Tecumseh Products 2012 Annual Report Download

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Annual Report 2011
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Table of contents

  • Page 1
    Annual Report 2011  #PPWCN 4GRQTV

  • Page 2
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2012 Commission File Number 0-452 TECUMSEH PRODUCTS COMPANY (Exact name of ...

  • Page 3
    ... About Market Risk ...Item 8. Financial Statements and Supplementary Data...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information...Part III Item 10. Directors, Executive Officers and Corporate...

  • Page 4
    ... air conditioners. Tecumseh's products are sold to original equipment manufacturers ("OEMs") and authorized wholesale distributors. Foreign Operations and Sales We maintain manufacturing plants in the United States ("U.S."), Brazil, France, and India as well as assembly plants in Canada, Mexico...

  • Page 5
    ... for their applications. We expect significant transition from the prior models to the new products to occur in 2013. Manufacturing and Assembly Operations We manufacture our products in facilities located in the U.S., Brazil, France and India. We also have assembly plants located in Canada, Mexico...

  • Page 6
    ... compressors) and final products, not equipment. We believe that we and Whirlpool, S.A (selling compressors under the brand name "Embraco") account for a majority of the compressors sold in Latin America for refrigeration and freezer applications. However, in recent years our market share in Brazil...

  • Page 7
    ...must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines. We use global design teams to bring new products to market. In addition, in 2012 we completed a new Technology Center in Ann Arbor, Michigan...

  • Page 8
    ... overall efforts to restructure the business and improve our overall cost structure. We believe we generally have a good relationship with our employees. Available Information We provide public access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and...

  • Page 9
    ... timely identify, develop, manufacture, market, and sell new or improved products in these changing markets. If we fail to do so, our financial condition and results of operations could be adversely affected. We operate in highly competitive markets. All of the compressor and condensing unit markets...

  • Page 10
    ..., resource damage claims and product liability suits that are inherent in the design, manufacture, and sale of our current products and some products that we sold in the past. We are also potentially exposed to litigation related to prior sales of businesses, securities laws, antitrust laws or other...

  • Page 11
    ...may limit our operations, as well as, make the manufacture and sale of our products more difficult, which could negatively affect our business and results of operations. See "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Summary - Liquidity...

  • Page 12
    ... to meet industry requirements, which could have a material adverse effect on our business, results of operations and financial condition. Increased or unexpected product warranty claims could adversely affect us. We provide our customers a warranty on products we manufacture. Our warranty generally...

  • Page 13
    ... significant facilities by location, ownership and function as of December 31, 2012. Location Square Feet Ownership Use United States: Verona, Mississippi...Verona, Mississippi...Verona, Mississippi...Paris, Tennessee...Tecumseh, Michigan...Ann Arbor, Michigan (a) ...Ann Arbor, Michigan ...Brazil...

  • Page 14
    ITEM 3. LEGAL PROCEEDINGS See "Note 15 - Commitments and Contingencies - Litigation" of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding legal proceedings in which we are involved, which is incorporated into this Item 3 by reference. ITEM 4. MINE ...

  • Page 15
    ... our credit facility limiting our ability to pay dividends. As of the date of this report, we have no equity securities authorized for issuance under compensation plans. We did not repurchase any of our equity securities during the fourth quarter of 2012. Market Price and Dividend Information Range...

  • Page 16
    ... Index, and the S&P Composite Industry Index for the five year period from December 31, 2007 through December 31, 2012. Base Company / Index Period 2007 2008 2009 INDEXED RETURNS Years Ending 2010 2011 2012 Tecumseh Products Company - Class A...Tecumseh Products Company - Class B...S&P 500 Index...

  • Page 17
    ... operations), the Engine & Power Train Group, MP Pumps, and Manufacturing Data Systems, Inc. as discontinued operations. Years Ended December 31, (In millions, except share and per share data) 2012 2011 (c) 2010 (a)(c) 2009 (a)(c) 2008 (a)(b)(c) Net sales...$ 854.7 $ (790.0) Cost of sales ...Gross...

  • Page 18
    ... report. EXECUTIVE SUMMARY In addition to the relative competitiveness of our products, our business is significantly influenced by several specific economic factors: the strength of the overall global economy, which can have a significant impact on our sales; our product costs, especially the price...

  • Page 19
    ... the world. Most of our manufacturing presence is in international locations. During each of 2012 and 2011, approximately 80% of our compressor sales activity took place outside the U.S., primarily in Brazil, Europe, and India. As a result, our consolidated financial results are sensitive to changes...

  • Page 20
    ... on the exchange rate at the time of receipt or future reporting date. We expect to recover approximately $15.9 million of the $32.5 million outstanding refundable taxes in Brazil and $3.9 million of the $6.1 million outstanding refundable taxes in India, in 2013. The tax authorities will not...

  • Page 21
    ... for these types of products in India and Brazil, as well as a small improvement in market conditions in Europe and North America compared to 2011. Sales of compressors used in household refrigeration and freezer ("R&F") applications represented 21.8% of our total sales and increased by 1.9% to...

  • Page 22
    ... former Tecumseh, Michigan facility, and $0.1 million of costs related to relocation of our corporate office. Refer to Note 11, "Impairments, Restructuring Charges and Other Items" of the Notes to Consolidated Financial Statements in Item 8 of this report. Interest expense was $10.2 million in 2012...

  • Page 23
    ... our Latin America market where we continue to see positive growth, although it slowed in the fourth quarter, particularly in residential air-conditioning market over the same period in the prior year. Sales of compressors used in household refrigeration and freezer ("R&F") applications represented...

  • Page 24
    ... ($4.1 million), North American ($0.1 million), French ($0.2 million), Indian ($0.1 million) and Corporate ($3.5 million) locations; $0.1 million for additional estimated environmental costs associated with the remediation activities at our former Tecumseh, Michigan facility; and $0.4 million...

  • Page 25
    ... 31, 2011 and continued cost containment measures. Increased accounts receivable resulted in a use of cash of $15.4 million during the year primarily as a result of our increased sales in the fourth quarter of 2012 compared to the fourth quarter of 2011. Our days sales outstanding increased by one...

  • Page 26
    ... on the exchange rate at the time of receipt or future reporting date. Based on the U.S. Dollar to actual exchange rate as of December 31, 2012, we expect to recover approximately $20.7 million of the $39.5 million outstanding refundable taxes in 2013. Out of the $20.7 million current portion of the...

  • Page 27
    .... These actions could result in significant restructuring or asset impairment charges, severance costs, losses on asset sales and use of cash. Accordingly, these restructuring activities could have a significant effect on our consolidated financial position, operating profit, cash flows and...

  • Page 28
    ...million which include product warranty and self-insured risk, deferred tax and environmental liabilities, because they do not have a definite payout by year. As of December 31, 2012, we also had $3.4 million in outstanding domestic letters of credit and $8.7 million in outstanding foreign letters of...

  • Page 29
    ... have a significant effect on our consolidated financial position and future operating results. Such events could include a loss of a significant customer or market share, the decision to relocate production to other locations or the decision to cease production of specific models of products. We...

  • Page 30
    ... period. This information can be presented either on the face of the income statement or in the notes to the financial statements. The amendments are effective for reporting periods beginning after December 15, 2012. ASU No. 2013-02 impacts presentation and disclosure only and management believes...

  • Page 31
    ...from 2012 levels. The potential improvement is based on our internal projections about the market and related economic conditions, expected price increases to our customers, estimated foreign currency exchange rate effects, as well as our continued efforts in sales and marketing. We cannot currently...

  • Page 32
    ... ABOUT MARKET RISK We are exposed to market risk during the normal course of business from credit risk associated with cash investments and accounts receivable and from changes in interest rates, commodity prices and foreign currency exchange rates. The exposure to these risks is managed through...

  • Page 33
    ... in steel prices has a particularly negative impact, as there is currently no well-established global market for hedging against increases in the cost of steel. We have been successful at securing a few steel futures contracts in the U.S. to help mitigate this risk, although at the end of 2012 and...

  • Page 34
    ...to currency movements over the limited time frame of up to eighteen months. Ultimately, long-term changes in currency exchange rates have lasting effects on the relative competitiveness of operations located in certain countries versus competitors located in different countries. Additionally, if the...

  • Page 35
    ... of Stockholders' Equity for the Years Ended December 31, 2012, 2011 and 2010...Notes to Consolidated Financial Statements ... 35 36 37 38 39 40 41 All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 34

  • Page 36
    ... financial position of Tecumseh Products Company and subsidiaries as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States...

  • Page 37
    ...Long-term borrowings ...Other postretirement benefit liabilities ...Product warranty and self-insured risks...Pension liabilities ...Other ...Total liabilities ...Stockholders' Equity Class A common stock, $1 par value; authorized 75,000,000 shares; issued and outstanding 13,401,938 shares in 2012...

  • Page 38
    TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, (in millions, except share and per share data) 2012 2011 2010 Net sales ...Cost of sales...Gross profit ...Selling and administrative expenses...Other income (expense), net ......

  • Page 39
    TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) For the Years Ended December 31, 2012 2011 2010 Net income (loss) ...$ Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments, net of tax of $0.0, $0.1 ...

  • Page 40
    TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, (in millions) 2012 2011 2010 Cash Flows from Operating Activities: Net income (loss) ...Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities...

  • Page 41
    TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Other Comprehensive Income/(Loss) (in millions) Class A $1 Par Value Class B $1 Par Value Paid in Capital Retained Earnings Total Stockholders' Equity Balance, January 1, 2010...$ Net loss ...

  • Page 42
    ... Business Description - Tecumseh Products Company (the "Company", "we", "us" or "our") is a global manufacturer of hermetically sealed compressors for (i) commercial refrigeration applications, including walk-in coolers and freezers, ice makers, dehumidifiers, water coolers, food service equipment...

  • Page 43
    ...the estimated cost of maintaining product warranties at the time the product is sold based upon historical claims experienced by product line. For most of our customers, warranty coverage on our compressors is provided for a period of twelve months to three years from the date of manufacture. In the...

  • Page 44
    ...by $1.4 million related to our Grafton and New Holstein facilities (formerly of the Engine and Power Train Group) for environmental accruals ($1.0 million) and operating costs ($0.4 million), $1.8 million for legal fees and settlements for other sold businesses, and income taxes of $1.6 million. 43

  • Page 45
    ... years of credited service. Pension benefits covering hourly employees generally provide benefits of stated amounts for each year of service. With regard to our retiree health care benefit plan, in the second quarter of 2012 we informed employees and current retirees that (1) effective May 1, 2012...

  • Page 46
    ... used at December 31, 2012. See Note 1, "Accounting Policies", for a discussion of the impact of this reclassification on our financial statements. The following table provides a reconciliation of the changes in the pension and postretirement plan benefit obligations and fair value of plan...

  • Page 47
    ... obligation...$ Fair value of plan assets...$ Components of net periodic expense (benefit) during the year: Pension Benefits (in millions) 2012 2011 186.5 177.4 148.5 $ $ $ 182.3 176.2 144.2 Other Benefits 2012 2011 Service cost ...Interest cost ...Expected return on plan assets ...Amortization...

  • Page 48
    ... net periodic benefit costs for the years ended December 31: Pension Benefits 2012 2011 2012 Other Benefits 2011 U.S.-Based Plans: Discount rate ...Expected long-term return on plan assets ...Rate of compensation increase...Europe-Based Plans: Discount rate ...Expected long-term return on plan...

  • Page 49
    The following tables provide pension plan assets based on nature and risks as of December 31, 2012 and 2011 (See Note 13, "Fair Value Measurements", for additional information): Plan Assets at Total Fair Value Measurement at December 31, 2012 Quoted Prices in Active Markets (Level 1) Significant ...

  • Page 50
    ... in a number of government sponsored tax incentive programs, which result in refundable non-income taxes. Following is a summary of the recoverable non-income taxes recorded on our balance sheet at December 31, 2012 and 2011: December 31, (in millions) 2012 2011 Brazil ...India...Europe ...Mexico...

  • Page 51
    ...Our debt consists of the following at December 31, (in millions) 2012 Weighted Avg. Int. Rate 2011 Weighted Avg. Int. Rate Short-term debt obligations Lines of credit ...$ Revolving credit facility ...Capital lease obligations ...Other debt ...Current maturities of long-term debt...Total short-term...

  • Page 52
    ...covenants on these credit facilities, except that consent must be received from the bank in order to dispose of certain assets located in India. Our consolidated borrowings totaled $61.4 million at December 31, 2012 and $59.9 million at December 31, 2011. Our weighted average interest rate for these...

  • Page 53
    ... under this plan for the years ended December 31, 2012 and 2011 was $0.1 million and $0.9 million, respectively. A summary of activity under the plans during 2012 is as follows: SARs: Number of awards Weighted average exercise price per share Outstanding at January 1, 2012 ...Granted ...Exercised...

  • Page 54
    ... made. We measure the fair value of outstanding DSUs based upon the closing stock price of our Class A common stock on the last day of the reporting period. We pay out the DSUs to a director after the earlier of a Company Change in Control, as defined in the plan, or the date when he or she ceases...

  • Page 55
    ...and Corporate ($1.7 million) locations. In addition, a final settlement gain of $1.0 million, net of excise tax, was received in February 2010 from our previous salaried pension plan that was terminated in 2008. The following table reconciles cash activities for the years ended December 31, 2012 and...

  • Page 56
    ...before tax is as follows: (in millions) 2012 2011 2010 Income taxes expense (benefit) at U.S. statutory rate...$ State and local income taxes ...Foreign tax rate differential...Valuation allowance...Capital loss expiration...Intraperiod allocation ...Release of uncertain tax positions...Tax refunds...

  • Page 57
    ...) 2012 2011 Deferred tax assets: Other postretirement liabilities...Product warranty and self-insured risks ...Tax carry forwards...Other accruals and miscellaneous ...Subtotal...Valuation allowance ...Total deferred tax assets ...Deferred tax liabilities: Property, plant & equipment ...Pension...

  • Page 58
    ...significant taxing jurisdictions including the U.S., Canada, France and Brazil. In the U.S., our federal income tax returns through 2005 have been examined by the Internal Revenue Service. As a result of a U.S. income tax refund, a tax benefit was recognized in the second quarter of 2012. Management...

  • Page 59
    ... purposes. Our primary foreign currency exchange rate exposures are with the Brazilian Real, the Euro, and the Indian Rupee, against the U.S. Dollar. Our primary commodity risk is the price risk associated with forecasted purchases of materials used in our manufacturing process. Cash flow hedges. We...

  • Page 60
    ... following table presents the fair value of our derivatives designated as hedging instruments in our Consolidated Balance Sheets as of December 31, 2012 and 2011: Asset (Liability) Derivatives December 31, 2012 December 31, 2011 (in millions) Financial Position Location Fair Value Financial Position...

  • Page 61
    ... liability for the business. Discounted receivables sold with limited recourse were $11.9 million and $10.1 million at December 31, 2012 and 2011, respectively, and the discount rate was 6.1% and 4.7% at December 31, 2012 and 2011, respectively. Under our factoring program in Europe, we may discount...

  • Page 62
    ... believe that the disposition of these matters will have a material adverse effect on our consolidated financial position, cash flows or results of operations. With the exception of the settlement of the working capital adjustment made with the purchaser of our former Engine & Power Train business...

  • Page 63
    .... As previously reported, Tecumseh Products Company, Tecumseh Compressor Company, Tecumseh do Brasil, Ltda, and Tecumseh do Brasil U.S.A. LLC entered into a settlement agreement with the direct-purchaser plaintiffs on June 24, 2010 to resolve claims in the action in order to avoid the costs and...

  • Page 64
    ... 20, 2009 Snowstorm Acquisition Corporation ("Snowstorm"), a Delaware corporation affiliated with Platinum Equity Capital Partners, L.P. ("Platinum"), filed a lawsuit against Tecumseh Products Company, Alix Partners LLP, AP Services LLC and James Bonsall in the United States District Court for the...

  • Page 65
    ...destination of products sold. In 2012 and 2011 one household refrigeration and freezer customer accounted for 7.2% and 10.0% of our consolidated sales, respectively. Long-lived assets by geographic area are based upon the physical location of the assets. Assets, capital expenditures and depreciation...

  • Page 66
    ....9 28.9 82.1 26.9 137.9 91.6 933.8 $ $ For years ended December 31, (in millions) 2012 2011 2010 Property, plant and equipment, net: North America...$ Brazil ...India ...Europe ...Total property, plant and equipment, net...$ NOTE 17. Quarterly Financial Data - Unaudited 30.2 85.4 24.8 16.6 157...

  • Page 67
    ... period. This information can be presented either on the face of the income statement or in the notes to financial statements. The amendments are effective for reporting periods beginning after December 15, 2012. ASU No. 2013-02 impacts presentation and disclosure only and management believes...

  • Page 68
    ...timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Management has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2012. In making its assessment, management used...

  • Page 69
    ...management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal...

  • Page 70
    ... pursuant to Item 405 of Regulation S-K will be set forth under the caption "Information Concerning the Board of Directors - Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement relating to our 2013 Annual Meeting of Shareholders scheduled to be held April 24...

  • Page 71
    ... AND SERVICES The information required to be reported pursuant to Item 9(e) of Schedule 14A will be set forth under the caption "Proposal No. 2 - Ratification of Appointment of Independent Accountant - Audit and Non-Audit Fees" in our definitive proxy statement relating to our 2013 annual meeting...

  • Page 72
    ... 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 Date: March 7, 2013 By /s/ James J. Connor James J. Connor President, Chief Executive Officer and Secretary Pursuant to the requirements of...

  • Page 73
    ... Agreement, dated as of December 30, 2011, among Tecumseh Products Company, Tecumseh Compressor Company, Tecumseh Products of Canada, Limited, Evergy, Inc. and PNC Bank, National Association (incorporated by reference to Exhibit 4.4 to registrant's Annual Report on Form 10-K for the year ended...

  • Page 74
    ...in registrant's definitive proxy statement relating to its 2012 annual meeting of shareholders held April 25, 2012, File No. 0-452) General Release of All Claims, dated as of May 4, 2011 between Tecumseh Products Company and James E. Wainright (management contract or compensatory plan or arrangement...

  • Page 75
    ...Companies, Inc. (incorporated by reference to Exhibit 10.27 to registrant's Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-452) Agreement with AP Services, LLC and AlixPartners, LLP dated December 7, 2006 (incorporated by reference to Exhibit 10.1 to registrant's Current...

  • Page 76
    ... Services, LLC P.O. Box 43078, Providence, RI 02940-3078 Overnight Courier Address 250 Royall Street, Canton, MA 02021 (800) 254-5196 Annual Report, Proxy Statement, 10-K Tecumseh Products Company 5683 Hines Drive, Ann Arbor, MI 48108 Attn: Report Requests (734) 585-9507 Reports and information...

  • Page 77
    Tecumseh Products Company is a global manufacturer of hermetically sealed compressors for residential and specialty air conditioning, household refrigerators and freezers, and commercial refrigeration applications, including air conditioning and refrigeration compressors, as well as condensing units...