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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, 1997 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
Securities Registered Pursuant to Section 12(b) of the Act:
Securities Registered Pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C> <C>
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
</TABLE>
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 March 2, 1998 all of the 5,470,146 shares of its Class B Common Stock, $1.00
par value, then issued and outstanding, were held by non-affiliates of
Registrant. Certain shareholders, which, as of March 2, 1998, held an aggregate
of 2,279,300 shares of Class B Common Stock might be regarded as "affiliates" of
Registrant as that word is defined in Rule 405 under the Securities Exchange Act
of 1934, as amended. If such persons are "affiliates," the aggregate market
value as of March 2, 1998 (based on the closing price of $52.75 per share, as
reported on the NASDAQ National Market System on such date) of the 3,190,846
shares then issued and outstanding held by non-affiliates was approximately
$168,317,127.
Numbers of shares outstanding of each of the Registrant's classes of
Common Stock at March 13, 1998:
Class B Common Stock, $1.00 Par Value: 5,470,146
Class A Common Stock, $1.00 Par Value: 16,197,438
Certain information contained in the Registrant's Annual Report to Shareholders
for the year ended December 31, 1997 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 1998 Annual Meeting of
Shareholders has been incorporated herein by reference in Part III hereof. The
Exhibit Index is located on page 24.
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TABLE OF CONTENTS
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Item Page
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PART I
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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 Holders 14
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 15
6. Selected Financial Data 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
</TABLE>
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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 roof top 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. The Company sells pump products to distributors,
mass merchants and OEMs.
FOREIGN OPERATIONS AND SALES
In recent years, international sales and manufacturing have become increasingly
important to the Company's business as a whole. In 1997, sales to customers
outside the United States represented approximately 46% of total consolidated
net sales. In addition to North American operations,
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compressor products are produced in Brazil, France and India, while engines are
produced in Italy.
Products sold outside the United States are manufactured at both U.S. and
foreign plants. The Company's European compressor subsidiary, Tecumseh Europe,
S.A. ("Tecumseh Europe"), generally sells the compressor products it
manufactures in Europe, the Middle East, Africa, Latin America and Asia.
Tecumseh do Brasil, Ltda. ("Tecumseh do Brasil"), the Company's Brazilian
compressor subsidiary, sells its products principally in Latin America, North
America and Europe. In 1997, the Company completed the acquisition of two
manufacturing facilities in India which produce air conditioning and
refrigeration compressors for the Indian appliance markets.
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.
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 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 to
the Company's total operating results.
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. These range
in size from 12.5 HP compressors for unitary air conditioning applications to
small fractional HP compressors for refrigerators, dehumidifiers and vending
machines.
The Company also 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.
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Scroll compressors generally offer improved 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 believes
that successful development of a commercially saleable scroll is necessary to
maintain its participation in the unitary compressor market.
The Company has invested approximately $50 million in a scroll compressor
facility in Tecumseh, Michigan. After experiencing setbacks in developing a
commercially acceptable scroll compressor, the Company is currently testing a
new generation of scroll product. The Company is unable to predict when, or if,
it will offer a scroll compressor for commercial sale, but it does anticipate
that reaching volume production will require a significant additional
investment. Given such additional investment and current market conditions,
management is currently reviewing its options with respect to scroll product
improvement, cost reductions, joint ventures and alternative new products.
MANUFACTURING OPERATIONS
Compressor Products manufactured in the Company's U.S. plants accounted for
approximately 50% of 1997 compressor sales. The balance was produced at the
Company's manufacturing facilities in Brazil, France and India. 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.
SALES AND MARKETING
The Company markets its U.S., Brazilian and Indian built compressors under the
"Tecumseh" brand and French built compressors under the "Tecumseh Europe-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, French and Indian
subsidiaries have their own sales staff. In certain foreign markets, the Company
also uses local independent sales representatives and distributors.
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 distributor customers.
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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 1997, the two largest customers for
Compressor Products accounted for 8.9% and 7.5%, respectively, of segment sales,
or 5.4% and 4.6%, 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 1997, approximately 40% 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. Approximately three-quarters 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 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 Compressors Inc., a subsidiary of York International Corporation.
Copeland Corporation enjoys a larger share of the domestic unitary air
conditioning compressor business than either Bristol Compressors, Inc. 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. Along with its own manufacturing capabilities,
Copeland Corporation is also a member of the Alliance Scroll manufacturing joint
venture with two major U.S. central air conditioning manufacturers, American
Standard's Trane air conditioning division and Lennox International, Inc.
Carrier Corporation, a subsidiary of United Technologies and a major OEM has a
joint venture to produce scroll compressors with Bristol Compressors Inc.
As discussed in the product line section, the Company has made a significant
investment in a scroll compressor facility in Tecumseh, Michigan but cannot
predict when, or if, it will offer a scroll
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compressor for commercial sale. The Company believes that successful
introduction of this product is necessary to maintain its participation in the
unitary 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, L.G.
Electronics, Inc. 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 compressor 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.
Tecumseh Europe 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 Company has two compressor manufacturing subsidiaries in India, Tecumseh
Products India, Ltd. and Tecumseh India Private, Ltd., which sell to regional
markets. Major competitors include the Indian manufacturers Kirloskar Copeland
Ltd., Carrier Aircon Ltd., Godrej, Videocon, BPL and others.
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.
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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 air conditioners, household
refrigerator/freezers and commercial refrigeration. The standards call for
staggered implementation starting in 2000 and running through 2003. The European
Community has similar energy efficiency directives for refrigerators and
freezers beginning mid 1999. Asian customers are addressing energy conservation
either by responding to government regulations or by manufacturing products
suitable for sale globally. It is not presently possible to estimate the level
of expenditures which will be required to meet the new standards or the effect
on the Company's competitive position.
ENGINE AND POWER TRAIN PRODUCTS
Small gasoline engines account for a majority of the net sales of the Company's
Engine and Power Train Products segment. 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 size from 2 through 17 horsepower and with
cast iron bodies ranging in size from 12 through 18 horsepower. A line of
battery-operated electric power heads is also produced. 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
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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 1997, the two largest customers for Engine and Power Train Products accounted
for 25.8% and 19.0%, respectively, of segment sales, or 8.6% and 6.3%,
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 gasoline engines
include Kohler Corporation, Toro Company and Honda Corporation, among others.
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. The Company already produces competitively priced
engines that comply with the current EPA phase I standards. EPA Phase II
standards propose to reduce certain emissions from utility engines an additional
30 percent beyond the current EPA Phase I standards. The proposed standards are
expected to be finalized over the next twelve months and will be phased in
between 2001 and 2005. It is not currently possible to determine the related
costs of compliance nor the impact on the competitive position of the Company.
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PUMP PRODUCTS
The Company manufactures and sells centrifugal pumps and related products
through its subsidiary, Little Giant Pump Company ("Little Giant"). Little Giant
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 worldwide to OEMs, distributors and mass
retailers. Sales and marketing is executed through Little Giant's own sales
staff and 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" brand name.
The pump industry is highly fragmented, with many relatively small producers
competing for sales. Little Giant has been particularly successful in competing
in this industry by targeting specific market niches where opportunities exist
and then designing and marketing corresponding products.
BACKLOG, CUSTOMERS AND SEASONAL VARIATIONS
Most of the Company's production is against short-term purchase orders, and
backlog is not significant.
In 1997, 13% 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.
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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 spent approximately $32.6 million, $30.4
million and $30.1 million during 1997, 1996 and 1995 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, 1997 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, 1997, 1996 and 1995 appear under the caption "Business
Segment Data" of the Company's Annual Report to Shareholders for the year ended
December 31, 1997 and are incorporated herein by reference.
EMPLOYEES
On December 31, 1997 the Company employed approximately 17,100 persons, 54% of
which were employed in foreign locations. Approximately 3,100 of the U.S.
employees were represented by labor unions, with no more than approximately
1,400 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 1997, the maximum number
of persons employed was approximately 18,900 and the minimum was 16,600. The
Company believes it has a good relationship with its employees.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company:
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PERIOD OF SERVICE
NAME AND AGE OFFICE OR POSITION HELD AS AN OFFICER
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Kenneth G. Herrick, 76 Chairman of the Board of Directors Since 1966
Todd W. Herrick, 55 President and Chief Executive Officer Since 1974
John H. Foss, 55 Vice President, Treasurer, and Chief Since 1979
Financial Officer
James E. Martinco, 52 Group Vice President, Engine and Since 1998
Power Train (1)
Dennis E. McCloskey, 55 Group Vice President, Compressors (2) Since 1998
</TABLE>
Unless otherwise indicated, each executive officer has held his position for at
least five years.
(1) Last five years of business experience--Vice President, Engine and
Power Train, Tecumseh Products Company 1996 to 1997; Vice President of
Operations and Vice President/General Manager of Engine Products 1990
to 1996. (Employed at Tecumseh Products Company since 1976)
(2) Last five years of business experience--Vice President, Compressors,
Tecumseh Products Company, 1994 to 1997; Group Vice President
Refrigeration and Air Conditioning, Frigidaire Company, 1990-1993
(Employed at Frigidaire since 1976)
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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, 1997 the Company had 31 principal
properties worldwide occupying approximately 8.4 million square feet with the
majority, approximately 7.9 million square feet devoted to manufacturing. Eleven
facilities with approximately 3.3 million square feet were located in five
countries outside the United States. The following table shows the approximate
amount of space devoted to each of the Company's three principal business
segments.
<TABLE>
<CAPTION>
Approximate Floor
Industry Segment Area in Square Feet
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<C> <C>
Compressor Products 5,853,000
Engine and Power Train Products 1,975,000
Pump Products and Other 547,000
</TABLE>
Five domestic facilities, including land, building and certain machinery and
equipment were financed and leased through industrial revenue bonds. 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 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, 1997, both of which are incorporated herein by reference. As
discussed 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 the Company or its
subsidiaries, including those discussed in the immediately preceding
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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 1997 to a vote of security
holders through the solicitation of proxies or otherwise.
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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, 1997 is incorporated herein by reference. As of a March
2, 1998, there were 835 holders of record of the Company's Class A common stock
and 808 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, 1997 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, 1997 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, 1997 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 1998
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 1998 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 1998 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 1998
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, 1997:
* Statements of Consolidated Income for the years
ended December 31, 1997, 1996 and 1995
* Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995
* Consolidated Balance Sheets as of December 31, 1997
and 1996
* Statements of Consolidated Cash Flows for the years
ended December 31, 1997, 1996 and 1995
* Notes to Consolidated Financial Statements
* Report of Independent Accountants
(2) Financial Statement Schedules:
<TABLE>
<CAPTION>
Schedule Form 10-K
Number Description Page Reference
-------- ----------- --------------
<S> <C> <C>
II Valuation and Qualifying Accounts 21
</TABLE>
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) Certificate of Amendment to the Company's Restated Articles
of Incorporation adopted April 27, 1994 (filed as Exhibit
(4)(c) to Quarterly report on Form 10-Q for the quarterly
period ended March 31, 1994 (Commission File No. 0-452) and
incorporated herein by reference)
(3)(d) Company's Amended and Restated Bylaws as amended
through October 22, 1997 (filed as Exhibit (3) to
Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997 (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)
18
<PAGE> 19
(3) Exhibits (continued):
Exhibit
Number Description
------- -----------
(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)
(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)
19
<PAGE> 20
(3) Exhibits (continued):
Exhibit
Number Description
------- -----------
(10)(i) Third Amendment to Management Incentive Plan, adopted
January 22, 1997 (management contract or compensatory plan
or arrangement) (filed as Exhibit (10)(i) to Annual Report
on Form 10-K for the year ended December 31, 1996
(Commision file No. 0-452) and incorporated herein by
reference)
(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)
(11) (not applicable)
(12) (not applicable)
(13) Portions of Tecumseh Products Company Annual Report
to Shareholders for the year ended December 31, 1997,
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, 1997, 1996 AND 1995
(Dollars in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------------
Balance at Charged to Charged to Additions Balance at
Beginning Costs and Other and End of
Description of Period Expenses Accounts (Deductions) Period
- ---------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts, deducted from
accounts receivable in the
balance sheet: (A)
<S> <C> <C> <C> <C>
1997 $6.7 $0.1 ($1.1) $5.7
1996 $6.9 $0.2 ($0.4) $6.9
1995 $5.8 $1.5 ($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 /s/ TODD W. HERRICK
------------------------------------
Todd W. Herrick
President and Chief Executive Officer
Dated: March 25, 1998
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
Kenneth G. Herrick Board of Directors
/s/ TODD W. HERRICK
- --------------------------- President, Chief March 25, 1998
Todd W. Herrick Executive Officer
(Principal Executive
Officer) and Director
/s/ PETER M. BANKS
- --------------------------- Director March 25, 1998
Peter M. Banks
/s/ JON E. BARFIELD
- --------------------------- Director March 25, 1998
Jon E. Barfield
/s/ JOHN H. FOSS
- --------------------------- Vice President, Treasurer March 25, 1998
John H. Foss and Chief Financial Officer
(Principal Accounting
and Principal Financial
Officer) and Director
/s/ J. RUSSELL FOWLER
- --------------------------- Director March 25, 1998
J. Russell Fowler
/s/ JOHN W. GELDER
- --------------------------- Director March 25, 1998
John W. Gelder
/s/ STEPHEN L. HICKMAN
- --------------------------- Director March 25, 1998
Stephen L. Hickman
/s/ DEAN E. RICHARDSON
- --------------------------- Director March 25, 1998
Dean E. Richardson
</TABLE>
23
<PAGE> 24
EXHIBIT INDEX
Exhibit
Number
(13) Portions of the Company's Annual Report to Shareholders for
the year ended December 31, 1997, 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 13
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Dollars in millions except per share data)
1997 1996(a) 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,728.3 $ 1,784.6 $ 1,716.0 $ 1,533.4 $ 1,314.2
- ----------------------------------------------------------------------------------------------------------------------------
Net income 100.5 112.6 119.2 120.3 81.4
% of net sales 5.8% 6.3% 6.9% 7.8% 6.2%
- ----------------------------------------------------------------------------------------------------------------------------
Capital expenditures 90.6 115.2 127.4 136.2 51.1
- ----------------------------------------------------------------------------------------------------------------------------
Business acquisitions 46.9 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total assets 1,537.4 1,472.6 1,407.6 1,289.8 1,132.7
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 1,000.2 947.5 877.1 785.5 686.8
Return on average stockholders' equity 10.3% 12.3% 14.3% 16.3% 12.3%
- ----------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Basic and diluted earnings $ 4.59 $ 5.15 $ 5.45 $ 5.50 $ 3.72
Cash dividends declared 1.20 1.68 1.61 1.35 1.15
Book value 45.80 43.30 40.09 35.90 31.39
- ----------------------------------------------------------------------------------------------------------------------------
Average number of
employees 17,400 16,300 15,600 14,400 12,400
============================================================================================================================
</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.
Note: The above per share amounts have been adjusted as necessary to reflect the
100% stock dividend paid June 30, 1993.
<PAGE> 2
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
BUSINESS SEGMENT DATA
(Dollars in millions)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Net Sales Operating Income
---------------------------------------- ------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Compressor
Products .... $ 1,050.1 $ 1,126.5 $ 1,131.9 $ 82.7 $ 102.7 $ 114.7
Engine & Power
Train
Products .... 576.8 564.1 497.6 61.9 64.5 51.4
Pump
Products .... 101.4 94.0 86.5 11.1 11.5 11.1
Corporate
Expenses .... - - - (10.5) (10.4) (10.3)
Nonrecurring
Charges (a).. - - - - (5.1) -
---------- ---------- ---------- -------- -------- --------
Total ....... $ 1,728.3 $ 1,784.6 $ 1,716.0 $ 145.2 $ 163.2 $ 166.9
========== ========== ========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year End Assets Capital Expenditures Depreciation
-------------------------------- ------------------------------- --------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
--------- --------- --------- -------- ------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressor
Products......... $ 770.9 $ 741.2 $ 729.0 $ 68.0 $ 77.9 $ 96.3 $ 54.5 $ 49.3 $ 45.4
Engine & Power
Train
Products......... 293.8 296.7 271.4 21.0 35.3 27.4 15.3 14.2 12.7
Pump
Products......... 55.9 47.9 42.6 1.6 2.0 3.7 1.3 1.1 1.1
Corporate........... 416.8 386.8 364.6 - - - - - -
--------- --------- --------- -------- ------- ------- ---------- ---------- ----------
Total............ $ 1,537.4 $ 1,472.6 $ 1,407.6 $ 90.6 $ 115.2 $ 127.4 $ 71.1 $ 64.6 $ 59.2
========= ========= ========= ======== ======= ======= ========== ========== ==========
</TABLE>
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
Net Sales Operating Income Year End Assets
-------------------------------- ------------------------------- --------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- -------- ------- ------ ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America....... $1,234.8 $1,281.1 $1,159.6 $ 110.9 $121.4 $111.9 $1,050.1 $1,009.1 $ 942.4
Europe.............. 303.1 328.5 373.0 9.0 1.7 12.5 257.6 273.6 321.5
Brazil.............. 263.8 270.1 272.7 26.1 40.1 42.5 179.3 189.9 143.7
India (b)........... 11.7 - - (.8) - - 50.4 - -
Inter-area:
North America.... (13.7) (19.7) (25.2) - - - - - -
Europe........... (9.6) (11.5) (7.6) - - - - - -
Brazil........... (61.8) (63.9) (56.5) - - - - - -
-------- -------- -------- ------- ------ ------ -------- -------- ---------
Total............ $1,728.3 $1,784.6 $1,716.0 $ 145.2 $163.2 $166.9 $1,537.4 $1,472.6 $ 1,407.6
======== ======== ======== ======= ====== ====== ======== ======== =========
</TABLE>
Transfers between geographic areas are accounted for at cost plus a
reasonable profit. Export sales of domestic operations were $265.3, $264.1 and
$258.2 million in 1997, 1996 and 1995, respectively. Of these sales,
approximately two-thirds were to customers in the Far and Middle East.
In 1997, 13% 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 $12.1 million in 1997, $8.6 million in 1996 and $9.6 million in 1995.
Accumulated unremitted earnings of foreign subsidiaries at December 31, 1997
were $149.1 million.
(a) The 1996 results include a $5.1 million nonrecurring charge for
environmental and litigation costs. This charge was equivalent to $.15 per
share after taxes.
(b) Acquired as of July 1, 1997.
<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.
1997 WORLDWIDE SALES
$1.7 BILLION SALES
[PIE CHART]
COMPRESSORS 61%
ENGINES 33%
PUMPS 6%
Annual sales for 1997 were $1,728.3 million, a decrease of 3% from 1996.
Annual earnings for 1997 were $100.5 million, or $4.59 per share, compared to
$112.6 million or $5.15 per share in 1996. The 1996 results included a $5.1
million nonrecurring charge for environmental and litigation costs, which was
equivalent to $.15 per share after taxes. Weather-related softness in demand for
air conditioning in North America and an economic slowdown in Brazil were the
major negative influences impacting results.
COMPRESSOR PRODUCTS
1997 VS. 1996
The Company's worldwide Compressor Products sales were $1,050.1 million,
down 7% from $1,126.5 million in 1996. In North American markets, improved sales
of the Brazilian-built TP compressor for household refrigeration were more than
offset by a weather-related decline in sales of compressors for room air
conditioning applications, and to a lesser extent weaker sales of unitary air
conditioning compressors. U.S. export sales were essentially flat with the prior
year.
COMPRESSOR PRODUCTS SALES
[BAR GRAPH]
dollars in millions
1995 1131.9
1996 1126.5
1997 1050.1
Early in 1997, the Brazilian appliance industry experienced a cyclical
downturn, which was later deepened by monetary policy aimed at decreasing
consumer spending and defending the currency. Total sales from our Brazilian
operations dropped 2%, while local Brazilian sales dropped 11%.
Tecumseh Europe had much improved results in 1997. A weaker French franc
coupled with extensive cost reduction efforts helped increase our competitive
position. French franc sales increased 6%, contributing to higher margins.
Compressor Products operating margins for 1997 declined to 7.9% as compared
to 9.1% in 1996, largely because of lower Brazilian operating profit margins
(9.9% in 1997 versus 14.8% in 1996).
1996 VS. 1995
Worldwide Compressor Products sales for 1996 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. Compressor Products operating margins were
9.1% for 1996 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.
ENGINE AND POWER TRAIN PRODUCTS
1997 VS. 1996
Worldwide Engine and Power Train Products sales were $576.8 million, up 2%
as compared to 1996. As expected, the unusually heavy demand for snow thrower
engines in 1996 was not repeated in 1997. Engine unit sales, exclusive of snow
thrower engines, were up 7% for the year.
[continued on next page]
<PAGE> 4
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS [continued]
ENGINE AND POWER TRAIN PRODUCTS SALES
[BAR GRAPH]
dollars in millions
1995 497.6
1996 564.1
1997 576.8
Engine and Power Train Products operating margin was 10.7% for 1997 as compared
to 11.4% for 1996. Margins declined due to volume reductions of higher margin
snow engine product coupled with start-up costs at the new engine production
facility in Georgia.
1996 VS. 1995
Worldwide Engine and Power Train Products sales were $564.1 million, up 13%
as compared to 1995. Unusually strong sales of snow engine product were offset
in part by weaker sales in the Company's European operations. Operating margins
were 11.4% for 1996 as compared to 10.3% for 1995. A small loss experienced by
the European operations was more than offset by margin gains from increased
sales volume in North America.
PUMP PRODUCTS
1997 Pump Products sales of $101.4 million increased 8% as compared to 1996.
Sales gains were due to stronger demand for water-gardening products. 1996 sales
of $94.0 million increased 9% as compared to 1995, due to increased sales to the
plumbing and HVAC industries.
INTEREST INCOME AND INCOME TAX
Interest income and other, net was $21.9, $20.2 and $29.1 million in 1997,
1996 and 1995, respectively, primarily due to changes in financial income
reported by the Company's Brazilian subsidiary. The effective tax rate was
37.5%, 36.4% and 36.6% in 1997, 1996 and 1995, respectively.
STOCK REPURCHASE
On November 26, 1997, the Company announced its intention to repurchase up
to 1 million shares of class A common stock over the next year. As of February
15, 1998 143,000 shares have been acquired. The Company intends to continue open
market purchases depending on market conditions and other factors. The
repurchase program is expected to be financed primarily through internally
available funds.
LIQUIDITY, CAPITAL RESOURCES AND RISKS
The Company continued to maintain a strong and liquid financial position.
Working capital of $554.8 million at December 31, 1997 was up from $549.7
million at December 31, 1996, and the ratio of current assets to current
liabilities was 3.1. Capital expenditures, including $46.9 million for the
acquisition of two compressor manufacturing facilities in India, were $137.5
million for 1997 as compared to $115.2 million in 1996. Major capital projects
for 1997, other than acquisitions, included equipment for a rotary compressor
line in Brazil and the completion of an electric motors production facility in
Mississippi. Total capital spending for 1998 should approximate $80-100 million
and will be spent on maintenance and capacity expansion in India and Brazil.
Working capital requirements and planned capital, investment and stock
repurchase expenditures for 1998 and early 1999 are expected to be financed
primarily through internally available funds. However, the Company may also
utilize long-term financing arrangements in connection with state 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 Company has reviewed its manufacturing, financial and administrative
information systems and has developed plans for the completion of modifications
related to the year 2000. The financial impact of making the required systems
changes is not expected to be material to the Company's consolidated financial
position, results of operations or cash flows.
Over the past several years there has been an industry trend toward the use
of scroll compressor technology in the unitary air conditioning market, and to a
lesser extent in other markets. Copeland Corporation, a principal competitor,
has had a scroll compressor as part of its product line for some time.
<PAGE> 5
Many other companies have also introduced scroll compressors. The world's
largest unitary air conditioning manufacturer produces scroll compressors for
its own use and for outside sales through a joint venture with Bristol
Compressors, Inc., another principal competitor of the Company. Two other large
unitary air conditioning manufacturers have formed a joint venture with Copeland
Corporation for the production of scroll compressors for their own use and for
outside sales. The Company believes that successful development of a
commercially saleable scroll is necessary to maintain its participation in the
unitary compressor market.
The Company has invested approximately $50 million in a scroll compressor
manufacturing facility in Tecumseh, Michigan. After experiencing setbacks in
developing a commercially acceptable scroll compressor, the Company is currently
testing a new generation of scroll product. The Company is unable to predict
when, or if, it will offer a scroll compressor for commercial sale, but it does
anticipate that reaching volume production will require a significant additional
investment. Given such additional investment and current market conditions,
management is currently reviewing its options with respect to scroll product
improvement, cost reductions, joint ventures and alternative new products.
The U.S. Environmental Protection Agency (EPA) is developing emission
standards for utility engines which include the two- and four-cycle engines
produced by the Company. The Company already produces competitively priced
engines that comply with the current EPA Phase I standards. EPA Phase II
standards propose to reduce certain emissions from utility engines an additional
30 percent beyond the current EPA Phase I standards. The proposed standards are
expected to be finalized over the next twelve months and will be phased in
between 2001 and 2005. 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, 1997
and 1996 the Company had accrued $38.4 million and $39.6 million for
environmental remediation, respectively.
OUTLOOK
Recent Asian currency devaluations have resulted in expanded Asian exports
of low-priced compressors and related products. The Brazilian economic slowdown
is expected to continue, at least in the near term. Continued high levels of air
conditioning inventory exist in the U.S. retail pipeline. While development
efforts continue toward obtaining a marketable scroll compressor, the current
lack of a scroll is making it more difficult to compete in the unitary air
conditioning market. Given these conditions, the Company expects 1998 to be
increasingly challenging.
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 can be
identified by the use of terms such as "expects", "should", "may", "believes",
"anticipates", "will" and other future tense and forward-looking terminology.
Investors are cautioned that forward-looking statements involve risks
and uncertainties, including, but not limited to, changes in business conditions
and the economy in general in both foreign and domestic markets; weather
conditions affecting demand for air conditioners, lawn and garden products and
snow throwers; financial market changes, including interest rates and foreign
exchange rates; economic trend factors such as housing starts; governmental
regulations; availability of materials; actions of competitors; and the
Company's ability to profitably develop, manufacture and sell both new and
existing products.
<PAGE> 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,
--------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET SALES ........................................................... $ 1,728.3 $ 1,784.6 $ 1,716.0
COSTS AND EXPENSES
Cost of sales and operating expense.............................. 1,480.5 1,517.8 1,454.8
Selling and admininistrative expense............................. 102.6 98.5 94.3
Nonrecurring charge(a) .......................................... - 5.1 -
--------- --------- ---------
OPERATING INCOME .................................................... 145.2 163.2 166.9
OTHER INCOME (EXPENSE)
Interest expense................................................. (6.3) (6.4) (8.0)
Interest income and other, net................................... 21.9 20.2 29.1
--------- --------- ---------
INCOME BEFORE TAXES ON INCOME ....................................... 160.8 177.0 188.0
TAXES ON INCOME ..................................................... 60.3 64.4 68.8
--------- --------- ---------
NET INCOME .......................................................... $ 100.5 $ 112.6 $ 119.2
========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE ................................ $ 4.59 $ 5.15 $ 5.45
========= ========= =========
</TABLE>
(a) The 1996 results include 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.
<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, 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
Net income............................ 100.5 100.5
Cash dividends........................ (26.3) (26.3)
Stock repurchase...................... (1.9) (1.9)
Translation adjustments............... (19.6) (19.6)
------------ ------------ ------------ -------- ----------- -----------
BALANCE, DECEMBER 31, 1997............ $ 16.4 $ 5.5 $ 28.0 $ 958.0 $ (7.7) $ 1,000.2
============ ============ ============ ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
<TABLE>
<CAPTION>
December 31,
--------------------------
---------- ----------
<S> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents ........................................................ $ 304.1 $ 277.7
Accounts receivable, trade, less allowance for doubtful
accounts of $5.7 million in 1997 and $6.7 million in 1996 .................... 207.7 204.5
Inventories ...................................................................... 259.4 275.2
Deferred income taxes ............................................................ 38.2 36.6
Other current assets ............................................................. 8.7 10.4
---------- ----------
TOTAL CURRENT ASSETS ...................................................... 818.1 804.4
---------- ----------
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and land improvements ....................................................... 18.3 8.9
Buildings ........................................................................ 174.8 162.6
Machinery and equipment .......................................................... 845.8 805.9
---------- ----------
1,038.9 977.4
Less, accumulated depreciation ................................................... 469.2 448.3
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, net ........................................ 569.7 529.1
---------- ----------
EXCESS OF COST OVER ACQUIRED NET ASSETS, less accumulated
amortization of $18.2 million in 1997 and $16.5 million in 1996 .................. 56.7 56.0
DEFERRED INCOME TAXES ............................................................... 10.8 13.6
PREPAID PENSION EXPENSE ............................................................. 58.4 46.7
OTHER ASSETS ........................................................................ 23.7 22.8
---------- ----------
TOTAL ASSETS .............................................................. $ 1,537.4 $ 1,472.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade .......................................................... $ 110.6 $ 114.3
Income taxes payable ............................................................. 9.3 .1
Short-term borrowings ............................................................ 29.0 19.8
Accrued liabilities:
Employee compensation ........................................................ 30.9 37.2
Product warranty and self-insured risks ...................................... 32.9 35.2
Other ........................................................................ 50.6 48.1
---------- ----------
TOTAL CURRENT LIABILITIES ................................................. 263.3 254.7
LONG-TERM DEBT ...................................................................... 17.5 14.4
NON-PENSION POSTRETIREMENT BENEFITS ................................................. 182.7 178.4
PRODUCT WARRANTY AND SELF-INSURED RISKS ............................................. 28.9 30.2
ACCRUAL FOR ENVIRONMENTAL MATTERS ................................................... 31.6 33.0
PENSION LIABILITIES ................................................................. 13.2 14.4
---------- ----------
TOTAL LIABILITIES ......................................................... 537.2 525.1
---------- ----------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued 16,370,438 and 16,410,438 shares in 1997 and 1996,
respectively ................................................................. 16.4 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued 5,470,146 shares in 1997 and 1996 ............................. 5.5 5.5
Capital in excess of par value ................................................... 28.0 29.9
Retained earnings ................................................................ 958.0 883.8
Foreign currency translation adjustment .......................................... (7.7) 11.9
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ................................................ 1,000.2 947.5
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 1,537.4 $ 1,472.6
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 100.5 $ 112.6 $ 119.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............. 71.1 64.6 59.2
Accounts receivable ....................... (6.3) 17.5 (31.2)
Inventories ............................... 11.9 (16.3) (21.6)
Payables and accrued expenses ............. 8.4 (15.0) 12.1
Other ..................................... 1.1 2.7 (5.3)
-------- -------- --------
Cash Provided By Operating Activities ... 186.7 166.1 132.4
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (90.6) (115.2) (127.4)
Business acquisitions, net of cash acquired ... (46.9) -- --
-------- -------- --------
Cash Used In Investing Activities ....... (137.5) (115.2) (127.4)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ................................ (26.3) (36.8) (35.2)
Proceeds from borrowings ...................... 25.3 7.1 10.9
Repayments of borrowings ...................... (11.8) (1.1) (4.5)
Repurchases of common stock ................... (1.9) -- --
-------- -------- --------
Cash Used In Financing Activities ....... (14.7) (30.8) (28.8)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......... (8.1) (4.0) 2.2
-------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................. 26.4 16.1 (21.6)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................... 277.7 261.6 283.2
-------- -------- --------
End of period ................................. $ 304.1 $ 277.7 $ 261.6
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<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 intercompany 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 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 and
workers' compensation insurance policies. In addition, provision is made for the
estimated cost of postemployment benefits at employment separation.
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.
EARNINGS PER SHARE -- Basic and diluted earnings per share are equivalent.
Earnings per share is computed based on the weighted average number of common
shares outstanding for the periods reported. The weighted average number of
common shares used in the computations were 21,878,995 in 1997, and 21,880,584
in 1996 and 1995.
RESEARCH, DEVELOPMENT AND TESTING EXPENSES -- Company sponsored research,
development, and testing expenses related to present and future products are
expensed as incurred and were $32.6, $30.4 and $30.1 million in 1997, 1996 and
1995, respectively.
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
Prior to July 1, 1997 the functional currency of the Company's Brazilian
subsidiary was the U.S. dollar, since it operated in a highly inflationary
economy. Accordingly, inventory, plant and equipment and related income
statement items were translated at historical exchange rates while other assets
and liabilities were translated at current exchange rates. The resulting
translation gain (loss) included in net earnings was $(0.4), $2.5 and $4.8
million in 1997, 1996 and 1995, respectively.
Effective July 1, 1997 the functional currency of the Company's Brazilian
subsidiary was changed to the local Brazilian currency as Brazil is no longer
considered a highly inflationary economy. At December 31, 1997 all of the
Company's foreign subsidiaries use the local currency of the country of
operation as the functional currency. Assets and liabilities are translated into
U.S. dollars at year-end exchange rates while revenues and expenses are
translated at average monthly exchange rates. The resulting translation
adjustments are recorded as a component of stockholders' equity:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
--------- ---------
<S> <C> <C>
Balance at January 1 $ 11.9 $ 17.3
Effect of balance sheet translations:
Amount (28.4) (8.8)
Tax effect 8.8 3.4
--------- ---------
Balance at December 31 $ (7.7) $ 11.9
========= =========
</TABLE>
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
<PAGE> 11
Retirement Income Security Act, plus such additional amounts as the Company may
determine to be appropriate. The domestic plan assets are invested in a
diversified portfolio that primarily consists of equity and fixed income
securities.
Net pension expense of the Company's domestic defined benefit plans include
the following components:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost - benefits
earned during year $ 6.8 $ 6.5 $ 5.2
Interest cost on projected
benefit obligations 17.6 16.9 17.1
Actual (gain) loss on assets (68.6) (47.0) (85.0)
Net amortization and deferral 33.1 14.6 57.2
--------- --------- ---------
Net pension expense (credit) $ (11.1) $ (9.0) $ (5.5)
========= ========= =========
</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) 1997 1996
------------------ ------------------
OVER- UNDER- Over- Under-
FUNDED FUNDED funded funded
PLANS PLANS Plans Plans
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 502.3 $ .1 $ 455.6 $ .4
-------- ------ -------- ------
Actuarial present value of
benefit obligation:
Vested benefits 238.1 .7 235.9 .8
Non-vested benefits 13.5 .3 14.2 .3
-------- ------ -------- ------
Accumulated benefit
obligation 251.6 1.0 250.1 1.1
Effect of projected future
salary increases 27.8 .5 21.2 .5
-------- ------ -------- ------
Projected benefit obligation 279.4 1.5 271.3 1.6
-------- ------ -------- ------
Projected benefit obligation
(in excess of) or less than
plan assets 222.9 (1.4) 184.3 (1.2)
Unrecognized prior
service cost 8.1 1.4 9.5 .9
Unrecognized net (gain)loss (159.8) -- (132.3) .3
-------- ------ -------- ------
Unrecognized net transition
(asset) obligation (12.8) -- (14.8) --
-------- ------ -------- ------
Prepaid pension expense $ 58.4 $ -- $ 46.7 $ --
======== ====== ======== ======
</TABLE>
Assumptions used in accounting for the domestic defined benefit plans were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Measurement of projected benefit obligation:
Discount rate 6.5% 6.5%
Long-term rate of compensation increases 5.0% 5.0%
Long-term rate of return on plan assets 7.5% 7.5%
</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 $2.7, $2.1 and $2.5 million in
1997, 1996 and 1995, respectively. The net liability recorded in the
consolidated balance sheet was $13.2 and $14.4 million for 1997 and 1996,
respectively.
Consolidated pension expense (credit) of $(5.0) million in 1997, $(3.3)
million in 1996 and $0.1 million in 1995 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.
The components of the net periodic postretirement benefit cost were:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
earned during year $4.5 $4.2 $3.6
Interest cost on accumulated
postretirement benefit
obligation 8.6 8.3 8.9
Net amortization and deferral (3.7) (3.2) (3.7)
---- ---- ----
Net postretirement
health care costs $9.4 $9.3 $8.8
==== ==== ====
</TABLE>
[continued on next page]
<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) 1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 51.4 $ 50.0
Active, eligible employees 27.1 26.0
Active, not yet eligible employees 61.0 59.7
------- -------
139.5 135.7
Unrecognized plan amendment gain 13.6 11.7
Unrecognized net actuarial gain 36.0 37.0
------- -------
Accrued postretirement benefit cost
in excess of plan assets $189.1 $184.4
====== ======
Assumptions used:
Discount rate 6.5% 6.5%
Health care cost trend rate 7.3% 7.6%
Ultimate health care cost trend rate
in 2004 5.0% 5.0%
</TABLE>
At December 31, 1997 and 1996 respectively, $6.4 and $6.0 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, 1997 by $24.8 million and the aggregate of
the service and interest cost components of net postretirement health care cost
for the year then ended by $2.8 million.
NOTE 5. INCOME TAXES
Consolidated income before taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
United States $124.6 $131.4 $125.8
Foreign 36.2 45.6 62.2
------ ------ ------
$160.8 $177.0 $188.0
====== ====== ======
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current:
U.S. federal $ 37.5 $ 37.4 $ 34.7
State and local 3.8 6.2 6.4
Foreign income and
withholding taxes 9.0 14.0 25.6
------- ------ ------
50.3 57.6 66.7
------- ------ ------
Deferred:
U.S. federal 8.6 8.5 .5
Foreign 1.4 (1.7) 1.6
------- ------ ------
10.0 6.8 2.1
------- ------ ------
Provision for income taxes $ 60.3 $ 64.4 $ 68.8
======= ====== ======
Income taxes paid $ 39.6 $ 61.6 $ 59.4
======= ====== ======
</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 income before tax is as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income taxes at U.S.
statutory rate $56.3 $62.0 $65.8
Excess of foreign taxes over
the U.S. statutory rate 2.2 .9 .2
State and local income taxes 2.4 4.0 4.1
Tax benefits from
Foreign Sales Corporation (1.0) (1.6) (1.7)
Other .4 (.9) .4
----- ----- -----
$60.3 $64.4 $68.8
===== ===== =====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Non-pension postretirement benefits $70.0 $68.2
Product warranty and self-insured risks 22.9 24.5
Net operating loss carryforwards 3.0 5.0
Provision for environmental matters 14.2 14.7
Other accruals and miscellaneous 23.8 21.7
----- -----
133.9 134.1
Valuation allowance (2.6) (5.4)
----- -----
Total deferred tax assets 131.3 128.7
----- -----
Deferred tax liabilities:
Tax over book depreciation 45.8 42.4
Pension 19.0 15.0
Other 17.5 21.1
----- -----
Total deferred tax liabilities 82.3 78.5
----- -----
Net deferred tax assets $49.0 $50.2
===== =====
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards
attributable to foreign operations for income tax purposes of $8.1 million which
expire from 1998 to 2001 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) 1997 1996
------ ------
<S> <C> <C>
Raw materials and work in process $154.7 $155.1
Finished goods 89.1 101.4
Supplies 15.6 18.7
------ ------
$259.4 $275.2
====== ======
</TABLE>
<PAGE> 13
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, advances on export receivables
and overdraft arrangements with banks used in the normal course of business. The
U.S. dollar equivalent of this debt was $22.6 million (at 7.4%) at December 31,
1997, and $16.4 million (at 5.4%) at December 31, 1996.
Long-term debt consists of the following:
1. Unsecured borrowings, primarily with banks, by foreign subsidiaries
with interest at 6.13%. The U.S. dollar equivalent of these borrowings
was $2.4 and $5.6 million at December 31, 1997 and 1996, respectively.
2. A $5.4 million variable-rate bank repurchase agreement (effective
interest rate of 6.28% at December 31, 1997), due in 1998.
3. $16 million ($6.7 million in 1996) variable-rate Industrial Development
Revenue Bonds (effective interest rate of 6.31% at December 31, 1997)
payable in quarterly installments from 1998 to 2021.
Scheduled maturities of long-term debt outstanding at December 31, 1997, are
as follows:
1998--$6.4 million; 1999--$.9 million;
2000--$1.6 million; 2001--$1.5 million;
2002 and beyond--$13.5 million.
Interest paid was $6.5 million in 1997, $6.4 million in 1996 and $8.6
million in 1995.
The Company has 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,
1997, 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, 1997 and 1996, the Company had an accrual of $29.0 and $30.1
million, respectively, 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 in 1998, 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, natural
resource damages (if any) 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 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.
[continued on next page]
<PAGE> 14
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [continued]
NOTE 10. COMMITMENTS AND CONTINGENCIES
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 are sold at a discount. Discounted Brazilian export accounts
receivable balances at December 31, 1997 and 1996, respectively, were $18.1
million and $13.3 million with discount rates, respectively of 6.2 percent and
6.3 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. The carrying value of these
contracts approximates fair value based on market rates for similar instruments.
At December 31, 1997 and 1996 respectively, the Company had $144.3 million and
$64.9 million in foreign exchange contracts outstanding.
The carrying value of cash and cash equivalents approximates fair value due
to the short maturity of the 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, 1997, 16,410,438 shares of Class A common stock and 5,470,146 share
of Class B common stock were reserved for future exercise under the plans.
On November 26, 1997 the Company announced a share repurchase program for
the Class A common stock. Under the program, the Company is authorized to
repurchase up to one million Class A shares on the open market through December
31, 1998, depending upon market conditions and other factors. The repurchase
program is expected to be financed primarily through internally available funds.
In fiscal year 1997, the Company repurchased and retired 40,000 shares of Class
A common stock at a cost of approximately $1.9 million. As of January 30, 1998,
and subsequent to December 31, 1997, the Company has repurchased and retired an
additional 58,000 shares at a cost of approximately $2.9 million.
NOTE 13. BUSINESS ACQUISITIONS
In July, 1997 the Company completed the acquisition of two compressor
manufacturing facilities in India for $46.9 million. The transaction was
accounted for as a purchase and the excess of cost over the acquired net assets
is being amortized over 40 years. Results of operations for the last six months
of 1997 are included in the Company's statement of consolidated income.
<PAGE> 15
MANAGEMENT'S REPORT
TO THE SHAREHOLDERS OF
TECUMSEH PRODUCTS COMPANY
Management is responsible for the integrity and objectivity of the financial
statements and other information presented in this annual report. The statements
were prepared in accordance with generally accepted accounting principles and,
where necessary, include certain amounts based on management's best estimate and
judgment to reflect the expected effects of events and transactions that have
not been completed. All financial information in the annual report is consistent
with the financial statements.
Management has established and maintains a system of internal accounting
controls to provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization. These
controls are documented by written policies and procedures that are communicated
to employees with significant roles in the financial reporting process. This
system is continually reviewed and evaluated and modified to reflect current
conditions.
The Audit Committee of the Board of Directors, composed primarily of outside
Directors, is responsible for monitoring the Company's accounting and reporting
practices. The Audit Committee meets regularly with management, the internal
auditors, and the independent public accountants to review the work of each and
to assure that each is carrying out its responsibilities. Both the independent
public accountants and the internal auditors have unrestricted access to the
Audit Committee with and without management's representative present, to discuss
the results of their examinations and their opinions on the adequacy of internal
accounting controls and quality of financial reporting.
The independent public accountants are engaged to express an opinion on the
Company's financial statements. Their opinion is based on procedures which they
believe to be sufficient to provide reasonable assurance that the financial
statements contain no material errors.
Todd W. Herrick
Todd W. Herrick
President and Chief Executive Officer
John H. Foss
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
INDEPENDENT ACCOUNTANT'S REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
TECUMSEH PRODUCTS COMPANY
We have audited the accompanying consolidated balance sheets of Tecumseh
Products Company and Subsidiaries as of December 31, 1997 and 1996, and the
related statements of consolidated income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tecumseh
Products Company and Subsidiaries at December 31, 1997 and 1996 and the
consolidated results of operations and cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ciulla, Smith & Dale, LLP
Ciulla, Smith & Dale, LLP
Certified Public Accountants
January 30, 1998
Southfield, Michigan
<PAGE> 16
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
1997 1996(a) 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 1,728.3 $ 1,784.6 $ 1,716.0 $ 1,533.4
---------- ---------- ---------- ----------
Net income before accounting
changes 100.5 112.6 119.2 120.3
---------- ---------- ---------- ----------
Cumulative effect of changes
in accounting principles - - - -
---------- ---------- ---------- ----------
Net income (loss) 100.5 112.6 119.2 120.3
========== ========== ========== ==========
PER SHARE OF COMMON STOCK: (e)
Net income before accounting
changes $ 4.59 $ 5.15 $ 5.45 $ 5.50
---------- ---------- ---------- ----------
Cumulative effect of accounting
changes - - - -
---------- ---------- ---------- ----------
Net income (loss) 4.59 5.15 5.45 5.50
---------- ---------- ---------- ----------
Cash dividends declared 1.20 1.68 1.61 1.35
========== ========== ========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 304.1 $ 277.7 $ 261.6 $ 283.2
---------- ---------- ---------- ----------
Working capital (f) 554.8 549.7 521.3 504.2
---------- ---------- ---------- ----------
Net property, plant and equipment 569.7 529.1 477.0 402.4
---------- ---------- ---------- ----------
Total assets 1,537.4 1,472.6 1,407.6 1,289.8
---------- ---------- ---------- ----------
Long-term debt 17.5 14.4 14.7 9.1
---------- ---------- ---------- ----------
Stockholders' equity 1,000.2 947.5 877.1 785.5
========== ========== ========== ==========
OTHER DATA:
Capital expenditures $ 90.6 $ 115.2 $ 127.4 $ 136.2
---------- ---------- ---------- ----------
Depreciation and amortization 71.1 64.6 59.2 55.7
========== ========== ========== ==========
</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) The 1992 results reflected the 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.
- --------------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------------------
First Second Third Fourth* Total
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
1997
Net sales $ 479.6 $ 480.6 $ 389.0 $ 379.1 $1,728.3
Gross profit 72.3 72.5 54.6 48.4 247.8
Net income $ 31.5 $ 31.8 $ 21.9 $ 15.3 $ 100.5
======= ======= ======= ======= =========
Basic and diluted
earnings per share $ 1.44 $ 1.45 $ 1.00 $ 0.70 $ 4.59
======= ======= ======= ======= ==========
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
======= ======= ======= ======= =========
Basic and diluted
earnings per share $ 1.42 $ 1.55 $ 1.24 $ 0.94 $ 5.15
======= ======= ======= ======= ==========
</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.
<PAGE> 17
<TABLE>
<CAPTION>
1993 1992(b) 1991 1990(c) 1989(d) 1988
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 1,314.2 $ 1,258.5 $ 1,197.2 $ 1,318.1 $ 1,509.8 $ 1,093.5
---------- ---------- ---------- ---------- ---------- ----------
81.4 52.3 42.5 14.2 82.6 70.2
---------- ---------- ---------- ---------- ---------- ----------
- (95.0) - - - -
---------- ---------- ---------- ---------- ---------- ----------
81.4 (42.7) 42.5 14.2 82.6 70.2
========== ========== ========== ========== ========== ==========
$ 3.72 $ 2.39 $ 1.94 $ .65 $ 3.77 $ 3.21
---------- ---------- ---------- ---------- ---------- ----------
- (4.34) - - - -
---------- ---------- ---------- ---------- ---------- ----------
3.72 (1.95) 1.94 .65 3.77 3.21
---------- ---------- ---------- ---------- ---------- ----------
1.15 .80 .80 .80 1.11 1.05
========== ========== ========== ========== ========== ==========
$ 313.2 $ 263.6 $ 256.4 $ 240.3 $ 187.2 $ 163.0
---------- ---------- ---------- ---------- ---------- ----------
473.6 420.4 403.1 414.3 397.3 340.4
---------- ---------- ---------- ---------- ---------- ----------
320.4 322.9 324.3 304.9 280.0 251.8
---------- ---------- ---------- ---------- ---------- ----------
1,132.7 1,078.6 1,055.4 1,032.2 1,034.1 900.0
---------- ---------- ---------- ---------- ---------- ----------
11.2 14.4 17.9 23.6 19.9 14.3
---------- ---------- ---------- ---------- ---------- ----------
686.8 639.8 712.8 692.2 682.3 618.0
========== ========== ========== ========== ========== ==========
$ 51.1 $ 56.6 $ 85.8 $ 64.8 $ 57.5 $ 37.7
---------- ---------- ---------- ---------- ---------- ----------
52.5 53.6 49.9 49.6 43.9 30.5
========== ========== ========== ========== ========== ==========
</TABLE>
(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 results reflected completion of the acquisitions of Tecumseh
Europe S.A. on December 30, 1988 and Tecumseh Europa S.p.A. on July 25,
1989.
(e) Basic and diluted earnings per share are equivalent.
(f) Working capital is the excess of current assets over current liabilities.
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, 1998 were 9,315 for Class A common stock and 3,954 for Class B
common stock.
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------- ----------------------------------------------------
Sales Price Sales Price
--------------------------------------- ---------------------------------------
Class A Class B Cash Class A Class B Cash
----------------- ----------------- Dividends ----------------- ----------------- Dividends
QUARTER ENDED High Low High Low Declared High Low High Low Declared
------ ------ ------ ------ -------- ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 60 56 1/4 56 1/4 53 3/4 $ .30 59 1/2 51 3/4 56 1/4 49 3/4 $ .26
June 30 60 1/8 53 1/4 56 3/8 50 1/2 .30 60 1/4 51 1/2 56 3/4 50 1/8 .26
September 30 60 1/8 55 58 52 .30 55 1/2 50 53 48 .26
December 31 57 7/8 46 7/8 58 48 1/4 .30 60 1/4 54 1/4 57 1/4 50 3/4 .90
</TABLE>
<PAGE> 1
EXHIBIT (21)
Tecumseh Products Company Report on
Form 10-K for the period ended December 31, 1997
Subsidiaries of the Company
The following is a list of subsidiaries of the Company as of December
31, 1997 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
Tecumseh Europe 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
Tecumseh Products India, Ltd. India
Tecumseh India Private, Ltd. India
</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, 1997 of
our report dated January 30, 1998 which appears on page 25 of the Annual Report
of Shareholders for the year ended December 31, 1997.
Our audit also included the related financial schedule for the three years ended
December 31, 1997 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
January 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 304,100
<SECURITIES> 0
<RECEIVABLES> 213,400
<ALLOWANCES> 5,700
<INVENTORY> 259,400
<CURRENT-ASSETS> 818,100
<PP&E> 1,038,900
<DEPRECIATION> 469,200
<TOTAL-ASSETS> 1,537,400
<CURRENT-LIABILITIES> 263,300
<BONDS> 0
0
0
<COMMON> 21,900
<OTHER-SE> 978,300
<TOTAL-LIABILITY-AND-EQUITY> 1,537,400
<SALES> 1,728,300
<TOTAL-REVENUES> 1,750,200
<CGS> 1,480,500
<TOTAL-COSTS> 1,583,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,300
<INCOME-PRETAX> 160,800
<INCOME-TAX> 60,300
<INCOME-CONTINUING> 100,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,500
<EPS-PRIMARY> 4.59
<EPS-DILUTED> 4.59
</TABLE>
