Tecumseh Products 2014 Annual Report Download - page 23

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21
and India. As a result of these factors, our consolidated financial results are sensitive to changes in foreign currency exchange
rates, especially the Brazilian Real, the Euro and the Indian Rupee. During 2014, the Euro weakened against the U.S. Dollar by
13.6%, the Brazilian Real weakened against the U.S. Dollar by 13.4% and the Indian Rupee weakened against the U.S. Dollar
by 1.9%.
We have entered into forward purchase contracts to cover a portion of our exposure to additional fluctuations in foreign
currency value during 2014. 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. We believe that
only one major competitor faces similar exposure to the Brazilian Real. Our Brazilian and European manufacturing and sales
presence is significant and changes in the Brazilian Real and the Euro have been significant to our results of operations when
compared to prior periods.
For a discussion of the risks to our business associated with currency fluctuations, refer to “Quantitative and Qualitative
Disclosures about Market Risk – Foreign Currency Exchange Risk” in Part II, Item 7A of this report.
RESULTS OF OPERATIONS
Year Ended December 31, 2014 vs. Year Ended December 31, 2013
A summary of our operating results is shown below:
Twelve Months Ended December 31,
(in millions) 2014 % 2013 %
Net sales $ 724.4 100.0% $ 823.6 100.0%
Cost of sales (653.7) (90.2%) (745.5) (90.5%)
Gross profit 70.7 9.8% 78.1 9.5%
Selling and administrative expenses (92.2) (12.7%) (104.9) (12.7%)
Other income (expense), net 9.3 1.3% 21.4 2.6%
Impairments, restructuring charges, and other items (8.8) (1.2%) (13.6) (1.7%)
Operating (loss) income (21.0) (2.9%) (19.0) (2.3%)
Interest expense (10.0) (1.4%) (9.2) (1.1%)
Interest income 3.2 0.4% 1.5 0.2%
(Loss) income from continuing operations before taxes (27.8) (3.8%) (26.7) (3.2%)
Tax (expense) benefit (0.5) (0.1%) (7.7) (0.9%)
(Loss) income from continuing operations $(28.3) (4.0%) $ (34.4) (4.1%)
Net sales in the year ended December 31, 2014 decreased by $99.2 million, or 12.0%, compared with the same period of 2013.
Excluding the decrease in sales due to the unfavorable effect of changes in foreign currency translation of $17.9 million, net
sales decreased by 9.9% from 2013, primarily due to lower net volume and mix, partially offset by net price increases. The
lower volumes and unfavorable mix were primarily as a result of the quality issue discovered in 2013 at our Indian location, the
competitive pricing environment in Brazil and soft market conditions in North America. Sales at our North American location
also declined as a result of ceasing production of a non-core product as we sold the related fixed assets in the first quarter of
2014.
Sales of compressors used in commercial refrigeration and aftermarket applications represented 62% of our total sales and
decreased by 7.7% to $450.3 million in 2014, when compared to 2013. Lower volume and unfavorable changes in sales mix of
$34.8 million and unfavorable changes in currency exchange rates of $3.4 million were partially offset by price increases of
$0.8 million. Volume decreases are mainly attributable to our European, North American and Brazilian locations. Sales at our
North American location declined partially as a result of ceasing production of a non-core product as we sold the related fixed
assets in the first quarter of 2014.
Sales of compressors for air conditioning applications and all other applications represented 19% of our total sales and
decreased by 23.4% to $138.6 million in 2014, when compared to 2013. This decrease is primarily due to lower volumes and
unfavorable changes in sales mix of $40.4 million and unfavorable changes in currency exchange rates of $6.2 million, partially
offset by price increases of $4.3 million. The lower net volumes and unfavorable changes in sales mix were primarily a result of
the quality issue discovered in 2013 at our Indian location as well as competitive pricing environment in Brazil.
Sales of compressors used in household refrigeration and freezer (“R&F”) applications represented 19% of our total sales and
decreased by 12.6% to $135.5 million in 2014, when compared to 2013. This decrease is primarily due to lower sales volume