Tecumseh Products 2012 Annual Report Download - page 31

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OUTLOOK
Information in this “Outlook” section should be read in conjunction with the cautionary statements and discussion of risk
factors included elsewhere in this report.
Sales declined in 2012 due to the unfavorable foreign currency exchange rate impact, partially offset by net favorable changes
in volume and product mix and net price increases. We expect to see continued demand volatility in the first half of 2013 as a
result of uncertainties and current events around the world. For 2013, we currently expect net sales to increase in the range of 3
percent to 8 percent 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 project whether market conditions will improve on a
sustained or significant basis. If the economic improvement in our key markets does not occur as expected, this could have an
adverse impact on our current outlook.
The prices of some of our key commodities, specifically copper and steel, have remained volatile. The weighted average
market prices of copper decreased 11.6%, while costs of steel decreased 9.4% in 2012 compared to 2011, see “Executive
Summary – Commodities”. We expect the full year change in average cost of our purchased materials in 2013, including the
impact of our hedging activities, to have a slightly favorable impact in 2013 when compared to 2012, depending on commodity
cost levels and the level of our hedging over the course of the year. We expect to continue our approach of mitigating the effect
of short-term price swings through the appropriate use of hedging instruments, price increases, and modified pricing structures.
The outlook for 2013 is subject to many of the same variables that have negatively impacted us in recent years, which have had
significant impacts on our results of operations. The condition of, and uncertainties regarding, the global economy, commodity
costs, key currency rates and weather are all important to future performance, as is our ability to match our hedging activity
with actual levels of transactions. The extent to which adverse trends in recent years continue, will ultimately determine our
2013 results. We can give no guarantees regarding what impact future exchange rates, commodity prices and other economic
changes will have on our 2013 results. For a discussion of the sensitivity analysis associated with our key commodities and
currency hedges see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this report.
The Brazilian Real, the Euro and the Indian Rupee continue to be volatile against the U.S. Dollar. We have considerable
forward purchase contracts to cover a portion of our exposure to additional fluctuations in value during 2013. See “Executive
Summary-Currency Exchange” above. In the aggregate, we expect the changes in foreign currency exchange rates, after giving
consideration to our hedging contracts and including the impact of realized gains/losses, to have minimal impact on our net
income in 2013 when compared to 2012.
After giving recognition to the factors discussed above, we expect that the full year 2013 operating profit could improve
compared to 2012, exclusive of the $45.0 million curtailment gain on our postretirement benefits recognized in 2012, if we are
successful at offsetting volatility in commodity costs and foreign exchange rates, and implementing initiatives for re-
engineering our product lines to reduce our costs, price increases, restructuring activities and other cost reductions. We also
expect that our operating cash flow could be sufficient to maintain current cash balances and fund ongoing business
requirements if we are successful at achieving the improved operating profit discussed above and the tax authorities do not
significantly change their pattern of payments or past practices for the expected outstanding refundable Brazilian and Indian
non-income taxes. Furthermore, we expect capital spending in 2013 to be approximately $20.0 million to $25.0 million.
Based on our assessment of ongoing economic activity, we realize that we may not generate cash flow from operating activities
unless further restructuring activities are implemented or sales or economic conditions improve. Additional restructuring
actions may be necessary in 2013 and might include changing our current footprint, consolidation of facilities, other reductions
in manufacturing capacity, reductions in our workforce, sales of assets, and other restructuring activities. 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 future operating results. Cash required by these restructuring activities might be provided by our cash
balances and the cash proceeds from the sale of assets. If such restructuring activities are undertaken, there is a risk that the
costs of the restructuring and cash required will exceed the benefits received from such activities. We have engaged a financial
adviser and are exploring our strategic alternatives.
As we look to the first quarter of 2013, we expect our sales, resulting operating profit and operating cash flow to be slightly
lower than the first quarter of 2012, reflecting the continuing uncertainty in the global economy.