Tecumseh Products 2014 Annual Report Download - page 7

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material adverse effect on our results. Generally, we do not enter into long-term contracts with our customers. However, we do
pursue long-term agreements with select major customers where a business relationship has existed for a substantial period of
time.
Competition
All of the compressor and condensing unit markets in which we operate are highly competitive. We compete with other
compressor producers, including manufacturers of end products and other manufacturers that have internal compressor
manufacturing operations. Most of these competitors manufacture their products outside the U.S. in countries where customers
are manufacturing products that use compressors and where manufacturing costs are lower, including Asia and Eastern Europe.
Worldwide productive capacities exceed global demand, which has put pricing pressure on major manufacturers in this market.
Participants compete on the basis of efficiency, price, sound level, refrigerant, delivery, reliability, availability and service, as
well as compliance with various environmental and regional safety standards and regulations. For most applications there are
numerous competitors. Some of our competitors offer more products and have greater financial, technical, manufacturing,
research and development and management resources than we do. Products in some markets are relatively undifferentiated and
competitors continuously introduce new products. The household refrigerator and freezer market is vertically integrated with
many appliance producers manufacturing a substantial portion of their compressor needs. Due to the robust nature of our
compressors for specialty air conditioning applications, we are particularly well suited for specialized, niche markets located in
parts of the Middle East and Asia.
In the U.S. and Europe specialty air conditioning compressor markets, we compete primarily with: Emerson/Copeland
Corporation, Danfoss, Inc., LG, Panasonic and Rechi. In Brazil, domestic compressor manufacturers have some protection
from outside competition, including import duties for compressors delivering up to 18,000 BTU/hour of cooling capacity. This
protection only pertains to components (e.g., compressors) and final products. We believe that we and Whirlpool, S.A (selling
compressors under the brand name “Embraco”) account for a majority of the compressors sold in Latin America for
refrigeration and freezer applications. However, in prior years our market share in Brazil had been reduced, as the strength of
the Brazilian currency made foreign imports relatively cheap despite the presence of duties. As a result, Asian manufacturers
have captured market share, including small shares of the market for compressors for refrigeration and freezer applications, and
importation of the end products containing compressors, particularly in the room air conditioning market. In addition, our Latin
American sales are concentrated and we believe that Embraco is capturing additional market share. Since the second half of
2011, the Brazilian Real has been weakening, and we believe this has improved our competitiveness. In 2014, approximately
44.0% of the sales from our Brazilian location were made to its three largest customers, and the loss of any of these customers
would have a significant impact on the results of operations of this location and on our consolidated results as a whole.
In East Asia, domestic compressor manufacturers also have some protection from outside competition, including import duties.
We have manufacturing facilities in India, where our sales in this region are concentrated. Compressors used in air
conditioning and household refrigerator applications are our primary markets in this region. This region has not yet fully
developed a cold chain with temperature-controlled storage and distribution facilities. Our Indian sales are concentrated
because there are fewer end product manufacturers in India. In 2014, approximately 53.7% of the sales from our Indian
location into East Asian markets were made to its three largest customers, and the loss of any of these customers would have a
significant impact on the results of operations of our Indian location and on our consolidated results as a whole.
Regulatory Requirements
Hydrochlorofluorocarbon compounds (“HCFCs”) are still used as a refrigerant in many air conditioning systems primarily in
developing regions of the world. Under a 1992 international agreement, the use of virgin HCFCs in new pre-charged equipment
was banned beginning January 1, 2010 in the U.S. Some Western European countries began HCFC phase-outs as early as 1998,
while some of these countries have fully eliminated the use of HCFCs. During the last several years, we have approved and
released a number of compressor models utilizing U.S. government approved hydrofluorocarbon (“HFC”) refrigerants. HFCs
are also currently under global scrutiny and subject to possible future restrictions. We believe we are positioned to react in a
timely manner to expected changes in the regulatory landscape.
In the last few years, there has been an even greater political and consumer movement toward the use of hydrocarbons (“HCs”)
and carbon dioxide as alternative refrigerants, moving further away from the use of chlorine (which depletes the ozone layer of
the atmosphere) and the use of fluorine (which contributes to the “green-house” effect). The most common HC refrigerants are
isobutane (R600a) and propane (R290). HCs are flammable compounds and are approved by the U.S. Government with limits
on the amount of refrigerant charge by application type. As part of the U.S. Environmental Protection Agency’s ("EPA")
Significant New Alternatives Policy ("SNAP"), HC refrigerants have been approved in household refrigerators and freezers and
self-contained commercial refrigeration equipment.