.7)
------ ------ ------
Provision for income taxes $ 64.4 $ 68.8 $ 71.6
====== ====== ======
Income taxes paid $ 61.6 $ 59.4 $ 80.7
====== ====== ======
</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) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Income taxes at U.S.
statutory rate $62.0 $65.8 $67.2
Excess of foreign taxes over
the U.S. statutory rate .9 .2 -
State and local income taxes 4.0 4.1 5.1
Tax benefits from
Foreign Sales Corporation (1.6) (1.7) (1.0)
Other (.9) .4 .3
----- ----- -----
$64.4 $68.8 $71.6
===== ===== =====
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995
----- -----
<S> <C> <C>
Deferred tax assets:
Non-pension postretirement benefits $68.2 $66.5
Product warranty and self-insured risks 24.5 22.4
Net operating loss carryforwards 5.0 8.3
Provision for environmental matters 14.7 13.4
Other accruals and miscellaneous 21.7 23.6
----- -----
134.1 134.2
Valuation allowance (5.4) (9.5)
----- -----
Total deferred tax assets 128.7 124.7
----- -----
Deferred tax liabilities:
Tax over book depreciation 42.4 39.7
Pension 15.0 13.9
Other 21.1 17.3
----- -----
Total deferred tax liabilities 78.5 70.9
----- -----
Net deferred tax assets $50.2 $53.8
===== =====
</TABLE>
22
<PAGE> 13
- ------------------------------------------------------------------------------
At December 31, 1996, the Company had net operating loss carryforwards
attributable to foreign operations for income tax purposes of $13.4 million
which expire from 1997 to 2000 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) 1996 1995
------ ------
<S> <C> <C>
Raw materials and work in process $155.1 $162.8
Finished goods 101.4 80.4
Supplies 18.7 16.8
------ ------
$275.2 $260.0
====== ======
</TABLE>
NOTE 7. BUSINESS SEGMENT DATA
Business segment data is presented on page 12 of this report.
NOTE 8. DEBT
Short-term debt consists of borrowings by foreign subsidiaries at varying
interest rates under revolving credit agreements and overdraft arrangements
with banks used in the normal course of business. The U.S. dollar equivalent
of this debt was $16.4 million (at 5.4%) at December 31, 1996, and $11.3
million (at 5.6%) at December 31, 1995.
Long-term debt consists of the following:
1. Unsecured borrowings, primarily with banks, by foreign subsidiaries
with interest rates ranging from 5.9% to 6.7%. The U.S. dollar
equivalent of these borrowings was $5.6 and $4.6 million at
December 31, 1996 and 1995, respectively.
2. A $5.4 million variable-rate bank repurchase agreement (effective
interest rate of 5.9% at December 31, 1996), due in 1998.
3. $6.7 million ($6.9 million in 1995) variable-rate Industrial
Development Revenue Bonds (effective interest rate of 6.0% at
December 31, 1996) payable in quarterly installments from 1997 to 2020.
Scheduled maturities of long-term debt outstanding at December 31,
1996, are as follows:
1997--$3.7 million; 1998--$5.7 million;
1999--$0.4 million; 2000--$1.3 million;
2001 and beyond--$6.6 million.
Interest paid was $6.4 million in 1996, $8.6 million in 1995 and $6.4
million in 1994.
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, 1996, 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, 1996 and 1995, 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.
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
[Continued on next page]
23
<PAGE> 14
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [continued]
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.
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. FINANCIAL INSTRUMENTS
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, Tecumseh do Brasil, are sold at a discount. Discounted Brazilian
export accounts receivable balances at December 31, 1996 and 1995,
respectively, were $13.3 million and $20.6 million with discount rates,
respectively of 6.3 and 8.25 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 receivables,
payables and other known transactional exposures for periods consistent with
the expected cash flows of the underlying transactions. Foreign exchange
contracts generally mature within one year and 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, 1996
and 1995 respectively, the Company had $64.9 million and $62.6 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 on January 23,
2001. As of December 31, 1996, 16,410,438 shares of Class A common stock and
5,470,146 shares of Class B common stock were reserved for future exercise
under the plans.
24
<PAGE> 15
[BLANK]
25
<PAGE> 16
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in millions except per share data)
1996(A) 1995 1994 1993 1992(b)
------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,784.6 $1,716.0 $1,533.4 $1,314.2 $1,258.5
-------------------------------------------------------------------------------------------
Net income before accounting changes 112.6 119.2 120.3 81.4 52.3
-------------------------------------------------------------------------------------------
Cumulative effect of changes
in accounting principles - - - - (95.0)
-------------------------------------------------------------------------------------------
Net income (loss) 112.6 119.2 120.3 81.4 (42.7)
-------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Net income before accounting changes $ 5.15 $ 5.45 $ 5.50 $ 3.72 $ 2.39
-------------------------------------------------------------------------------------------
Cumulative effect of accounting changes - - - - (4.34)
-------------------------------------------------------------------------------------------
Net income (loss) 5.15 5.45 5.50 3.72 (1.95)
-------------------------------------------------------------------------------------------
Cash dividends declared 1.68 1.61 1.35 1.15 .80
-------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 277.7 $ 261.6 $ 283.2 $ 313.2 $ 263.6
-------------------------------------------------------------------------------------------
Working capital (e) 549.7 521.3 504.2 473.6 420.4
-------------------------------------------------------------------------------------------
Net property, plant and equipment 529.1 477.0 402.4 320.4 322.9
-------------------------------------------------------------------------------------------
Total assets 1,472.6 1,407.6 1,289.8 1,132.7 1,078.6
-------------------------------------------------------------------------------------------
Long-term debt 14.4 14.7 9.1 11.2 14.4
-------------------------------------------------------------------------------------------
Stockholders' equity 947.5 877.1 785.5 686.8 639.8
-------------------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $ 115.2 $ 127.4 $ 136.2 $ 51.1 $ 56.6
-------------------------------------------------------------------------------------------
Depreciation and amortization 64.6 59.2 55.7 52.5 53.6
-------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 17
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Dollars in millions except per share data)
1991 1990(c) 1989(d) 1988 1987
---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $1,197.2 $1,318.1 $1,509.8 $1,093.5 $ 951.2
-------------------------------------------------------------------------------------------
Net income before accounting changes 42.5 14.2 82.6 70.2 71.6
-------------------------------------------------------------------------------------------
Cumulative effect of changes
in accounting principles - - - - -
-------------------------------------------------------------------------------------------
Net income (loss) 42.5 14.2 82.6 70.2 71.6
-------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Net income before accounting changes $ 1.94 $ .65 $ 3.77 $ 3.21 $ 3.27
-------------------------------------------------------------------------------------------
Cumulative effect of accounting changes - - - - -
-------------------------------------------------------------------------------------------
Net income (loss) 1.94 .65 3.77 3.21 3.27
-------------------------------------------------------------------------------------------
Cash dividends declared .80 .80 1.11 1.05 1.05
-------------------------------------------------------------------------------------------
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 256.4 $ 240.3 $ 187.2 $ 163.0 $ 218.1
-------------------------------------------------------------------------------------------
Working capital (e) 403.1 414.3 397.3 340.4 329.3
-------------------------------------------------------------------------------------------
Net property, plant and equipment 324.3 304.9 280.0 251.8 210.3
-------------------------------------------------------------------------------------------
Total assets 1,055.4 1,032.2 1,034.1 900.0 764.0
-------------------------------------------------------------------------------------------
Long-term debt 17.9 23.6 19.9 14.3 11.3
-------------------------------------------------------------------------------------------
Stockholders' equity 712.8 692.2 682.3 618.0 575.7
-------------------------------------------------------------------------------------------
OTHER DATA:
Capital expenditures $ 85.8 $ 64.8 $ 57.5 $ 37.7 $ 41.7
-------------------------------------------------------------------------------------------
Depreciation and amortization 49.9 49.6 43.9 30.5 29.3
-------------------------------------------------------------------------------------------
</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) The 1996 results included a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to $.15 per
share after taxes.
(b) Reflects cumulative effect of adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, Accounting for Non-pension Postretirement
Benefits, and SFAS No. 109, Accounting for Income Taxes.
(c) The 1990 results included a nonrecurring provision for environmental
cleanup of $19.2 million after income taxes, or $0.88 per share.
(d) The 1989 data reflected completion of the acquisitions of L'Unite
Hermetique S.A. on December 30, 1988 and Tecumseh Europa S.p.A. on July 25,
1989.
(e) Working capital is the excess of current assets over current liabilities.
- ------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth(*) Total
------ ------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
1996
Net sales ................................. $496.2 $490.9 $408.7 $388.8 $1,784.6
Gross profit .............................. 69.9 76.3 62.6 58.0 266.8
Net income ................................ $ 31.0 $ 33.9 $ 27.2 $ 20.5 $ 112.6
====== ======= ====== ======= ========
Net income per share ...................... $ 1.42 $ 1.55 $ 1.24 $ .94 $ 5.15
====== ======= ====== ======= ========
1995
Net sales ................................. $473.6 $467.3 $392.7 $382.4 $1,716.0
Gross profit .............................. 73.6 75.1 57.5 55.0 261.2
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
====== ======= ====== ======= ========
</TABLE>
(*) Fourth quarter 1996 results included a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to $.15 per
share after taxes.
Note: Certain amounts previously reported have been reclassified to conform
with the current presentation.
- ------------------------------------------------------------------------------
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. Total shareholders as
of February 1,1997 were 8,161 for Class A common stock and 2,566 for Class B
common stock.
<TABLE>
<CAPTION>
1996 1995
----------------------------------------- -----------------------------------------
Sales Price Cash Sales Price Cash
------------------------------ ------------------------------
Class A Class B Dividends Class A Class B 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 59 1/2 51 3/4 56 1/4 49 3/4 $.26 50 1/4 44 49 1/2 44 1/2 $.25
June 30 60 1/4 51 1/2 56 3/4 50 1/8 .26 52 3/4 43 1/4 52 42 1/2 .25
September 30 55 1/2 50 53 48 .26 53 1/4 43 1/2 52 1/4 42 1/2 .25
December 31 60 1/4 54 1/4 57 1/4 50 3/4 .90 54 46 1/4 53 45 3/4 .86
</TABLE>
27
<PAGE> 1
EXHIBIT (21)
Tecumseh Products Company Report on
Form 10-K for the period ended
December 31, 1996
Subsidiaries of the Company
The following is a list of subsidiaries of the Company as of December
31, 1996 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
Tecumseh do Brasil, Ltd. Brazil
Tec Kold International Company, Ltd. Lichteinstein
SICOM Europe Srl Italy
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
Societe Immobiliere De Construction
de La Verpilliere 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, 1996 of
our report dated February 18, 1996 which appears on page 25 of the Annual
Report of Shareholders for the year ended December 31, 1996.
Our audit also included the related financial schedule for the three years
ended December 31, 1996 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 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 277,700
<SECURITIES> 0
<RECEIVABLES> 211,200
<ALLOWANCES> 6,700
<INVENTORY> 275,200
<CURRENT-ASSETS> 804,400
<PP&E> 977,400
<DEPRECIATION> 448,300
<TOTAL-ASSETS> 1,472,600
<CURRENT-LIABILITIES> 254,700
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 625,600
<TOTAL-LIABILITY-AND-EQUITY> 1,472,600
<SALES> 1,784,600
<TOTAL-REVENUES> 1,804,800
<CGS> 1,517,800
<TOTAL-COSTS> 1,621,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,400
<INCOME-PRETAX> 177,000
<INCOME-TAX> 64,400
<INCOME-CONTINUING> 112,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,600
<EPS-PRIMARY> 5.15
<EPS-DILUTED> 5.15
</TABLE>
