Tecumseh Products 2012 Annual Report Download - page 5

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outdoor condensing units, multi-cell units, and complete refrigeration systems that use both single speed and variable speed
AC/DC powered compressors. These products are sold to both OEMs and authorized wholesale distributors.
In the last couple of years, we have introduced two major new products: the Mini and the Midi. The Mini compressor platform
is for use in household refrigerators and freezers, and the Midi compressor platform is for use in commercial refrigeration.
Commercial sales for these two products started in the fourth quarter of 2011. The Midi compressor models have all moved
from the engineering phase to the production phase, and, as of December 31, 2012, over 90% of the Mini compressor models
have moved from the engineering phase to the production phase. Major customers have tested these compressors and approved
them 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, Malaysia and a joint venture located in China. Our Brazilian compressor operations are the largest of our
manufacturing locations. They include two sites producing our broadest product offerings, with an installed capacity of
approximately 11.1 million compressors a year. Products that we produce in Brazil are sold throughout the world. Brazilian
exports were approximately 29%, 26%, and 35% of Brazilian production in 2012, 2011, and 2010, respectively. The weakening
of the Brazilian Real in the second half of 2011 and continuing in 2012 favorably impacted our competitiveness.
We produce compressor products in North America in our Mississippi manufacturing facility and assembly plants in Canada
and Mexico. Installed capacity in Mississippi is approximately 3.0 million compressors a year. We also manufacture electric
motors, a component of finished compressors, at our facility in Tennessee. In 2012, 2011 and 2010 approximately 13%, 14%
and 21%, respectively, of the compressor products produced in our North American operations were exported outside of North
America.
We operate three manufacturing facilities in France. The facilities in France have an aggregate compressor capacity of
3.7 million units a year. We also operate two manufacturing facilities in India with a current total compressor capacity of
4.5 million units a year.
We produce a significant portion of our component needs internally; however we also make strategic and concentrated
purchases, particularly of raw materials, from a few suppliers. The principle raw materials used in our manufacturing processes
are steel, copper and aluminum. In recent years, the volatility of commodity prices and related components has impacted us and
the industry in general. We attempt to mitigate the volatility and impact of higher commodity prices through a combination of
entering into commodity derivative contracts, price increases, material surcharges and cost reduction initiatives.
Our required raw materials and components are generally available in sufficient quantities from a variety of non-affiliated
suppliers. To the extent possible, we concentrate purchases with one to two suppliers and develop long-term relationships with
these vendors. By developing these relationships, we leverage our material needs to help in reducing costs.
Sales and Marketing
We market our compressor and condensing unit products under the following brand names; “Tecumseh,” “L’Unité Hermétique
by Tecumseh,” “Masterflux by Tecumseh,” “Silensys by Tecumseh,” “Celseon” and “Vector.” We sell our products in 103 countries
primarily through our own sales staff as well as independent sales representatives and authorized wholesale distributors.
A substantial portion of our 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 refrigeration applications
include substantial sales to both OEMs and wholesale distributors.
The breakdown of sales by class for 2012, 2011 and 2010 is set forth in the table below:
% of Total Sales Volume
2012 2011 2010
Commercial Refrigeration................................ 59 % 58 % 57 %
Household Refrigerator and Freezer ................ 22 % 21 % 27 %
Residential and Specialty Air Conditioning..... 19 % 21 % 16 %
Total.................................................................. 100% 100% 100%