Tecumseh Products 2012 Annual Report Download - page 23

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A summary of our operating results as a percentage of net sales is shown below:
Year Ended December 31, 2011 vs. Year Ended December 31, 2010
(in millions) 2011 % 2010* %
Net sales ............................................................................... $ 864.4 100.0% $ 933.8 100.0%
Cost of sales .................................................................. (826.5)(95.6%) (849.5)(90.9%)
Gross profit........................................................................... 37.9 4.4% 84.3 9.1%
Selling and administrative expenses ............................. (108.1)(12.5%) (114.1)(12.2%)
Other income (expense), net ......................................... 14.7 1.7% 14.3 1.5%
Impairments, restructuring charges, and other items .... (8.5)(1.0%) (50.3)(5.4%)
Operating (loss) .................................................................... (64.0)(7.4%) (65.8)(7.0%)
Interest expense............................................................. (10.5)(1.2%) (10.6)(1.1%)
Interest income.............................................................. 2.3 0.3% 1.2 0.1%
(Loss) from continuing operations before taxes................... (72.2)(8.3%) (75.2)(8.0%)
Tax benefit..................................................................... 0.9 0.1% 16.6 1.8%
(Loss) from continuing operations ....................................... $(71.3)(8.2%) $(58.6)(6.2%)
* Certain reclassifications have been made to prior results to conform to classifications used at December 31, 2011. These classifications have no impact on
net income.
Net sales in the year ended December 31, 2011 decreased $69.4 million, or 7.4%, compared with the same period of 2010.
Excluding the increase in sales due to the effect of changes in foreign currency translation of $27.8 million, net sales decreased
by 10.4% from 2010, with volume and mix decreases partially offset by price increases.
Sales of compressors used in commercial refrigeration and aftermarket applications represented 58% of our total sales and
decreased by 5.4% to $502.4 million in 2011 compared to 2010. This decrease was primarily driven by lower volumes and
unfavorable changes in sales mix of $57.4 million, partially offset by favorable changes in currency exchange rates of $15.1
million and price increases of $13.6 million. The volume/sales mix decrease is mainly attributable to customers reducing their
inventory levels based upon their current forecasted demands as market conditions softened.
Sales of compressors for air conditioning applications and all other applications represented 21% of our total sales and
increased by 19.1% to $179.5 million in 2011, when compared to 2010. This increase is primarily due to volume and mix
increases of $19.0 million, price increases of $4.2 million and $5.6 million of favorable currency exchange rate changes.
Volume increases are primarily in 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 21% of our total sales and
decreased by 27.6% to $182.5 million in 2011, when compared to 2010. This decrease is primarily due to volume and mix
decreases of $78.0 million, partially offset by $7.1 million due to favorable changes in currency exchange rates and price
increases of $1.4 million. We continue to see intensified competition from Asian supply sources in this market and we believe
that our volume declines are a result of the price increases we implemented to offset higher commodity costs and the
weakening U.S. Dollar. In addition, a customer in this market shifted its production to manufacture more of its products
internally.
Gross profit decreased by $46.4 million from $84.3 million, or 9.1% of net sales, in 2010 to $37.9 million, or 4.4% of net sales
in 2011. The decrease in gross profit in 2011 was primarily attributable to unfavorable changes in commodity costs of $26.0
million, unfavorable changes in volume and sales mix of $23.4 million, unfavorable changes in productivity of $17.3 million
which is mainly a result of unfavorable absorption of fixed overhead costs due to lower volume and excess capacity,
unfavorable currency exchange effects of $0.9 million, and unfavorable changes in other material cost of $1.4 million. These
decreases were partially offset by a favorable effect of price increases of $19.2 million, and favorable changes in all other
expenses of $3.4 million. Fourth quarter 2011 gross profit was negative, primarily due to unfavorable absorption of fixed
overhead costs due to even lower volume and excess capacity and to the other reasons described above.
Selling and administrative (“S&A”) expenses decreased by $6.0 million from $114.1 million in 2010 to $108.1 million in 2011.
As a percentage of net sales, S&A expenses were 12.5% in 2011 compared to 12.2% in 2010, primarily as a result of reduced
sales volume. Payroll, benefits and other related employee expenses decreased by $8.3 million as a result of our continued