Tecumseh Products 2014 Annual Report Download - page 21

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Economy
Our sales depend significantly on worldwide economic conditions, which directly impact consumers' demand for the products
in which our products are used. The prolonged stagnation and recent political upheaval in the Euro zone, which has impacted
other economies in the region, uncertainties surrounding the conflicts in the Ukraine and the Middle East and concerns about
market fundamentals in many of the world's largest economies have led to the lack of growth in each of these markets.
Our sales decreased in 2014 compared to 2013 primarily due to lower volumes and unfavorable impact of changes in currency
exchange rates, partially offset by price increases. Excluding the effects of foreign currency translation, sales in 2014 were
approximately 9.9% lower than in 2013.
Liquidity
Challenges remain with respect to our ability to generate appropriate levels of liquidity solely from cash flows from operations,
particularly related to uncertainties of future sales levels, global economic conditions, currency exchange rates and commodity
pricing as discussed below. In 2014, cash provided by operating activities was $7.2 million, which included $25.3 million
provided by inventories and $9.9 million provided by receivables, partially offset by $4.9 million used for payables and
accrued expenses.
In 2014, we received approximately $1.9 million and $5.4 million of outstanding refundable non-income taxes in India and
Brazil, respectively, although we accrued $3.5 million more in non-refundable income taxes than we received in 2014. We
have received and expect to receive refunds of outstanding Indian and Brazilian non-income taxes through the end of 2016.
Due to changes in exchange rates, the actual amounts received as expressed in U.S. Dollars will vary depending on the
exchange rate at the time of receipt or future reporting date. We expect to recover approximately $19.8 million of the $27.7
million outstanding refundable taxes in the next twelve months, primarily related to the short-term portion of the outstanding
refundable taxes of $15.1 million in Brazil and $3.5 million in India. The tax authorities will not commit to an actual date of
payment and the timing of receipt may be different than planned if the tax authorities change their pattern of payment or past
practices.
We realize that we may not generate cash flow from operating activities unless further restructuring activities are implemented
or, sales or economic conditions improve. As a result, we continued to adjust our workforce levels as conditions demanded in
2014 in order to reduce our aggregate salary, wages and employee benefits. Our estimated realized savings on an annual basis
for these 2014 reductions is approximately $4.2 million. We incurred a charge of $4.0 million associated with the layoffs
which took place in 2014. The realized savings in 2014 are consistent with our initial estimates. During 2014, we hired a Chief
Restructuring Officer as well as a new Chief Executive Officer. Additional restructuring actions may be necessary during the
next several quarters. These restructuring actions could result in significant restructuring or asset impairment charges,
severance costs, losses on asset sales and use of cash. Accordingly, any future restructuring activities could have a significant
effect on our consolidated financial position, operating profit, cash flows and future operating results. Cash required for any
future restructuring activities may be provided by our cash balances, cash proceeds from the sale of assets or new financing
arrangements. There is a risk that the costs of the restructuring and cash required will exceed our original estimates or the
benefits received from such activities.
We have a Revolving Credit and Security Agreement with PNC Bank, National Association (“PNC”). Subject to the terms and
conditions of the agreement as amended, PNC agreed to provide a senior secured term loan and a senior secured revolving
credit financing up to an aggregate principal amount of $34.0 million, which includes up to $10.0 million in letters of credit,
subject to a borrowing base formula, lender reserves and PNC’s reasonable discretion. PNC also provided us with a senior
secured term loan. The loans under these facilities bear interest at either the London Interbank Offered Rate (LIBOR) or an
alternative base rate, plus a margin that varies with borrowing availability under the revolving credit facility. These facilities
mature on December 11, 2018. We were in compliance with all covenants and terms of the agreement at December 31, 2014.
At December 31, 2014, our borrowings under the PNC revolving facility totaled $0.3 million and borrowings under PNC term
loan totaled $8.3 million. We also had $6.4 million in outstanding letters of credit. We had $0.4 million of additional borrowing
capacity under the PNC facilities as of December 31, 2014, after giving effect to our fixed charge coverage ratio covenant and
our outstanding borrowings and letters of credit.
In the second quarter of 2014, our Brazilian subsidiary was approved for a special term low interest rate governmental loan
intended to promote innovation and research and development spending in Brazil, in the amount of approximately 82.5 million
Brazilian Reals to be used on approved research and development projects, provided that we spend approximately 35.3 million
Reals of our resources on the financed projects. We received the first installment of the loan in the amount equivalent to $11.0
million during the third quarter of 2014. However, $0.5 million of this amount is not available to us because the related projects
have not yet commenced. We expect to receive additional funding in two equal installments during the next two years. This
loan has a grace period of 36 months, after which it will be repaid on a monthly basis between July 2017 and July 2023.