Tecumseh Products 2014 Annual Report Download - page 33

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results and the underlying amount and category of income in future years could render our current assumptions, judgments and
estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above
could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and
results of operations. Historically, our assumptions, judgments and estimates have not differed materially from actual results;
however, unanticipated events such as income from operations or capital gains income could result in material changes to our
tax accounts in future periods.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management continuously monitors accounting pronouncements, see Note 19, "New Accounting Standards", of the Notes to
Consolidated Financial Statements in Item 8 of this report.
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 2014 primarily due to the unfavorable impact of changes in foreign currency exchange rates and net lower
volumes and unfavorable changes in sales mix, partially offset by net price increases. We expect to see continued demand
volatility in 2015 as a result of increased competition, quality issues, changes in the regulatory landscape and continued
uncertainties with current events around the world. For 2015, we currently expect net sales to increase in the range of 1 percent
to 3 percent from 2014 levels.
This current outlook for 2015 is based on our internal projections about the market and related economic conditions, expected
price increases to our customers, continued economic impact from the Indian quality issue, the changing regulatory landscape,
estimated foreign currency exchange rate effects, as well as our continued efforts in sales and marketing. If our key markets
become weaker than we currently expect, this could have an adverse impact on our outlook for 2015.
The outlook for 2015 is subject to many of the same variables that have negatively impacted us in recent years. The condition
of, and uncertainties regarding, the global economy, commodity costs, and key currency rates 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 2015 results. We can give no guarantees regarding what impact
future exchange rates, commodity prices and other economic changes will have on our 2015 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 prices of some of our key commodities, specifically copper, aluminum and steel, remain volatile. The weighted average
market prices of copper and steel decreased 10.7% and 8.8%, respectively, and aluminum increased 10.0%, in 2014 compared
to 2013, see “Executive Summary – Commodities” above. We expect the full year change in average cost of our purchased
materials in 2015, including the impact of our hedging activities, to have a slightly negative impact in 2015 when compared to
2014, 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 Euro, the Brazilian Real and the Indian Rupee have weakened against the U.S. Dollar in 2014. We have entered into
forward purchase contracts to cover a portion of our exposure to additional fluctuations in value during 2014. See “Executive
Summary - Currency Exchange” and “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this
report for more details regarding our hedging contracts. 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 and losses, to have a
slightly positive impact on our net income in 2015 when compared to 2014.
After giving recognition to the factors discussed above, we expect that the full year 2015 operating (loss) income could
improve compared to 2014, 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 indexing, restructuring activities and
other cost reductions. We also expect our cash flow from operating activities for 2015 to be slightly positive 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 2015 to be approximately $15.0 million to $20.0 million, primarily for equipment.
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. We are in the process of
assessing our strategic initiatives and their respective impacts on our future results. Additional restructuring actions may be