10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2008

Commission File Number 0-452

TECUMSEH PRODUCTS COMPANY

(Exact Name of Registrant as Specified in its Charter)

Michigan	38-1093240
(State of Incorporation)	(I.R.S. Employer Identification No.)

1136 Oak Valley Drive
Ann Arbor, Michigan	48108
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (734) 585-9500

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

	Name of Each Exchange
Title of Each Class	on Which Registered
Class B Common Stock, $1.00 Par Value	The Nasdaq Stock Market LLC	None
Class A Common Stock, $1.00 Par Value	The Nasdaq Stock Market LLC
Class B Common Stock Purchase Rights	The Nasdaq Stock Market LLC
Class A Common Stock Purchase Rights	The Nasdaq Stock Market LLC

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o       No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o       No þ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ       No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

Certain shareholders, which, as of June 30, 2008, held an aggregate of 101,400 shares of Registrant’s Class A Common Stock and 2,184,045 shares of its Class B Common Stock might be regarded as “affiliates” of Registrant as that word is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. If such persons are “affiliates,” the aggregate market value as of June 30, 2008 (based on the closing prices of $32.78 per Class A share and $28.84 per Class B share, as reported on the Nasdaq Stock Market on such date) of 13,300,538 Class A shares and 2,893,701 Class B shares held by non-affiliates was $519,445,972.

Numbers of shares outstanding of each of the Registrant’s classes of Common Stock at February 27, 2009:

Class B Common Stock, $1.00 Par Value:	5,077,746
Class A Common Stock, $1.00 Par Value:	13,401,938

Certain information in the definitive proxy statement to be used in connection with the Registrant’s 2009 Annual Meeting of Shareholders has been incorporated herein by reference in Part III hereof.

TABLE OF CONTENTS

	Page
Part I
Item 1. Business		3
Item 1A. Risk Factors		9
Item 1B. Unresolved Staff Comments		15
Item 2. Properties		15
Item 3. Legal Proceedings		15
Item 4. Submission of Matters to a Vote of Security Holders		18
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
Item 6. Selected Financial Data		20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		43
Item 8. Financial Statements and Supplementary Data		46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		88
Item 9A. Controls and Procedures		88
Item 9B. Other Information		90
Part III
Item 10. Directors and Executive Officers of the Company		91
Item 11. Executive Compensation		92
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		92
Item 13. Certain Relationships and Related Transactions, and Director Independence		92
Item 14. Principal Accountant Fees and Services		92
Part IV
Item 15. Exhibits and Financial Statement Schedules		93
Signatures		101
EX-4.2
EX-4.3
EX-10.19
EX-10.23
EX-10.25
EX-10.29
EX-21
EX-23.1
EX-23.2
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

ITEM 1. BUSINESS

General

Tecumseh Products Company (the “Company”) is a full-line, independent, global manufacturer of hermetically sealed compressors for residential and commercial refrigerators, freezers, water coolers, dehumidifiers, window air conditioning units and residential and commercial central system air conditioners and heat pumps. We believe we are one of the world’s largest independent producers of hermetically sealed compressors. Our products are sold in countries all around the world.

Our compressor products include a broad range of air conditioning and refrigeration compressors, as well as condensing units and complete refrigeration systems. Our compressor products range from fractional horsepower models used in small refrigerators and dehumidifiers to large compressors used in unitary air conditioning applications. We sell compressors that are used in four types of product lines: (i) commercial refrigeration applications including freezers, dehumidifiers, display cases and vending machines; (ii) household refrigerators and freezers; (iii) commercial and residential unitary central air conditioning systems; and (iv) room air conditioners. We sell compressors to original equipment manufacturers (“OEMs”) and aftermarket distributors.

We formerly operated an Engine & Power Train business, as well as an Electrical Component business. During 2007, we sold our entire Engine & Power Train business, and the majority of the Electrical Component business. The remaining portions of the Electrical Component business are classified as held for sale.

We are a Michigan corporation organized in 1930.

Foreign Operations and Sales

Although we maintain a manufacturing presence in the U.S., international sales and manufacturing are extremely important to our business as a whole. In 2008, sales from continuing operations to customers outside the United States represented approximately 82% of total consolidated net sales. Products sold within and outside the United States are manufactured in locations throughout the world including Brazil, France, India, Canada and Malaysia.

Our dependence on sales in foreign countries entails certain commercial and political risks, including currency fluctuations, unstable economic or political conditions in some areas and the possibility of U.S. government embargoes on sales to certain countries. Our foreign manufacturing operations are subject to other risks as well, including governmental expropriation, governmental regulations that may be disadvantageous to businesses owned by foreign nationals and instabilities in the workforce due to changing political and social conditions. These considerations are especially significant in the context of our Brazilian operations, given the importance of Tecumseh do Brasil’s overall size and performance in relation to our total operating results.

Compressor Product Lines

A compressor is a device that compresses a refrigerant gas. In applications that utilize compressors, when the gas is later permitted to expand, it removes heat from the room or appliance by absorbing and transferring it, producing a cooling effect. This technology forms the basis for a wide variety of refrigeration and air conditioning products. All of the compressors we produce are hermetically

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sealed. Our current compressor line consists primarily of reciprocating and rotary designs; in addition, we have recently introduced a growing line of scroll models.

Our lines of compressors range in size from approximately 6,000 to 72,000 BTU/hour models used in stationary and mobile air conditioning applications to 350 to 1,500 BTU/hour models used in household refrigerators/freezers, along with 160 to 73,000 BTU/hour models for commercial refrigeration applications, such as ice makers, vending machines, food service equipment, display cases and refrigerated walk-in cold rooms.

We produce reciprocating compressors in the 160 to 72,000 BTU/hour for air conditioning and commercial refrigeration applications. We produce rotary compressors ranging from 2400 to 36,000 BTU/hour for room and mobile air conditioning applications, as well as certain commercial refrigeration applications. Rotary compressors generally provide increased operating efficiency, lower equipment space requirements, and reduced sound levels when compared to reciprocating piston models.

We have also started offering customers our scroll compressor and condensing units utilizing scroll compressors especially designed for demanding commercial refrigeration applications. The addition of scroll compressors to our product portfolio provides greater versatility and options to our customers in a wider range of applications and performance conditions, by offering greater efficiency, reduced noise levels, and improved durability when compared to other types of compressors. We are offering the scroll compressor in the aftermarket product lines of the business, and are providing samples to original equipment manufacturers. We are expanding our scroll compressor product offering at a rapid pace and expect to continue to do so throughout 2009 and 2010.

We also produce value-added sub-assemblies and complete refrigeration systems that utilize our compressors as components. Such products include indoor and outdoor condensing units, and 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 OEM and aftermarket distributors.

Manufacturing Operations

We manufacture our products from facilities located in the United States, Canada, Brazil, France, India and Malaysia. Of our foreign manufacturing sources, our Brazilian compressor operations are the largest. Brazilian operations include two manufacturing facilities producing our broadest product offerings, with an installed capacity of approximately 18 million compressors. Products produced in Brazil are sold throughout the world. Significant devaluations of the Brazilian real in 1999 and 2002 set the stage for these operations to better compete in foreign markets. The strengthening of the real from 2003 through July of 2008, however, represented a significant departure from those historical devaluation trends. Accordingly, we have gradually reduced our exports from the Brazilian market in recent years, resulting in approximately 48%, 59%, and 66% of Brazilian production being exported in 2008, 2007 and 2006, respectively.

We manufacture products in North America in facilities in Tupelo, Mississippi and Ontario, Canada. Over the past several years we have been consolidating the number of facilities operated in North America due to both cost competitiveness with low cost countries as well as the relocation of our customers’ operations to low cost countries. During 2008 we completed the closure of two additional facilities in the United States, leaving only our facility in Tupelo. Installed capacity in Tupelo is approximately 6 million compressors.

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We also currently operate three manufacturing facilities in France. As in North America, we are actively restructuring these operations, through consolidation into fewer facilities and by moving production to lower cost countries. During 2008 we ceased manufacturing in a facility located in LaVerpilliere, thus reducing the number of French manufacturing locations from four to three. These facilities have aggregate capacity of 3.7 million units.

We operate two manufacturing facilities in India with a current total capacity of 5 million units. Given the current cost structure of our Indian production and the potential growth of the Indian market, we are expanding production capacity in India, and relocating certain production capabilities from other, higher-cost countries into these facilities.

Our compressor manufacturing operations are vertically integrated, and we manufacture a significant portion of our component needs internally, including electric motors and metal stampings. Raw materials are purchased from a variety of non-affiliated suppliers. We utilize multiple sources of supply and the required raw materials and components are generally available in sufficient quantities, although the costs of commodity raw materials have increased substantially in recent years, peaking in mid-2008 before showing substantial decline. We expect that costs of these commodities will remain volatile in the future.

Given changes in relative currency values versus the dollar and the ability to source components more cheaply we expect that we will be decreasing the amount of vertical integration over the next several years. These actions are likely to continue to require the recognition of impairments and other costs as such plans are formulated and adopted.

Sales and Marketing

We market our compressor and condensing unit products under the following brand names; “Tecumseh”, “L’Unité Hermétique by Tecumseh”, “Masterflux”, “Silensys by Tecumseh” and “Vector by Tecumseh”. We sell our products primarily through our own sales staff, although sales to aftermarket customers are also made through independent sales representatives. In certain markets, we also use local independent sales representatives and 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 also include substantial sales to both OEM and distributor customers.

We have over 1,200 customers for compressor and condensing units. The majority of our customers are for commercial refrigeration products, while our customer base for household refrigeration and freezer (“R&F”) applications is much more concentrated. In 2008, the two largest customers for compressor products, both of whom were R&F customers, accounted for 7.3% and 7.0% respectively of consolidated net sales. Loss of either of these customers could have a materially 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 selected major customers where a business relationship has existed for a substantial period of time.

We sell our products in over 110 countries.

Competition

All of the compressor and condensing unit markets in which we operate are highly competitive. Participants compete on the basis of delivery, efficiency, noise level, price, compliance with various

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global environmental standards, and reliability. We compete not only with other independent compressor producers but also with manufacturers of end products that have internal compressor manufacturing operations. Due to recent adverse economic conditions, we have seen customers with these internal manufacturing capabilities bring an increasing proportion of their own requirements in-house.

     North American Markets

In the domestic markets for water coolers, dehumidifiers, vending machines, refrigerated display cases, food service equipment, ice makers and other commercial refrigeration products, we compete primarily with compressor manufacturers from the Far East, Europe and South America and to a lesser extent, the United States. Competitors include Matsushita Electric Industrial Corporation, Danfoss, Inc., Embraco, S.A., Copeland Corporation, ACC and others.

The household refrigerator and freezer market is vertically integrated with many appliance producers manufacturing a substantial portion of their compressor needs. Our competitors include ACC Group, Matsushita Electric Industrial Corporation, Embraco, S.A., Danfoss, Inc., and others.

The unitary air conditioning compressor market consists of OEMs and a significant compressor aftermarket. We compete primarily with three U.S. manufacturers; Emerson Climate Technology, a subsidiary of Emerson Electric, Inc., Danfoss, Inc., and Bristol Compressors, Inc. Emerson Climate Technology enjoys a larger share of the domestic unitary air conditioning compressor business than either Bristol Compressors, Inc. or Tecumseh.

Over the last several years there has been an industry trend toward the use of scroll compressors in the high efficiency applications of the unitary air conditioning market, led by Emerson Climate Technology. Our competition has had scroll compressors as part of their product offerings for some time. Along with its own manufacturing capabilities, Emerson Climate Technology is also a member of the Alliance Scroll manufacturing joint venture with two major U.S. central air conditioning manufacturers, Trane air conditioning division of Ingersoll Rand and Lennox International, Inc.

We believe that the rotary and scroll compressors are important to maintaining a position in the unitary air conditioning and commercial refrigeration markets, and we continue to expand development of both technologies. We are in the early stages of offering scroll compressors to our customers. Over the course of 2008 we have successfully released product into North America as part of Tecumseh condensing units and systems as well as for aftermarket distribution. We also expanded our product outreach to Europe, South America, and Asia with sampling of scroll compressors beginning in the second half of 2008 in these markets. We expect to continue to broaden our product offerings using scroll technology in 2009.

In the domestic room air conditioning compressor market, we compete primarily with foreign companies, as a majority of room air conditioners are now manufactured outside the United States. We also compete to a lesser extent with U.S. manufacturers. Competitors include Matsushita Electric Industrial Corporation, Sanyo Electric Trading Company, L.G. Electronics, Inc., Mitsubishi, Daikin, and others. We have increasingly struggled with price competition from foreign companies during the last several years. Downward pressure on prices, particularly in the room air conditioning market, has continued due to global manufacturing over-capacity and abundant supply of inexpensive Asian products. Consequently, compressors for the room air conditioning market are presently a small percentage — approximately 15% — of our sales volume.

In 2008, approximately 8% of the compressor products produced in our North American operations were exported to foreign countries.

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     Latin American Markets

Unlike North American and European markets, the markets in Latin America still have some degree of protection from outside competition, including import duties for compressors delivering up to 18,000 BTU/hr. of cooling capacity. Accordingly, markets exist for compressors serving all four of our primary product lines as described above. Tecumseh competes directly with Embraco, S.A., a subsidiary of Whirlpool, in Brazil. Together, Tecumseh and Embraco account for a majority of the share of compressors sold in Latin America. However, this level of protection is slowly being reduced, and the strength of the Brazilian currency in recent years has made foreign imports relatively cheaper despite the presence of duties. As a result, Asian manufacturers are beginning to capture additional share, and importation of the end products containing compressors has begun to reduce local demand for compressors, particularly in the room air conditioning product line. In addition, in 2008, approximately 18.1%, 13.1% and 10.5% of the sales delivered by our Brazilian facilities were made to its three largest customers respectively, and the loss of these customers would have a significant impact on the results of operations of these facilities, and to a lesser extent, on our consolidated results as a whole.

     European Markets

The largest portion of the European market is commercial refrigeration, followed by household refrigerators and freezers. Like North America, our primary competitors in both of these product lines include ACC Group, Embraco, S.A., Danfoss, Inc., Emerson and a growing number of producers from the Far East. European markets face the same competitive factors as those in North America, including foreign competition and a shrinking local customer base as OEM’s move operations to low cost countries.

     East Asian and Middle Eastern markets

Like Brazil, the East Asian/Middle Eastern markets still have some levels of protection for domestic manufacturers, including import duties. This is particularly the case in India, where our sales in the region are concentrated. In addition, given that the region has not yet fully developed a supply chain with temperature-controlled storage and distribution facilities (or “cold chain”), the majority of the market is for product used in air conditioning and household refrigerators. Major competitors include the Indian manufacturers Copeland / Emerson, Carrier Aircon Ltd., Godrej, Videocon, BPL and others. In addition, there are fewer end product manufacturers in India. Accordingly, in 2008, approximately 22.4% and 19.4% of the sales delivered by our Indian manufacturing facilities into East Asian and Middle Eastern markets were made to its two largest customers respectively, and the loss of these customers would have a significant impact on the results of operations of our Indian facilities, and to a lesser extent, on our consolidated results as a whole.

     Regulatory Requirements

Hydrochlorofluorocarbon compounds (“HCFCs”) are still used as a refrigerant in many air conditioning systems. Under a 1992 international agreement, HCFCs will be banned from new equipment beginning in 2010. Some European countries began HCFC phase-outs as early as 1998, and some have fully eliminated the use of HCFCs. Within the last several years, we have approved and released a number of compressor models utilizing U.S. government approved hydrofluorocarbons (“HFC”) refrigerants such as R410A, which are considered more environmentally safe than the preceding refrigeration compounds. HFCs are also currently under global scrutiny and subject to possible future restrictions.

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In the last few years, there has been an even greater political and consumer movement, particularly from northern European countries, toward the use of hydrocarbons (“HCs”) and CO₂ 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 isobutene and propane. HCs are flammable compounds and have not been approved by the U.S. government for air conditioning or household refrigerator and freezer applications. They are permitted in North America, however, for certain small compressors as long as the total weight of the hydrocarbons is less than 150 milligrams. We build some compressors in Europe and Brazil for sale into the European markets using propane as the refrigerant, and also build certain compressors in Europe utilizing isobutene for sale into the European and Latin American markets. CO₂ is still in limited production and is used in niche markets.

It is not presently possible to estimate the level of expenditures that will be required to meet future industry requirements or the effect on our competitive position. Nonetheless, we expect that our product development process will address these changes in a timely manner.

The U.S. National Appliance Energy Conservation Act of 1987 (the “NAECA”) requires specified energy efficiency ratings on room air conditioners and household refrigerator/freezers. Proposed energy efficiency requirements for unitary air conditioners were published in the U.S. in January 2001 and became effective in January 2006. The European and Brazilian manufacturing communities have issued energy efficiency directives that specify the acceptable level of energy consumption for refrigerators and freezers. These efficiency ratings apply to the overall performance of the specific appliance, of which the compressor is one component. We have ongoing projects aimed at improving the efficiency levels of our compressor products and have products available to meet known energy efficiency requirements as determined by our customers.

Geographic Location Information

The results of operations and other financial information by geographic location for each of the years ended December 31, 2008, 2007 and 2006 appear under the caption “Business Segment Information” in Note 18 of the Notes to the Consolidated Financial Statements which appear in Part II, Item 8, of this report, “Financial Statements and Supplementary Data,” and that information is incorporated by reference into this Item 1.

Backlog and Seasonal Variations

Most of our production is against short-term purchase orders and order backlog is not significant.

Compressor products are subject to some seasonal variation among individual product lines. In particular, sales for compressor products are higher in the first and second quarters (for customer needs prior to the commencement of warmer weather in the northern hemisphere, for both residential air conditioning products and commercial applications). This seasonal effect is somewhat, though not completely, offset by sales volumes in the southern hemisphere. Depending on relative performance among the groups, and external factors such as foreign currency changes and global weather, trends can vary. In the past three years, consolidated sales in the aggregate have not exhibited any pronounced seasonal trend.

Patents, Licenses and Trademarks

We own a substantial number of patents, licenses and trademarks and deem them to be important to certain lines of our business; however, the success of our overall business is not considered primarily dependent on them. In the conduct of our business, we own and use a variety of registered

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trademarks, the most familiar of which is the trademark consisting of the word “Tecumseh” in combination with a Native American Indian head symbol.

Research and Development

The ability to successfully bring new products to market in a timely manner has rapidly become a critical factor in competing in the compressor products business as a result of, among other things, the imposition of energy efficiency standards and environmental regulations including those related to refrigerant requirements as discussed above. We must continually develop new and improved products in order to compete effectively and to meet evolving regulatory standards in all of our major product lines. We spent approximately $20.4 million, $28.1 million, and $36.7 million during 2008, 2007, and 2006, respectively, on research activities relating to the development of new products and the development of improvements to existing products. Of those amounts, approximately $0.2 million, $5.4 million and $11.7 million in 2008, 2007 and 2006 respectively related to research and development activities for entities that are now discontinued operations. None of this research was customer sponsored.

Employees

On December 31, 2008, we employed approximately 7,800 persons, 88% of whom were employed in foreign locations. While none of our U.S. employees were represented by labor unions, the majority of foreign location personnel are represented by national trade unions. Over the course of 2008, we have focused on reducing our global workforce as part of our overall efforts to restructure the business and improve our overall cost structure. During 2008, the maximum number of persons employed was approximately 10,200 and the minimum was approximately 7,800. Overall, we believe we generally have a good relationship with our employees.

Available Information

We provide public access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed with or furnished to the Securities and Exchange Commission (SEC) under the 1934 Act. These documents may be accessed free of charge through our website at the following address: http://www.tecumseh.com/investor.htm. These documents are provided as soon as practicable after filing with the SEC, although not generally on the same day. These documents may also be found at the SEC’s website at http://www.sec.gov.

ITEM 1A. RISK FACTORS

Set forth below and elsewhere in this Annual Report on Form 10-K are some of the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements contained in this Report. These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties. Our separate section in Item 7 below, “Disclosure Regarding Forward-Looking Statements,” should be considered in addition to the following statements.

Current and future global economic conditions could have an adverse effect on our sales volumes, liquidity and profitability.

The recent global recession, precipitated by the financial crisis, has had a substantial detrimental effect on our sales volumes. This decline has been driven by a deterioration of credit availability for

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consumers and customers, increased borrowing rates for those who are able to secure lines of credit, slowdowns in the housing market, and rising unemployment rates in many countries where our business is concentrated. The impact from the convergence of these factors in a short timeframe has been significant, especially since the current slowdown is affecting all of our global markets with nearly equal severity.

Global economic conditions, in fact, may continue to decline in the short term, and the depth and extent of this decline cannot be forecasted with certainty. Accordingly, we cannot project the timeframe within which economic conditions will begin to improve. To address these conditions, we have accelerated certain restructuring activities which involve the idling of underutilized assets and reductions in employment levels throughout the world. Notwithstanding the actions we have taken to address the economic contraction, further declines would have an adverse effect on our financial condition and results of operations.

We are subject to currency exchange rate and other related risks.

The compressor industry and our business in particular are characterized by global and regional markets that are served by manufacturing locations positioned throughout the world. An increasing portion of our manufacturing presence is in international locations. During 2008, approximately 81% of our compressor manufacturing activity took place outside the United States. Our Brazilian, European and Indian manufacturing operations delivered approximately 38%, 32% and 10% of total 2008 compressor sales respectively. As a result, our consolidated financial results are increasingly sensitive to changes in foreign currency exchange rates. Because of our significant manufacturing and sales presence in Brazil, changes in the Brazilian real have been especially adverse to our results of operations when compared to prior periods; from January 1 to July 31, 2008, the Brazilian real strengthened by 11.6%, and in the following five months the real weakened by 49.2%.

Our results of operations are substantially affected by several types of foreign exchange risk. One type is balance sheet re-measurement risk, which results when assets and liabilities are denominated in currencies other than the functional currencies of the respective operations. This risk applies for our Brazilian operation, which denominates certain of its borrowings in U.S. dollars. The periodic re-measurement of these liabilities is recognized in the income statement. In the third and fourth quarters of 2008, the abrupt weakening of the Brazilian real against the U.S. dollar resulted in losses which were reported in our results of operations. Another significant risk for our business is transaction risk, which occurs when the foreign currency exchange rate changes between the date that a transaction is expected and when it is executed, such as collection of sales or purchase of goods. This risk affects our business adversely when foreign currencies strengthen against the dollar, which until recently has been the case for the last several years. We have developed strategies to mitigate or partially offset these impacts, primarily hedging against transactional exposure where the risk of loss is greatest. In particular, we have entered into foreign currency forward purchases to hedge the Brazilian export sales, some of which are denominated in U.S. dollars and some in euros. To a lesser extent, we have also entered into foreign currency forward purchases to mitigate the effect of fluctuations in the euro and the Indian rupee. However, these hedging programs only reduce exposure to currency movements over the limited time frame of three to fifteen months. Additionally, if the currencies weaken against the dollar, any hedge contracts that have been entered into at higher rates result in losses to our income statement when they are settled. From January 1 to December 31, 2008, the euro weakened against the dollar by 4.5%, while the rupee weakened by 23.4%. This resulted in losses to our income statement for the settlement of currency contracts entered into in India. In general, the strengthening of the U.S. dollar is favorable to our overall results over time; however, the rapid and significant weakening of foreign currencies in the third and fourth quarters of 2008 caused balance sheet re-measurement losses to out-weigh the favorable impacts of net transactional gains in the period. Ultimately, long term changes in currency exchange

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rates have lasting effects on the relative competitiveness of operations located in certain countries versus competitors located in different countries.

We cannot assure that currency exchange rate fluctuations will not adversely affect our results of operations and financial condition, particularly over the long term. In addition, while the use of currency hedging instruments may provide us with short-term protection from adverse fluctuations in currency exchange rates, by utilizing these instruments we potentially forego the benefits that might result from favorable fluctuations in currency exchange rates.

We also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Actions of this nature, if they occur or continue for significant periods of time, could have an adverse effect on our results of operations and financial condition in any given period.

Material cost inflation could adversely affect our results of operations.

The most significant inflationary impacts to the business have been the prices of copper and steel, both major cost components of compressors. Copper increased by over 30% from the beginning of 2007 to July 2008, before declining precipitously. Including the impact of hedging activities, commodity costs in 2008 were unfavorable when compared to 2007 by $23.1 million. As of December 31, 2008, we held approximately 69% of our total projected copper requirements for 2009 in the form of forward purchase contracts and futures, which will provide us with substantial (though not total) protection from price increases during the year but also will detract from our ability to benefit from price decreases. The cost for the types of steel utilized in our products escalated in a manner similar to copper in 2007 and 2008, but as of December 31, 2008 had not yet experienced a similar decline in certain markets, particularly in Brazil. We currently expect that prices for these types of steel will stabilize in 2009, and have the potential to deflate in a manner similar to other commodities. We are striving for greater productivity improvements and implementing increases in selling prices to help mitigate cost increases in copper and steel as well as other base materials including aluminum, as well as other input costs including ocean freight, fuel, health care and insurance. We are also continuing to implement operational initiatives in order to continuously reduce our costs. We cannot assure you, however, that these actions will be successful to manage our costs or increase our productivity. Continued cost inflation or failure of our initiatives to generate cost savings or improve productivity may negatively impact our results of operations.

We may not maintain our current level of liquidity.

Upon completion of the divestitures of the business operations as previously discussed, we eliminated all our domestic debt. However, challenges remain with respect to our ability to maintain appropriate levels of liquidity, particularly those driven by global economic conditions and possibly currency exchange and commodity pricing as well. Given the current economic contraction and the corresponding drop in our sales volumes, we expect that we will generate a limited amount of cash until further restructuring activities are implemented or economic conditions improve.

As part of our strategy to maintain sufficient liquidity, on March 20, 2008 we entered into a $50 million credit agreement with JPMorgan Chase Bank, N.A. As of December 31, 2008, we had no borrowings outstanding against this agreement, and our liquidity and availability were such that the covenants in the agreement did not apply. However, as a result of the interlocking relationship between availability and the fixed coverage charge ratio, borrowing ability under the agreement is

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currently limited, and our actual capacity for borrowings under the agreement is approximately $0.2 million.

Also, on February 19, 2009, the Herrick Foundation gave us notice that it planned to seek representation on the board by nominating a slate of four candidates for election as directors at our upcoming 2009 annual meeting of shareholders. The election of all four of the Herrick Foundation’s nominees to the board may constitute a “change in control” under the credit agreement. The occurrence of a change in control is an event of default under the agreement that, in addition to possibly triggering cross-default provisions under other agreements, would allow JPMorgan to terminate the agreement and terminate the stand-by letters of credit issued under the agreement to support our workers’ compensation obligations. Given current market conditions, there is a significant possibility that JPMorgan would not waive this event of default, or that we would not be able to secure a replacement credit facility with comparable terms — or on any terms at all. The loss of this source of liquidity could have unfavorable consequences.

We expect to generate other sources of cash through activities such as the termination and reversion of our over-funded hourly pension plan and the resolution of a U.S. tax refund from our 2003 tax year. While we believe that these and other activities will produce adequate liquidity to implement our business strategy over a reasonable time horizon, there can be no assurance that such improvements will ultimately be adequate if economic conditions continue to deteriorate.

In addition, while our business dispositions have improved our liquidity, each of the sale agreements provide for certain retained liabilities or indemnities, including liabilities that relate to environmental issues and product warranties. While we currently believe we have adequately provided for such contingent liabilities, future events could result in the recognition of additional liabilities that could consume available liquidity and management attention.

A change in control could result in significant additional expense and loss of critical management personnel.

As discussed in the preceding risk factor, the Herrick Foundation has given us notice that it plans to nominate a slate of four candidates for election as directors at the 2009 annual meeting of shareholders. The election of all four of the Herrick Foundation’s nominees to the board would be a “change of control” under the employment agreement and retention letter of our President and CEO, Ed Buker. If, following a change of control, Mr. Buker resigns for good reason or is terminated without cause (as those terms are defined in those agreements), he would be entitled to receive the same compensation as if he had terminated his employment for good reason, except that his cash payment would include two (rather than one and one-half) times his salary then in effect and two (rather than one) times his annual target bonus. This could cost us more than $5.0 million.

While the election of all of the Herrick Foundation nominees would not be a change of control under our change of control or retention letters with other executive officers and members of senior management, it may increase the likelihood that additional payments will be required under those agreements if the executives’ employment terminates. One of the conditions triggering such payments is the departure of Mr. Buker from the company. Election of the Herrick nominees may make it more likely that we will experience turnover at the senior executive level, which would increase the likelihood, under the terms of the change of control or retention letters, that we would become obligated to make payments to remaining executives. In the case of the executive officers alone, this could cost us more than $1.7 million.

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Our businesses operate in highly competitive markets.

Our businesses generally face substantial competition in each of their respective markets. We compete on the basis of product design, quality, availability, performance, noise levels, customer service and price. Present or future competitors may have greater financial, technical or other resources; if our products do not meet or exceed the attributes of our competitor’s offerings, we could be at a disadvantage in the affected product lines. We cannot assure you that these and other factors will not have a material adverse effect on our results of operations.

In particular, we operate in environments where worldwide productive capacities exceed global demand and customers and competitors are establishing new productive capacities in low cost countries, including China. These trends have resulted in the need for us to restructure our operations by removing excess capacities, lowering our cost of purchased inputs and shifting productive capacities to low cost countries in order to improve our overall cost structure, restore margins and improve our competitive position in our major markets. There is no guarantee that these initiatives, which have included plant closures, headcount reductions, expanded operations in low-cost countries (including China and India) and global sourcing initiatives, will be successful in setting the stage for improvement in profitability in the future.

Our results of operations may be negatively impacted by litigation.

Our business exposes us to potential litigation, such as product liability suits that are inherent in the design, manufacture, and sale of our products. We are also potentially exposed to litigation related to securities law, corporate governance issues, or other types of business disputes. These claims can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome.

As we self-insure a portion of product liability claims, an unsuccessful defense of a product liability claim or series of successful claims could materially and adversely affect our product reputation and our financial condition, results of operations, and cash flows. Even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and our company.

As is further discussed in Item 3, “Legal Proceedings,” we are one of several companies involved in investigations into possible anti-competitive practices in the compressor industry. While we have entered into conditional amnesty agreements under which we do not expect to be subject to criminal prosecution with respect to the investigation, we are not exempt from civil litigation. As of the date of this report, several civil suits had been filed, and additional suits may be forthcoming. Even a successful defense against these claims could result in significant legal costs, and could have a material adverse impact on our results of operations and cash flows.

We are exposed to political, regulatory, economic, and other risks that arise from operating a multinational business.

Sales outside of North America, including export sales from North American businesses, accounted for approximately 79% of our net sales in 2008. Further, certain of our businesses obtain raw materials and finished goods from foreign suppliers. Accordingly, our business is subject to the political, economic and other risks that are inherent in operating in numerous countries. These risks include:

• the difficulty of enforcing agreements and collecting receivables through foreign legal systems;

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• required compliance with a variety of foreign laws and regulations;

• trade protection measures and import or export licensing requirements;

• tax rates in certain foreign countries that exceed those in the U.S. and the imposition of withholding requirements on foreign earnings;

• the imposition of tariffs, exchange controls or other restrictions;

• difficulty in staffing and managing widespread operations and the application of foreign labor regulations;

• the protection of intellectual property in foreign countries; and

• changes in general economic and political conditions in countries where we operate, particularly in emerging markets.

Our business success depends in part on our ability to anticipate and effectively manage these and other risks.

Our operations and products are subject to extensive environmental laws and energy regulations.

Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing emissions to air, discharges to water and the generation, handling, storage, transportation, treatment and disposal of waste materials. These regulations can vary widely across the countries in which we do business. While we believe that we are in compliance in all material respects with these environmental laws and regulations, we cannot assure that we will not be adversely impacted by costs, liabilities or claims with respect to existing, previously divested, or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property. If a release of hazardous substances occurs at or from any of our current or former properties or at a landfill or another location where we have disposed of hazardous materials, we may be held liable for the contamination and the amount of such liability could be material.

In addition, governmental regulations affect the types of refrigerants that may be utilized in our products, and this global scrutiny continues to evolve over time. We have continued to address these changes in regulation by approving and releasing new models that meet governmental and consumer requirements. We also strive to have our products meet requirements for energy efficiency, which can vary substantially across the global communities in which we sell our products. Future legislation may require substantial levels of expenditure to meet industry requirements, which could have a material adverse effect on our business, results of operations and financial condition.

We may be adversely impacted by work stoppages and other labor matters.

As of December 31, 2008, we employed approximately 7,800 persons worldwide. The majority of the approximately 6,850 people we employ in foreign locations are represented by national trade unions. While we have no reason to believe that we will be impacted by work stoppages and other labor matters, we cannot assure you that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, further unionization efforts or other types of conflicts with labor unions or our employees. Any of these factors may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers have unionized work forces. Work stoppages or slow-downs experienced by our customers could result in slow-downs or closures at vehicle assembly plants where our engines are installed. If one or more of

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our customers experience a material work stoppage, it could have a material adverse effect on our business, results of operations and financial condition.

Increased or unexpected product warranty claims could adversely affect us.

We provide our customers a warranty on products we manufacture. Our warranty generally provides that products will be free from defects for periods ranging from 12 months to 36 months. If a product fails to comply with the warranty, we may be obligated, at our expense, to correct any defect by repairing or replacing the defective product. Although we maintain warranty reserves in an amount based primarily on the number of units shipped and on historical and anticipated warranty claims, there can be no assurance that future warranty claims will follow historical patterns or that we can accurately anticipate the level of future warranty claims. An increase in the rate of warranty claims or the occurrence of unexpected warranty claims could materially and adversely affect our financial condition, results of operations and cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our headquarters are located in Ann Arbor, Michigan, approximately 40 miles west of Detroit. At December 31, 2008 we had 20 properties worldwide (8 of which were classified as idled and held for sale) occupying approximately 5.4 million square feet (1.8 million idled) with the majority, approximately 3.4 million square feet, devoted to manufacturing. 11 facilities with approximately 3.6 million square feet (of which 2 facilities and 0.6 million square feet were idled) were located in four countries outside the United States. All owned and leased properties are suitable, well maintained and equipped for the purposes for which they are used.

ITEM 3. LEGAL PROCEEDINGS

Compressor industry antitrust investigation

On February 17, 2009, we received a subpoena from the United States Department of Justice Antitrust Division (“DOJ”) and a formal request for information from the Secretariat of Economic Law of the Ministry of Justice of Brazil (“SDE”) related to investigations by these authorities into possible anti-competitive pricing arrangements among certain manufacturers in the compressor industry. The European Commission began an investigation of the industry on the same day.

We intend to cooperate fully with the investigations. In addition, we have entered into a conditional amnesty agreement with the DOJ under the Antitrust Division’s Corporate Leniency Policy. Pursuant to the agreement, the DOJ has agreed to not bring any criminal prosecution with respect to the investigation against the company as long as we, among other things, continue our full cooperation in the investigation. We have received similar conditional immunity from the European Commission and the SDE.

While we have taken steps to avoid fines, penalties and other sanctions as the result of proceedings brought by regulatory authorities in the identified jurisdictions, the amnesty does not extend to civil actions brought by private plaintiffs under U.S. antitrust laws. Several purported class action lawsuits relating to the matters being investigated by the DOJ have been filed recently against us and other compressor manufacturers, and more lawsuits may follow. We have not yet had an opportunity to analyze the plaintiffs’ claims in the suits that have been filed and cannot say whether they have any

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merit. Under U.S. antitrust law, persons who engage in price-fixing can be jointly and severally liable for three times the actual damages caused by their joint conduct. As an amnesty recipient, however, we believe our liability, if any, would be limited to any actual damages suffered by our customers due to our conduct and that we would not be liable for treble damages or for claims against other participants in connection with the alleged anticompetitive conduct being investigated.

We anticipate that we will incur additional expenses as we continue to cooperate with the investigations and defend the lawsuits. Such expenses and any restitution payments could negatively impact our reputation, compromise our ability to compete and result in financial losses in an amount we are unable to predict.

Herrick Foundation litigation

On June 13, 2008, Herrick Foundation (a Michigan non-profit corporation and as of the date of this report a holder of 15.2% of Tecumseh’s voting shares) sued Tecumseh Products Company in the Circuit Court for the County of Lenawee, Michigan. The directors of Herrick Foundation are Kent B. Herrick, who is a Tecumseh Products Company director, his father, Todd W. Herrick, and their lawyer, Michael A. Indenbaum. The complaint alleged that the April 4, 2008 amendment to our bylaws, which increased the percentage of Class B shares required to call a special meeting from 50% to 75%, violated Michigan law. Herrick Foundation sought to have the amendment set aside and also requested the court to order a special meeting of shareholders for the purpose of removing Dr. Peter Banks and Mr. David Risley from our board of directors. We filed a counterclaim against Herrick Foundation alleging that Herrick Foundation’s actions violate the settlement agreed to by it and others to end litigation in April 2007.

On August 11, 2008, we reached an agreement with Herrick Foundation with respect to its request to schedule the special meeting, which was entered by the Circuit Court on that date. As a result of this agreement, there was a special meeting of voting shareholders on Friday, November 21, 2008. The proposal by Herrick Foundation to remove Dr. Banks and Mr. Risley from our board of directors was placed on the agenda for the special meeting, but failed to gain the majority required by our bylaws. The Circuit Court postponed its ruling regarding the amendment to our bylaws until after the special meeting was completed; we subsequently reversed the 75% amendment and restored the bylaw requirement for convening a special meeting to 50%.

On December 8, 2008, Herrick Foundation filed another suit in Lenawee County Circuit Court, seeking to block a recapitalization plan that had been announced by the company on December 5. The recapitalization, to be achieved via a stock dividend in accordance with our articles of incorporation, would result in a consolidation of both classes of stock into a single voting class. On December 23, 2008, the Circuit Court issued a preliminary injunction preventing us from completing the recapitalization, originally scheduled to take place on December 31, 2008. We are continuing to litigate this case. These matters have and will continue to result in substantial legal and professional fees until such time as a resolution is determined.

Kahn shareholder lawsuit

On December 10, 2008 a shareholder class action lawsuit was filed in Lenawee County, Michigan against five of Tecumseh’s directors, alleging a breach of fiduciary duty by the defendant directors and seeking injunctive relief and damages for our proposed recapitalization plan, as discussed above in the context of Herrick Foundation’s December 8^th suit. The injunctive relief sought in the Kahn case was granted in the Herrick Foundation lawsuit, and the circuit court consolidated the two cases. It is not possible at this time to assess the probability of the outcome or the range of potential exposure.

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Judicial Restructuring for Brazilian Engine Manufacturing Subsidiary

On March 22, 2007, TMT Motoco, our Brazil-based engine manufacturing subsidiary, filed a request in Brazil for court permission to pursue a judicial restructuring. The requested protection under Brazilian bankruptcy law is similar to a U.S. filing for Chapter 11 protection in that during such a restructuring TMT Motoco remains in possession of its assets and its creditors cannot impose an involuntary restructuring on it. TMT’s restructuring request was granted by the court on March 28, 2007. The judicial restructuring was completed in 2008, the facility has been sold, and the majority of TMT Motoco’s obligations have been settled. The remaining obligations are expected to be completed in the first quarter of 2009; we consider that we have adequate reserves established to cover these liabilities.

Horsepower label litigation

A nationwide class-action lawsuit filed against us and other defendants (Ronnie Phillips et al v. Sears Roebuck Corporation et al., No. 04-L-334 (20th Judicial Circuit, St. Clair County, IL)) alleged that the horsepower labels on the products the plaintiffs purchased, which included products manufactured by our former Engine & Power Train business, were inaccurate. The plaintiffs sought certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured by defendants. On March 30, 2007, the Court issued an order granting the defendants’ motion to dismiss, and on May 8, 2008 the Court issued an opinion that (i) dismissed all the claims made under the Racketeer Influenced and Corrupt Organization (RICO) Act with prejudice; (ii) dismissed all claims of the 93 non-Illinois plaintiffs with instructions to re-file amended claims in individual state courts; and (iii) ordered that any amended complaint for the three Illinois plaintiffs be re-filed by May 30, 2008. Since that time, four plaintiff’s firms have filed 45 class action matters in 33 states, asserting claims on behalf of consumers in each of those states with respect to lawnmower purchases from January 1, 1994 to the present. While we believe we have meritorious defenses and intend to assert them vigorously, there can be no assurance that we will prevail. We also may pursue settlement discussions. It is not possible to reasonably estimate the amount of our ultimate liability, if any, or the amount of any future settlement, but the amount could be material to our financial position, consolidated results of operations and cash flows.

Other Litigation

We are also the subject of, or a party to, a number of other pending or threatened legal actions involving a variety of matters, including class actions, incidental to our business. Although their ultimate outcome cannot be predicted with certainty, and some may be disposed of unfavorably to us, management does not believe that the disposition of these other matters will have a material adverse effect on our consolidated financial position or results of operations.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A special meeting of Class B (voting) shareholders of Tecumseh Products Company was held on November 21, 2008. Proposals by Herrick Foundation (which as of the date of the meeting held 15.2% of our voting shares) to remove Dr. Peter Banks and Mr. David Risley from our board of directors was placed on the agenda for the special meeting; management opposed these proposals. We solicited proxies for the meeting pursuant to Section 14(a) of the Securities Exchange Act of 1934, and proxies were also solicited by Herrick Foundation. A total of 4,632,792 shares were represented in person or by proxy, representing 91.2% of the 5,077,746 shares of Class B Common stock outstanding and entitled to vote.

As required by our bylaws, Herrick Foundation’s proposals would have needed to obtain a majority of the total outstanding voting shares, or 2,538,874 votes, in order to prevail. The proposals failed to gain this required majority. The outcome of the voting was as follows:

	Votes		Votes		Votes
Director	For Removal		Against Removal		Withheld
Peter M. Banks		2,108,961		2,522,939		825
David M. Risley		2,423,769		2,207,988		968

There were no broker non-votes.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A and Class B common stock trades on The Nasdaq Stock Market LLC under the symbols TECUA and TECUB, respectively. Total shareholders of record as of February 20, 2009 were approximately 280 for Class A common stock and 285 for Class B common stock. We have no current expectation to pay dividends. As of the date of this report, we have no equity securities authorized for issuance under compensation plans. We did not repurchase any of our equity securities during 2008.

Market Price and Dividend Information

Range of Common Stock Prices and Dividends for 2008

	Sales Price								Cash
	Class A				Class B				Dividends
Quarter Ended	High		Low		High		Low		Declared
March 31	$	31.77	$	19.00	$	28.00	$	16.18	$	—
June 30		37.79		29.08		34.14		25.22		—
September 30		36.01		20.30		31.50		21.25		—
December 31		25.05		7.30		21.17		7.20		—

Range of Common Stock Prices and Dividends for 2007

	Sales Price								Cash
	Class A				Class B				Dividends
Quarter Ended	High		Low		High		Low		Declared
March 31	$	18.21	$	9.31	$	17.39	$	9.25	$	—
June 30		16.38		9.81		15.71		9.76		—
September 30		23.77		15.83		21.78		14.41		—
December 31		25.93		15.47		22.79		13.97		—

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ITEM 6. SELECTED FINANCIAL DATA

The following is a summary of certain of our financial information. Prior year results related to the Statements of Operations have been restated to reflect the reclassification of the Electrical Components Group, the Engine & Power Train Group, MP Pumps, and Manufacturing Data Systems, Inc. as discontinued operations.

	Years Ended December 31,
(Dollars in millions, except per share data)	2008			2007			2006			2005			2004
Net sales	$	968.9		$	1,116.8		$	1,002.7		$	910.9		$	880.1
Cost of sales and operating expenses		867.7			976.9			907.1			790.0			715.0
Selling and administrative expenses		128.8			130.8			123.0			115.5			122.3
Impairments, restructuring charges, and other items		43.5			7.2			2.4			4.3			2.4
Operating (loss) income		(71.1	)		1.9			(29.8	)		1.1			40.4
Interest expense		(24.4	)		(22.3	)		(19.4	)		(3.0	)		(19.3	)
Interest income and other, net		9.7			6.2			10.9			9.0			13.0
(Loss) income before taxes		(85.8	)		(14.2	)		(38.3	)		7.1			34.1
Tax (benefit) provision		(5.9	)		(8.2	)		12.5			27.5			12.2
Net (loss) income from continuing operations		(79.9	)		(6.0	)		(50.8	)		(20.4	)		21.9
Income (loss) from discontinued operations, net of tax		29.4			(172.1	)		(29.5	)		(203.1	)		(11.8	)
Net (loss) income	$	(50.5	)	$	(178.1	)	$	(80.3	)	$	(223.5	)	$	10.1
Basic and diluted (loss) earnings per share:*
(Loss) earnings per share from continuing operations	$	(4.32	)	$	(0.33	)	$	(2.75	)	$	(1.10	)	$	1.19
Earnings (loss) per share from discontinued operations, net of tax		1.59			(9.31	)		(1.60	)		(10.99	)		(0.64	)
Basic and diluted (loss) earnings per share	$	(2.73	)	$	(9.64	)	$	(4.35	)	$	(12.09	)	$	0.55
Cash dividends declared per share		—			—			—		$	0.64		$	1.28
Weighted average number of shares outstanding, basic (in thousands)		18,480			18,480			18,480			18,480			18,480
Cash and cash equivalents	$	113.1		$	76.8		$	81.9		$	116.6		$	227.9
Working capital		173.4			128.4			226.3			402.0			505.7
Net property, plant and equipment		244.3			353.3			552.4			578.6			554.8
Total assets		798.5			1,164.9			1,782.7			1,800.5			2,062.8
Long-term debt		0.4			3.3			217.3			283.0			317.3
Stockholders’ equity		477.4			745.9			798.4			814.4			1,018.3
Capital expenditures		8.0			3.0			62.1			113.3			84.0
Depreciation and amortization		42.5			43.1			80.1			92.3			102.9

* In 2007, we issued a warrant to a lender to purchase 1,390,944 shares of our Class A Common Stock, which is equivalent to 7% of our fully diluted common stock (including both Class A and Class B shares). This warrant is not included in diluted earnings per share for the years ended December 31, 2008 and 2007, as the effect would be antidilutive.

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Impairments, restructuring charges, and other items included:

2008 operating net loss included $43.5 million ($2.35 per basic and diluted share) of restructuring, impairment and other charges. A summary of these charges (gains) is as follows:

(Dollars in millions)	2008
Goodwill impairments	$	18.2
Excise tax expense on proceeds from salaried retirement plan reversion		20.0
Impairment of buildings and machinery		14.6
Severance, restructuring costs, and special termination benefits		12.2
Curtailment and settlement (gains)/losses		(21.5	)
Total impairments, restructuring charges, and other items	$	43.5

The $14.6 million recognized for impairments of buildings and machinery was the result of the acceleration of our plans for relocating and consolidating of certain of our global manufacturing capabilities, in light of the pronounced softening of demand resulting from the current global financial conditions. The expense was recognized in Brazil ($11.0 million), North America ($3.0 million), and India ($0.6 million). The severance expense of $12.2 million was as a result of restructuring costs from previously announced actions recognized at our Brazilian ($5.2 million), North American ($3.7 million), Indian ($2.7 million) and European ($0.6 million) locations during the year.

2007 net loss included $7.2 million ($0.39 per share) of restructuring, impairment and other charges. $4.2 million of these restructuring charges related to the impairment of long-lived compressor assets in India ($2.2 million) and North America ($2.0 million). These assets were primarily impaired as a result of the global consolidation of our manufacturing operations. We also incurred expense of $1.6 million associated with reductions in force at several of our North American facilities. The remaining charges reflect the impact of net losses on the sale of buildings ($0.5 million) and related charges ($0.9 million) as a result of the consolidation of non-compressor facilities.

2006 operating net loss included $2.4 million ($0.13 per share) of restructuring, impairment and other charges. We recorded these restructuring charges for impairment of long-lived compressor assets ($2.2 million) and related charges ($0.2 million) at two of our facilities in Mississippi.

2005 net loss included $4.3 million ($0.23 per share) of restructuring, impairment and other charges. These charges include $0.9 million recorded by the North American Compressor operations related to moving costs for previously announced actions, and $3.4 million of asset impairment charges for manufacturing equipment idled through facility consolidations and the reduction to fair value of land and buildings associated with closed plants.

2004 net income included $2.4 million ($0.13 per share) of restructuring, impairment and other charges. These charges related to restructuring programs for the North American and Indian compressor facilities.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements Relating To Forward Looking Statements

The following information should be read in connection with the information contained in the Consolidated Financial Statements and Notes to Consolidated Financial Statements.

This discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act that are subject to the safe harbor provisions created by that Act. In addition, forward-looking statements may be made orally in the future by or on behalf of us. Forward-looking statements can be identified by the use of terms such as “expects,” “should,” “may,” “believes,” “anticipates,” “will,” and other future tense and forward-looking terminology, or by the fact that they appear under the caption “Outlook.”

Readers are cautioned that actual results may differ materially from those projected as a result of certain risks and uncertainties, including, but not limited to, i) unfavorable changes in macro-economic conditions and the condition of credit markets, which may magnify other risk factors; ii) the success of our ongoing effort to bring costs in line with projected production levels and product mix; iii) financial market changes, including fluctuations in foreign currency exchange rates and interest rates; iv) availability and cost of materials, particularly commodities, including steel and copper, whose cost can be subject to significant variation; v) actions of competitors; vi) our ability to maintain adequate liquidity in total and within each foreign operation; vii) the effect of terrorist activity and armed conflict; viii) economic trend factors such as housing starts; ix) the ultimate cost of resolving environmental and legal matters, including any liabilities resulting from the regulatory antitrust investigations commenced by the United States Department of Justice Antitrust Division, the Secretariat of Economic Law of the Ministry of Justice of Brazil or the European Commission, any of which could preclude commercialization of products or adversely affect profitability and/or civil litigation related to such investigations; x) emerging governmental regulations; xi) the ultimate cost of resolving environmental and legal matters; xii) our ability to profitably develop, manufacture and sell both new and existing products; xiii) the extent of any business disruption that may result from the restructuring and realignment of our manufacturing operations or system implementations, the ultimate cost of those initiatives and the amount of savings actually realized; xiv) the extent of any business disruption caused by work stoppages initiated by organized labor unions; xv) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; xvi) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries; xvii) increased or unexpected warranty claims; and xviii) the ongoing financial health of major customers. These forward-looking statements are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

EXECUTIVE SUMMARY

Until 2007, our business was focused upon three businesses: hermetically sealed compressors, small gasoline engine and power train products, and electrical components. Over the course of 2007 and 2008, we successfully executed a strategy to divest operations that we did not consider to be core to our ongoing business strategy. As part of that strategy, we sold the Residential & Commercial, Asia Pacific and Automotive & Specialty portions of our Electrical Components business, and also sold our Engine & Power Train business (with the exception of TMT Motoco, which recently completed a judicial restructuring and is in the process of finalizing its liquidation). We also completed the sale

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of MP Pumps, a business not associated with any of our major business segments. As a result of these initiatives, we are now primarily focused on our global compressor business.

In addition to the relative competitiveness of our products, as was described in Item 1 above, our business is significantly influenced by several specific economic factors: the strength of the overall global economy, which can have a significant impact on our sales volumes; the drivers of product cost, especially the cost of copper and steel; the relative value against the U.S. dollar of those foreign currencies where we operate; and global weather conditions.

With respect to global economic activity, the recent decline, which has become a global recession precipitated by the financial crisis, has had a detrimental effect on our sales volumes. This decline has been marked by a deterioration of credit availability for consumers and customers, increased borrowing rates for those who are able to secure lines of credit, slowdowns in the housing market, and growing unemployment rates in some countries where our business is concentrated. Given that these unfavorable conditions have arisen simultaneously, the impact has been significant. In addition, the current slowdown is affecting all of our global markets with nearly equal severity. In the first half of 2008, consistent with our expectations, we began to see a slowdown when compared to prior periods. As a result of the conditions described above, this trend continued at an accelerated pace in the third quarter of the year, and in the fourth quarter resulted in an even greater decline in activity. We cannot currently project when market conditions may begin to improve. Accordingly, we have accelerated certain restructuring activities which involve the idling of underutilized assets and reductions in employment levels throughout the world.

Due to the high material content of copper and steel in compressor products, our results of operations are very sensitive to the prices of these commodities. Overall, commodity prices have been extremely volatile during 2007 and 2008, increasing rapidly through July 2008, then dropping drastically in the last five months of the year. The price of copper is representative of this overall market volatility; from January 1, 2007 through July 31, 2008, copper prices increased by over 30%; then, in the subsequent five months, the price dropped by 62.8%. Such extreme volatilities create substantial challenges to our ability to control the cost of our products, as the final product cost can depend greatly on our ability to secure optimally priced forward and futures contracts. The cost for the types of steel utilized in our products escalated in a manner similar to copper in 2007 and 2008 (one type of steel increased by 77.8% from the beginning of 2007 to September 30, 2008) but has not yet experienced a similar decline in certain markets, particularly in Brazil. We currently expect that prices for the types of steel used in our products should decline in 2009 in a manner commensurate to other commodities. Due to competitive markets, we are typically not able to quickly recover cost increases through price increases or other cost savings. While we have been proactive in addressing the volatility of these costs, including executing forward purchase and futures contracts to cover approximately 69% of our anticipated copper requirements for 2009, renewed rapid escalation of these costs would nonetheless have an adverse affect on our results of operations both in the near and long term. The rapid increase of steel prices has a particularly negative impact, as there is currently no well-established market for hedging against increases in the cost of steel. In addition, while the use of forwards and futures can mitigate the risks of cost increases associated with these commodities by “locking in” costs at a specific level, declines in the prices of the underlying commodities can result in downward pressure in selling prices, particularly if competitors have lesser future purchase positions, thus causing a contraction of margins.

The compressor industry and our business in particular are characterized by global and regional markets that are served by manufacturing locations positioned throughout the world. An increasing portion of our manufacturing presence is in international locations. From January 1 to December 31, 2008, approximately 81% of our compressor manufacturing activity took place outside the United States, primarily in Brazil, France, and India. Similarly, approximately 82% of our sales in 2008

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were to destinations outside the United States. As a result, our consolidated financial results are extremely sensitive to changes in foreign currency exchange rates. Because of our significant manufacturing and sales presence in Brazil, changes in the Brazilian real have been especially adverse to our results of operations when compared to prior periods; from January 1 to July 31, 2008, the Brazilian real strengthened by 11.6%, and in the following five months the real weakened by 49.2%. Our results of operations are substantially affected by several types of foreign exchange risk. One type is balance sheet re-measurement risk, which results when assets and liabilities are denominated in currencies other than the functional currencies of the respective operations. This risk applies for our Brazilian operation, which denominates certain of its borrowings in U.S. dollars. The periodic re-measurement of these liabilities is recognized in the income statement. In the third and fourth quarters of 2008, the abrupt weakening of the Brazilian real against the U.S. dollar resulted in losses which were reported in our results of operations. Another significant risk for our business is transaction risk, which occurs when the foreign currency exchange rate changes between the date that a transaction is expected and when it is executed, such as collection of sales or purchase of goods. This risk affects our business adversely when foreign currencies strengthen against the dollar, which until recently has been the case for the last several years. We have developed strategies to mitigate or partially offset these impacts, primarily hedging against transactional exposure where the risk of loss is greatest. In particular, we have entered into foreign currency forward purchases to hedge the Brazilian export sales, some of which are denominated in U.S. dollars and some in euros. To a lesser extent, we have also entered into foreign currency forward purchases to mitigate the effect of fluctuations in the euro and the Indian rupee. However, these hedging programs only reduce exposure to currency movements over the limited time frame of three to fifteen months. Additionally, if the currencies weaken against the dollar, any hedge contracts that have been entered into at higher rates result in losses to our income statement when they are settled. From January 1 to December 31, 2008, the euro weakened against the dollar by 4.5%, the rupee weakened by 23.4% and the real weakened by 31.9%. This resulted in losses to our income statement for the settlement of currency contracts entered into with respect to these currencies. In general, the strengthening of the U.S. dollar is favorable to our overall results over time; however, the rapid and significant weakening of foreign currencies in the third and fourth quarters of 2008 caused balance sheet re-measurement losses to out-weigh the favorable impacts of net transactional gains in the period. 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. Only one major competitor to our compressor business faces similar exposure to the real. Other competitors, particularly those with operations in countries where the currency has been substantially pegged to the U.S. dollar, currently enjoy a cost advantage over our compressor operations.

Our foreign manufacturing operations are subject to many other risks, including governmental expropriation, governmental regulations that may be disadvantageous to businesses owned by foreign nationals, and instabilities in the workforce due to changing political and social conditions.

Aside from our efforts to manage increasing commodity costs and foreign exchange risk with forward purchase contracts and futures, we have executed other strategies to mitigate or partially offset the impact of rising costs and declining volumes, which include aggressive cost reduction actions, cost optimization engineering strategies, selective out-sourcing of components where internal supplies are not cost competitive, continued consolidation of our supply base and acceleration of low-cost country sourcing. In addition, the sharing of increases in raw material costs has been, and will continue to be as the situation warrants, the subject of negotiations with our customers, including seeking mechanisms that would result in more timely adjustment of pricing in reaction to changing material costs. While we believe that our mitigation strategies have offset a substantial portion of the financial impact of these increased costs, no assurances can be given that

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the magnitude and duration of these increased costs will not have a continued material adverse impact on our operating results. As we have raised prices to cover cost increases, it is possible that customers may react by choosing to purchase their requirements from alternative suppliers, or, in the case of certain customers, to source more compressors utilizing internal capabilities. We may also need to adjust prices downward if the economy contracts for an extended period of time. Any increases in cost that could not be recovered through increases in selling prices would make it more difficult for us to achieve our business plans.

Upon completion of the divestitures of the business operations discussed above, we eliminated all our North American debt, and accumulated substantial net cash on our balance sheet. This cash balance has become increasingly important in light of recently constrained capital markets. In addition, consolidated interest expense for our business, taking into account amounts allocated to both continuing and discontinued operations, will be substantially reduced for the foreseeable future. We also expect further non-operational cash inflows through the end of 2009, due primarily to the termination and reversion of our over-funded hourly pension plan and receipt of a tax refund in the U.S. However, challenges remain with respect to our ability to generate appropriate levels of liquidity via results of operations, particularly those driven by global economic conditions, currency exchange and commodity pricing as discussed above. With current macroeconomic conditions and expected further volatility of the U.S. dollar versus key currencies such as the Brazilian real, the Indian rupee and the euro, we expect that we may not generate cash from normal operations until further restructuring activities are implemented or economic conditions improve. As part of our strategy to maintain sufficient liquidity, we continue to maintain various credit facilities, both drawn and undrawn upon, in each of the jurisdictions in which we operate. While we believe that current cash balances combined with the cash to be generated by the pension plan reversion and the recovery of non-income taxes will produce adequate liquidity to implement our business strategy over a reasonable time horizon, there can be no assurance that such improvements will ultimately be adequate if economic conditions remain at current levels or even continue to deteriorate. We anticipate that we will restrict non-essential uses of our cash balances until the global economy begins to recover, credit markets become less constrained, and cash production from normal operations improves. In addition, while our business dispositions have improved our liquidity, many of the sale agreements provide for certain retained liabilities, indemnities and/or purchase price adjustments including liabilities that relate to environmental issues and product warranties. While we believe we have adequately provided for such contingent liabilities based on currently available information, future events could result in the recognition of additional liabilities that could consume available liquidity and management attention.

For further information related to other factors that have had, or may in the future have, a significant impact on our business, financial condition or results of operations, see “Cautionary Statements Relating To Forward-Looking Statements” above, “Results of Operations” below, and “Risk Factors” in Item 1A.

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RESULTS OF OPERATIONS

A summary of our operating results as a percentage of net sales is shown below (dollar amounts in millions):

Year Ended December 31, 2008 vs. Year Ended December 31, 2007

Year Ended December 31,
(dollars in millions)	2008			%			2007			%
Net sales	$	968.9			100.0	%	$	1,116.8			100.0	%
Cost of sales and operating expenses		867.7			89.5	%		976.9			87.5	%
Selling and administrative expenses		128.8			13.3	%		130.8			11.7	%
Impairments, restructuring charges, and other items		43.5			4.5	%		7.2			0.6	%
Operating (loss) income		(71.1	)		(7.3	%)		1.9			0.2	%
Interest expense		(24.4	)		(2.5	%)		(22.3	)		(2.0	%)
Interest income and other, net		9.7			1.0	%		6.2			0.6	%
Loss before taxes		(85.8	)		(8.9	%)		(14.2	)		(1.2	%)
Tax benefit		(5.9	)		0.6	%		(8.2	)		0.7	%
Net loss from continuing operations	$	(79.9	)		(8.2	%)	$	(6.0	)		(0.5	%)

Net sales in the year ended December 31, 2008 decreased $147.9 million or 13.2% versus the same period of 2007. Excluding the increase in sales due to the effect of changes in foreign currency translation of $56.2 million, net sales decreased 18.3% from the prior year. In general, the sales declines were a result of the global economic recession. Compressors for household refrigeration and freezing applications were affected in the most significant way, down $106.1 million or 26.6% when compared to 2007. This decline represents the impact of numerous factors, most notably a decline in market demand. It is largely attributable to reduced access to consumer credit in many geographies where our business is concentrated, including India and Brazil, as well as lower housing starts on a global basis. Compressors for commercial and aftermarket applications were down by $24.8 million or 4.8%. These declines were also attributable to the global contraction, which has driven a decline in new store growth, delays in cold chain development and an excess of customer inventory. Compressors for air conditioning and other applications were down $17.0 million, also driven by excess customer inventory as well as cooler than normal weather in the high-temperature, high-humidity geographies where our air conditioning compressors are sold.

Cost of sales and operating expenses were $867.7 million in the year ended December 31, 2008, as compared to $976.9 million in the fiscal year ended December 31, 2007. Expressed as a percentage of sales, these costs increased to 89.5% in 2008 compared to 87.5% in 2007. The majority of this increase was attributable to decreases in volume as discussed above, which reduced profitability by $49.5 million when compared to 2007 results. In addition, although commodity costs declined substantially in the fourth quarter and the U.S. dollar strengthened against foreign currencies, the full year impacts were nonetheless unfavorable. When compared to 2007, net currency impacts were unfavorable by $32.3 million. Commodity costs were unfavorable year-on-year by $23.1 million. Favorable pricing impacts of $38.8 million somewhat offset the effects of currency and commodities. Productivity and purchasing improvements and other impacts of $27.4 million also contributed favorably to 2008 results.

Results of operations were favorably impacted in both periods by net pension benefit income that was recorded as a result of the over-funding of the majority of our pension plans. This income

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favorably affected continuing operations by $8.8 million and $11.4 million in 2008 and 2007 respectively. 2008 and 2007 were also favorably affected by $8.4 million and $4.9 million respectively in benefit income related to other postretirement (“OPEB”) benefits. Refer to Note 6 in the Notes to the Consolidated Financial Statements for further discussion of our pension credits.

Selling and administrative expenses were $2.0 million or 1.5% lower in the fiscal year ended December 31, 2008 compared to the prior fiscal year. While we incurred approximately $17.7 million in 2008 for professional fees outside the ordinary course of business, which included consulting services for strategic planning and legal fees for corporate governance issues, this figure represented a $2.1 million reduction in such fees when compared to 2007. This improvement was offset by a net increase of $0.1 million in other selling and administrative costs reported in continuing operations. The most notable increases in S&A costs were $1.4 million in expenses recorded for share-based compensation, and an increase of $0.6 million in company contributions to defined contribution benefit plans. Due primarily to the abrupt decline in sales volumes in the second half of the year, selling and administrative expenses as a percentage of sales increased in 2008, at 13.3% and 11.7% in the fiscal years ended December 31, 2008 and December 31, 2007, respectively.

We recorded expense of $43.5 million ($2.35 per share) in impairments, restructuring charges, and other items in 2008. Fiscal year 2007 operating income included $7.2 million ($0.39 per share) of restructuring, impairments and other charges. For a more detailed discussion of these charges, refer to Note 13 of the Notes to the Consolidated Financial Statements.

Interest expense related to continuing operations amounted to $24.4 million in the fiscal year ended December 31, 2008 compared to $22.3 million in 2007. The increase was primarily related to higher interest rates charged on our foreign borrowings and accounts receivable discounting programs when compared to the prior year.

Interest income and other income, net amounted to $9.7 million in the fiscal year ended December 31, 2008 compared to $6.2 million in 2007. The increase was due to higher interest income received on higher average cash balances.

We recorded a $5.9 million income tax benefit from continuing operations for the fiscal year ended December 31, 2008. This benefit reflected a $2.6 million current tax provision ($0.8 million U.S. federal provision, $0.1 million state and local credit and $1.9 million foreign provision) offset by an $8.5 million deferred tax benefit (consisting of an $8.9 million U.S. federal benefit and a foreign provision of $0.4 million).

The consolidated statement of operations reflects an $8.2 million income tax benefit for the fiscal year ended December 31, 2007. This benefit reflected a $4.1 current tax provision ($1.3 million U.S. federal and $2.8 million foreign) offset by a $12.3 million deferred tax benefit (consisting of a $13.4 million U.S. federal benefit, a $1.3 million state and local provision, and a foreign benefit of $0.2 million).

At December 31, 2008 and 2007, full valuation allowances are recorded for net operating loss carryovers for those tax jurisdictions in which it is more likely than not that these deferred tax assets would not be recoverable. In 2007, the valuation allowance related to our Europe subsidiary was released, since management now believes that realization of their deferred tax assets is more likely than not. The net impact of this change decreased income tax by $0.4 million in 2007.

The effective tax rate in future periods may vary from the 35% used in prior years based upon changes in the mix of profitability between the jurisdictions where benefits on losses are not provided

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versus other jurisdictions where provisions and benefits are recognized. In addition, circumstances could change such that additional valuation allowances may become necessary on deferred tax assets in various jurisdictions.

Net loss from continuing operations in the fiscal year ended December 31, 2008 was $79.9 million, or $4.32 per share, as compared to a net loss of $6.0 million, or $0.32 per share, in the fiscal year ended December 31, 2007. The change was primarily the result of volume declines in the current year and other factors as discussed above.

Year Ended December 31, 2007 vs. Year Ended December 31, 2006

Year Ended December 31,
(dollars in millions)	2007			%			2006			%
Net sales	$	1,116.8			100.0	%	$	1,002.7			100.0	%
Cost of sales and operating expenses		976.9			87.5	%		907.1			90.5	%
Selling and administrative expenses		130.8			11.7	%		123.0			12.3	%
Impairments, restructuring charges, and other items		7.2			0.6	%		2.4			0.2	%
Operating income (loss)		1.9			0.2	%		(29.8	)		(3.0	%)
Interest expense		(22.3	)		(2.0	%)		(19.4	)		(1.9	%)
Interest income and other, net		6.2			0.6	%		10.9			1.1	%
Income (loss) before taxes		(14.2	)		(1.2	%)		(38.3	)		(3.8	%)
Tax (benefit) provision		(8.2	)		0.7	%		12.5			(1.2	%)
Net income (loss) from continuing operations	$	(6.0	)		(0.5	%)	$	(50.8	)		(5.0	%)

Net sales in the year ended December 31, 2007 increased $114.1 million or 11.4% versus the same period of 2006. Excluding the increase in sales due to the effect of changes in foreign currency translation of $81.9 million, net sales increased 3.2% from the prior year. The sales increases were primarily attributable to price advances, which were implemented throughout the year across all product lines except residential air conditioning. The increases in commercial compressors were also associated with higher volumes, with unit sales improving by approximately 6%, due both to increased demand from existing customers and from growth in new markets, particularly in India This increase was offset somewhat by volume declines in refrigeration and freezer compressors (down 1%).

In total, full year sales reflected a year-on-year increase of $58.9 million in commercial compressors, an increase of $36.8 million in refrigeration and freezer compressors, and increases in compressors for central air of $10.8 million and residential air conditioning of $3.8 million. The remaining increases were not attributable to any of our major product lines.

Cost of sales and operating expenses were $976.9 million or 87.5% of sales in the year ended December 31, 2007, as compared to $907.1 million and 90.5% in the fiscal year ended December 31, 2006. The majority of this improvement as a percentage of sales was created by increases in selling price, which improved 2007 results by $75.0 million including volume and mix impacts. These selling price increases helped to offset the unfavorable impacts of currency of $43.7 million and higher commodity costs of $17.2 million. Productivity and purchasing improvements of $9.6 million also contributed to the improved 2007 figure. Net improvements of $20.6 million were also realized in overhead costs, warranty, and improved administrative costs associated with lower headcounts.

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Results of operations were favorably impacted in both periods by net pension benefit income that was recorded as a result of the over-funding of the majority of our pension plans. This income favorably affected continuing operations by $11.4 million and $10.9 million in 2007 and 2006 respectively. Fiscal year 2007 was also favorably affected by $4.9 million in benefit income related to other postretirement (“OPEB”) benefits, while expense of $2.8 million related to OPEB plans was recorded in 2006. Refer to Note 6 in the Consolidated Financial Statements for further discussion of our pension credits.

Selling and administrative expenses were $7.8 million or 6.3% higher in the fiscal year ended December 31, 2007 compared to the prior fiscal year. However, as a percentage of net sales, selling and administrative expenses improved in 2007, at 11.7% and 12.3% in the fiscal years ended December 31, 2007 and December 31, 2006, respectively. We paid aggregate professional fees in 2007 for items such as consulting services, litigation costs, and bank amendments of $19.8 million, representing an increase in such fees of $14.8 million compared to the prior year. In addition, the reversal of accruals for non-income taxes in Brazil received in the fourth quarter of 2006 of $6.9 million were not repeated in 2007. These challenges were offset by other administrative savings of $13.9 million, primarily realized from restructuring activities.

Fiscal year 2007 operating loss included $7.2 million ($0.39 per share) of restructuring, impairment and other charges. $4.2 million of these restructuring charges related to the impairment of long-lived compressor assets in India ($2.2 million) and North America ($2.0 million). These assets were primarily impaired as a result of the global consolidation of our manufacturing operations. We also incurred expense of $1.6 million associated with reductions in force at several of our North American facilities. The remaining charges reflect the impact of net losses on the sale of buildings ($0.5 million) and related charges ($0.9 million) as a result of the consolidation of non-compressor facilities.

2006 operating loss included $2.4 million ($0.13 per share) of restructuring, impairment and other charges. We recorded these restructuring charges for impairment of long-lived compressor assets ($2.2 million) and related charges ($0.2 million) at our facilities in Mississippi.

Interest expense related to continuing operations amounted to $22.3 million in the fiscal year ended December 31, 2007 compared to $19.4 million in the comparable period of 2006. The increase was primarily related to higher interest rates charged on our foreign borrowings when compared to the prior year.

Interest income and other income, net amounted to $6.2 million in the fiscal year ended December 31, 2007 compared to $10.9 million in the same period of 2006. In 2006, we recognized a gain of $3.6 million on the sale of our interest in Kulthorn Kirby Public Company Limited, a manufacturer of compressors based in Thailand. The remainder of the decline in 2007 was due to lower interest rates and lower average cash balances.

The consolidated statement of operations reflects an $8.2 million income tax benefit for the fiscal year ended December 31, 2007. This benefit reflected a $4.1 current tax provision ($1.3 million U.S. federal and $2.8 million foreign) offset by a $12.3 million deferred tax benefit (consisting of a $13.4 million U.S. federal benefit, a $1.3 million state and local provision, and a foreign benefit of $0.2 million).

At December 31, 2007 and 2006, full valuation allowances are recorded for net operating loss carryovers for those tax jurisdictions in which it is more likely than not that these deferred tax assets would not be recoverable. In 2007, the valuation allowance related to our Europe subsidiary was released, since management now believes that realization of their deferred tax assets is more likely

29

than not. The net impact of this change decreased income tax by $0.4 million in 2007. Valuation allowances were established against remaining foreign deferred tax assets in Brazil in 2006 (aggregating approximately $5.9 million) due to negative evidence resulting in a determination that it is no longer more likely than not that the assets will be realized. We recorded a tax provision of $12.5 million on a loss of $35.6 million in 2006.

The effective tax rate in future periods may vary from the 35% used in prior years based upon changes in the mix of profitability between the jurisdictions where benefits on losses are not provided versus other jurisdictions where provisions and benefits are recognized. In addition, circumstances could change such that additional valuation allowances may become necessary on deferred tax assets in various jurisdictions.

Net loss from continuing operations in the fiscal year ended December 31, 2007 was $6.0 million, or $0.33 per share, as compared to a net loss of $50.8 million, or $2.75 per share, in the fiscal year ended December 31, 2006. The improvement was primarily the result of the improved gross margins and other factors as discussed above.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, service indebtedness and support working capital requirements. In 2008, we utilized the reversion of our Salaried pension plan and the recovery of non-income taxes in our Brazilian operations as significant sources of cash. In 2007, liquidity was predominantly obtained through proceeds from the sale of non-core businesses. In general, our principal sources of liquidity are cash flows from operating activities, when available, and borrowings under available credit facilities.

A substantial portion of our operating income can be generated by foreign operations. In those circumstances, we are dependent on the earnings and cash flows of and the combination of dividends, distributions and advances from our foreign operations to provide the funds necessary to meet our obligations in each of our legal jurisdictions. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions.

Cash Flow

     2008 vs. 2007

Cash provided by operations amounted to $70.6 million in 2008, as compared to cash used by operations of $14.8 million in 2007. The 2008 results incorporated a net loss of $50.5 million, which included the non-cash impact of $42.5 million in depreciation expense and other non-cash items of $32.4 million from the impairment of long-lived assets and goodwill. The net loss also included a working capital settlement with the purchaser of our former Engine & Powertrain business of $13.1 million, which was paid in cash in March of 2009. Refer to Note 2 of the Notes to the Consolidated Condensed Financial Statements for further discussion of this settlement. The $80 million in net proceeds realized from the reversion of our salaried retirement plan was also a significant element of the increase in cash, as was the $45.0 million received in the fourth quarter of 2008 from the refund of non-income taxes in Brazil.

With respect to working capital, inventories decreased by $8.3 million during 2008; this is reflective of the lower balances required at the end of the year to address current manufacturing requirements as well as global efforts to reduce inventories. Although inventories declined, the rapid slowdown in sales volumes in the fourth quarter of the year resulted in an additional five days of inventory on hand at the end of 2008 as compared to the end of 2007. Accounts receivable, in contrast, increased by $10.9 million from the beginning of the year. This increase was the net result of offsetting factors. First, a decrease of $55.9 million in the amount of discounted receivables at the end of 2008 as compared to 2007 reflected the use of cash to decrease the use of these facilities by all our global locations, thereby increasing the amount of accounts receivable reported on our consolidated balance sheet. This increase in accounts receivable was offset by substantially lower customer receivables in the fourth quarter of 2008 as compared to 2007, which was attributable to lower sales volumes. A reduction in days sales outstanding of six days as of the end of 2008 compared to the end of 2007 also contributed to reducing our receivables balances. We also recorded decreases to accounts payable and other accrued expenses and liabilities (down $28.4 million since the end of 2007), also primarily attributable to the current dip in sales volumes. Most of the remainder of the cash adjustments to working capital were due to the effects of foreign currency translation.

Cash provided by investing activities was $9.7 million in 2008 versus cash provided by investing activities of $244.3 million for the same period of 2007. $23.2 million in net proceeds were received from the sale of assets during 2008, while $265.3 million in proceeds were recorded in 2007. Asset sales in 2008 included MP Pumps for net initial cash proceeds of $14.2 million ($14.6 million less up-front expenses of $0.4 million), an airplane for $3.4 million, our Dundee, Michigan facility for $1.6 million, our Shannon, Mississippi facility for $1.2 million, other excess equipment for $2.0 million, and our airport facility for $0.8 million. Net proceeds from asset sales in 2007 included the sale of the Residential & Commercial portions

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of our Electrical Components business for $199.0 million, the sale of the Engine & Power Train business for $48.9 million, the sale of the Automotive & Specialty division of the Electrical Components business for $8.3 million, the sale of an aircraft for $3.4 million, the sale of other fixed assets for $4.7 million, and the sale of Manufacturing Data Systems, Inc. for $1.0 million. Capital expenditures were reduced by $1.2 million in 2008 from the prior year, from $9.2 million in 2007 to $8.0 million in 2008.

Cash used by financing activities was $23.4 million in 2008 as compared to a use of cash of $237.5 million in 2007. In 2007, we used the proceeds from the sale of the Electrical Components and Engine & Power Train businesses to pay off the entire balance of both our North American credit agreements. We continued to reduce our debt levels in 2008 in response to higher interest rates.

     2007 vs. 2006

Cash used by operations amounted to $14.8 million in 2007, as compared to cash used by operations of $94.4 million in 2006. The 2007 results included a net loss of $178.1 million. Accounts receivable decreased by $35.2 million from the beginning of the year. This net decrease was the result of several factors. First, an increase of $32.7 million in the amount of discounted receivables at the end of 2007 compared to 2006 reflected the increasing use of discounting by our European and Indian locations. In addition, when evaluating days to collection for outstanding receivables, there was an improvement of four days to collection as of December 31, 2007 when compared to the end of 2006. The days sales outstanding (“DSO”) for compressor operations decreased from 61 at the end of 2006 to 57 at year-end 2007 (before consideration for discounted accounts receivable), due to improved time to collection in North America, Europe, and India. Inventories decreased by $30.2 million since the beginning of the year, reflecting improvements of six days inventory on hand for the compressor operations. These positive working capital results were offset by decreases to accounts payable and other accrued expenses and liabilities (up $51.0 million since the end of 2006). Most of the remainder of the cash adjustments to working capital was due to the effects of foreign currency translation.

Cash provided by investing activities was $244.3 million in 2007 versus cash provided by investing activities of $70.9 million for the same period of 2006. $265.3 million in net proceeds were received from the sale of assets during 2007, while $135.0 million in proceeds were recorded in 2006. Net proceeds from asset sales in 2007 included the sale of the Residential & Commercial portions of our Electrical Components business for $199.0 million, the sale of the Engine & Power Train business for $48.9 million, the sale of the Automotive & Specialty division of the Electrical Components business for $8.3 million, the sale of an aircraft for $3.4 million, the sale of other fixed assets for $4.7 million, and the sale of Manufacturing Data Systems, Inc. for $1.0 million. Included in the 2006 sales was the sale of Little Giant Pump Company for $120.7 million, our 7% interest in Kulthorn Kirby Public Company Limited stock for $4.7 million and the sale of our former Douglas, Georgia manufacturing facility for $3.5 million. In addition, we acquired a small Australian-based company in the first quarter of 2006, which owned patents related to the manufacturing of certain types of electric motors, which were applicable to both our Electrical Components and Compressor operations. The entire purchase price was allocated to amortizable intangible assets, which were sold as part of the divestiture of the Electrical Component business operations in 2007. Capital expenditures were reduced by $52.9 million from the prior year, from $62.1 million in 2006 to $9.2 million in 2007.

Cash used by financing activities was $237.5 million in 2007 as compared to a use of cash of $9.2 million in the same period of 2006. In 2007, we used the proceeds from the sale of the Electrical Components and Engine & Power Train businesses to pay off the entire balance of both our First and Second Lien Credit Agreements.

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Credit Facilities and Cash on Hand

In addition to cash provided by operating activities when available, we use a combination of our revolving credit arrangement under our North American credit agreement, foreign bank debt and other foreign credit facilities such as accounts receivable discounting programs to fund our capital expenditures and working capital requirements. For the fiscal years ended December 31, 2008 and December 31, 2007, our average outstanding debt balance was $60.2 million and $210.2 million, respectively. Our weighted average interest rate was 10.4% as of December 31, 2008, as compared to a weighted average rate of 8.9% as of December 31, 2007. The increase in the weighted average rate was attributable to 1) higher interest rates charged in 2008 in Brazil and India, and 2) a higher percentage of our 2008 borrowings and discounted accounts receivable being concentrated in those locations.

On March 20, 2008, we terminated our previous $75 million first lien credit agreement and entered into a new $50 million credit agreement with JPMorgan Chase Bank, N.A. as administrative agent. The agreement provides us with a $50 million revolving line of credit expiring on March 20, 2013. The agreement contains certain covenants, including a minimum fixed charge coverage ratio, which applies only if liquidity, as defined by the credit agreement, falls below a specified level. We do not currently meet the minimum fixed charge coverage ratio; while this is not an event of default, it does reduce our available credit under the facility by $20.0 million. As of December 31, 2008, we had no borrowings outstanding against this agreement, and our levels of liquidity and availability were such that the covenants did not apply. We paid $1.6 million in fees associated with the new agreement, which were capitalized and will be amortized over the term of the agreement. $1.4 million in fees associated with the previous first lien credit agreement were expensed as interest cost upon its termination.

At December 31, 2008, we had cash balances in North America of approximately $76.5 million and outstanding letters of credit of $6.7 million. Due to our fixed charge coverage ratio as described above, U.S. availability under our domestic Credit Agreement was approximately $0.2 million. The Credit Agreement also authorized us as of that date to obtain a maximum in additional financing sources of $150.2 million in foreign jurisdictions. The interest rate under these arrangements, had balances been outstanding, would have been 2.35% at December 31, 2008.

Although we have terminated our former Second Lien Credit Agreement, the former lender still possesses a warrant to purchase 1,390,944 shares of Class A Common Stock, which is equivalent to 7% of our fully diluted common stock. This warrant, valued at $7.3 million or $5.29 per share, expires in April of 2012. The costs associated with this warrant, while originally accounted for as additional interest to be expensed over the remaining terms of the credit agreement, were accelerated upon full repayment of the debt, and resulted in expense of $6.2 million in the third quarter of 2007, which was included in the loss from discontinued operations.

In addition to our North American credit agreement, we have various financing arrangements at our foreign subsidiaries to support working capital needs and government sponsored borrowings which provide advantageous lending rates. Our borrowings under these arrangements totaled $30.8 million as of December 31, 2008.

Any cash we hold that is not utilized for day-to-day working capital requirements is primarily invested in secure, institutional money market funds, the majority of which are with the holder of our domestic credit agreement, JPMorgan Chase Bank, N.A. Money market funds are strictly regulated by the U.S. Securities and Exchange Commission and operate under tight requirements for the liquidity, creditworthiness, and diversification of their assets.

For further discussion of our credit facilities, refer to Note 9, “Debt,” of the Notes to the Consolidated Financial Statements.

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     Accounts Receivable Sales

Our Brazilian, European, and Indian subsidiaries periodically factor their accounts receivable with financial institutions. Such receivables are factored both without and with limited recourse to us and are excluded from accounts receivable in our consolidated balance sheets. The amount of factored receivables excluded from our balance sheet was $23.3 million and $79.2 million as of December 31, 2008 and 2007, respectively. We reduced the utilization of these facilities throughout the last two quarters of 2008, due to increasing interest rates. We cannot provide any assurances that these facilities will be available or utilized in the future.

     Adequacy of Liquidity Sources

Historically, cash flows from operations and borrowing capacity under previous credit facilities were sufficient to meet our long-term debt maturities, projected capital expenditures and anticipated working capital requirements. However, in 2007 cash flows from operations were negative and we had to rely on existing cash balances, proceeds from credit facilities and asset sales to fund our needs. In addition, our business exposes us to potential litigation, such as product liability suits or other suits related to anti-competitive practices, securities law, corporate governance issues or other types of business disputes. These claims can be expensive to defend and an unfavorable outcome from any such litigation could adversely affect our cash flows and liquidity.

In the near term, we anticipate challenges with respect to our ability to maintain appropriate levels of liquidity, particularly those driven by volume declines experienced as a result of the recent economic contraction, as well as currency exchange and commodity pricing factors as discussed above. With expected further volatility of the U.S. dollar versus key currencies such as the Brazilian real and the euro we expect that we will generate a limited amount of cash until further restructuring activities are implemented, or economic conditions improve.

As part of our strategy to maintain sufficient liquidity, on March 20, 2008 we entered into a $50 million credit agreement with JPMorgan Chase Bank, N.A. As of December 31, 2008, we had no borrowings outstanding against this agreement, and our liquidity and availability were such that the covenants in the agreement did not apply. However, as a result of the interlocking relationship between availability and the fixed coverage charge ratio, borrowing ability under the agreement is currently severely limited, and our actual capacity for borrowings under the agreement is approximately $0.2 million.

Also, on February 19, 2009, the Herrick Foundation gave us notice that it planned to seek representation on the board by nominating a slate of four candidates for election as directors at our upcoming 2009 annual meeting of shareholders. The election of all four of the Herrick Foundation’s nominees to the board may constitute a “change in control” under the credit agreement. The occurrence of a change in control is an event of default under the agreement that, in addition to possibly triggering cross-default provisions under other agreements, would allow JPMorgan to terminate the agreement and terminate the stand-by letters of credit issued under the agreement to support our workers’ compensation obligations. Given current market conditions, there is a significant possibility that JPMorgan would not waive this event of default, or that we would not be able to secure a replacement credit facility with comparable terms — or on any terms at all. The loss of this source of liquidity could have unfavorable consequences.

In addition to our borrowing facilities around the world, we are generating other sources of cash through various activities as noted below.

As part of the process of finalizing the audit of our 2003 tax year, we reached an agreement with the IRS in December 2008 regarding the refund of federal income taxes previously paid related to that period. Under

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the agreement, we will receive a tax refund of $12.2 million plus interest of $2.1 million accrued through 2008, for a total of $14.3 million. Receipt of this refund is expected during 2009.

We have successfully executed a conversion of our salaried retirement plan to a new retirement program, which includes both defined benefit and defined contribution plans. This conversion yielded net cash to us in 2008 of approximately $80 million. The net proceeds were higher than we previously expected because the old plan was able to purchase annuities to fund its future obligations for a lower premium than we had estimated, due in part to the final actuarial assumptions being more favorable than those we used for purposes of our original estimate. The arrangements we have made will fully secure the benefits payable under the old plan and will also fund the new plans, without additional annual contributions, for approximately six future years.

In the fourth quarter of 2007 we announced the relocation of the manufacturing operations at our Tecumseh, Michigan facility to other locations in North America. As a result of this consolidation, we will also be executing a reversion of our hourly pension plan. We expect that the reversion of this plan will make net cash available of approximately $45 million. The timing of the distribution is dependent on the length of time needed to receive a favorable determination by the IRS, and is currently expected to take place in the second quarter of 2009 at the earliest.

We have also begun to receive the expected refunds of the outstanding refundable Brazilian non-income taxes. As of December 31, 2008, and based upon the exchange rate between the U.S. dollar and the Brazilian real as of that date, we had received approximately $45.0 million in refunds. Due to the recent volatility in the exchange rate between the U.S. dollar and the Brazilian real, 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. Currently, based on indications we have received from the Brazilian tax authorities, we expect to recover approximately $3 million of the outstanding refundable taxes in Brazil during 2009, with the remainder, approximately $37 million, expected to be recovered in 2010.

As part of addressing our liquidity needs, we made substantially lower levels of capital expenditures in 2008 as compared to recent company history, and expect to continue that trend in 2009. Looking ahead, we expect capital expenditures in 2009 and beyond to remain at levels far less than historical averages, due to the elimination of non-core businesses and due to a shift away from capital intensive vertical integration to higher levels of outside sourcing of components from suppliers located in low cost countries. We expect capital expenditures to average $20 to $25 million annually for the foreseeable future, although the timing of expenditures may result in higher investment in some years and lower amounts in others. The amount of capital expenditures incurred during 2009 will ultimately depend on the timing and extent of economic recovery. Given current expectations, 2009 capital expenditures will remain below our target average as we carefully manage and prioritize expenditures based upon rapid return on the capital invested.

     Off-Balance Sheet Arrangements

We do not believe we have any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on us; although, as disclosed in Note 17 to the Consolidated Financial Statements, we are contingently liable with respect to some receivables factored in Brazil, Europe and India.

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     Contractual Obligations

We have minimal capital and operating leases, as substantially all employed facilities and equipment are owned. Our payments by period as of December 31, 2008 for our long-term contractual obligations are as follows:

	Payments by Period (in millions)
	Total		2009		2010/2011		2012/2013		Other
Debt Obligations	$	30.8	$	30.4	$	0.4		—		—
Interest Payments on Debt (1)		16.0		3.2		6.4		6.4		—
Operating leases (2)		5.7		1.3		2.0		1.5		0.9
Employment contracts(3)		7.5		3.7		3.8		—		—
Other Long-Term Obligations(4)		0.6		—		—		—		0.6

(1)	Debt levels are assumed to remain constant. Interest rates on debt obligations are assumed to remain constant at the current weighted average rate of 10.4%.
(2)	Operating leases include minimum payments for leased facilities and equipment.
(3)	Employment contracts include minimum obligations under employment and retention letter agreements.
(4)	Other long-term obligations consist solely of reserves for uncertain tax positions recognized under FIN 48.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the period. Management bases its estimates on historical experience and other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Management continually evaluates the information used to make these estimates as our business and the economic environment change. The use of estimates is pervasive throughout our financial statements, but the accounting policies and estimates management considers most critical are as follows:

     Share-based compensation

In the first quarter of 2008, we adopted a share-based cash compensation plan. This plan requires us to begin applying FASB Statement 123R, “Share Based Payments” (“SFAS 123R”). SFAS 123R requires all share-based payments to employees, including our grants of SARs, which are the economic equivalents of

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employee stock options, to be recognized in the financial statements as compensation expense based upon the fair value on the date of grant. We determined the fair value of these awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions, such as risk-free interest rate, expected volatility, expected dividend yield and expected life of the SARs, in order to arrive at a fair value estimate. Expected volatilities are based on the historical volatility of our common stock and that of an index of companies in our industry group. The risk free interest rate is based upon quoted market yields for United States Treasury debt securities. The expected dividend yield is based upon our history of not having issued a dividend since the second quarter of 2005 and management’s current expectation of future action surrounding dividends. We believe that the assumptions selected by management are reasonable; however, significant changes could materially impact the results of the calculation of fair value. For further discussion of this share-based compensation plan, see Note 12, “Share-Based Compensation Arrangements,” of the Notes to the Consolidated Condensed Financial Statements.

     Derivative Instruments and Hedging Activities

In the third quarter of 2008, we initiated the use of commodity futures contracts. The intent of these contracts is to enable us to minimize the impact of market fluctuations in commodity prices on our financial results. Accordingly, we now manage our exposure to the volatility in the prices of commodities, particularly copper, through a combination of commodity forward contracts and commodity futures. The commodity futures contracts qualify for hedge accounting under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” and are discussed further in Note 15 of the Notes to the Consolidated Condensed Financial Statements.

     Uncertainty in Income Taxes

We adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

At December 31, 2008 and 2007, the amount of gross unrecognized tax benefits before valuation allowances and the amount that would favorably affect the effective income tax rate in future periods after valuation allowances were $0.6 million and $0.9 million respectively. In each period, there was no reduction of deferred tax assets relating to uncertain tax positions.

We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2008 and 2007, we had accrued interest and penalties of $0.6 million and $0.7 million respectively. The tax reserves relate to potential state tax nexus issues and the entire amount would have an impact on our effective tax rate.

At December 31, 2008, we anticipate an increase in the total amount of unrecognized tax benefits within the next twelve months in the range of zero to $0.2 million.

     Impairment of Long-Lived Assets

It is our policy to review our long-lived assets for possible impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Such events could include loss of a significant customer or market share, the decision to relocate production to other locations within the company, or the decision to cease production of specific models of product.

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We recognize losses relating to the impairment of long-lived assets when the future undiscounted cash flows are less than the asset’s carrying value or when the assets become permanently idle. Assumptions and estimates used in the evaluation of impairment are consistent with our business plan, including current and future economic trends, the effects of new technologies and foreign currency movements are subject to a high degree of judgment and complexity. All of these variables ultimately affect management’s estimate of the expected future cash flows to be derived from the asset or group of assets under evaluation, as well as the estimate of their fair value. Changes in the assumptions and estimates, or our inability to achieve our business plan, may affect the carrying value of long-lived assets and could result in additional impairment charges in future periods.

As discussed above, during the years ended December 31, 2008, 2007 and 2006 we recognized impairments of our long-lived assets of $14.6 million, $7.2 million and $2.4 million respectively, related to restructuring activities. As we continue our plans to restructure our business and meet plan operating and liquidity targets, a decision may be reached to sell certain assets for amounts less than the carrying values that were established under a held and used model.

     Deferred Tax Assets

As of December 31, 2008, we had $5.2 million of deferred tax assets recorded on our financial statements related to foreign operations. In periods where such assets are recorded, we are required to estimate whether recoverability of our deferred tax assets is more likely than not, based on forecasts of taxable earnings in the related tax jurisdiction. We use historical and projected future operating results, based upon approved business plans, including a review of the eligible carry-forward period, tax planning opportunities and other relevant considerations. Examples of evidence that we consider when making judgments about the deferred tax valuation includes tax law changes, a history of cumulative losses, and variances in future projected profitability.

Full valuation allowances will be maintained against deferred tax assets in the U.S. and other foreign countries until sufficient positive evidence exists to reduce or eliminate them. During the quarter ended June 30, 2007, the valuation allowance related to our European entity was released, since management now believes that realization of their deferred tax assets is more likely than not. The net impact of this change decreased income tax by $0.4 million in the second quarter of 2007.

     Goodwill

Until December 31, 2008, we had goodwill recorded from acquisitions. We conduct a periodic evaluation for impairment when circumstances warrant, or at least once per year. Impairment is tested in accordance with SFAS No. 142, “Goodwill and Other Intangibles,” by comparing the carrying value of the reporting unit to its estimated fair value.

As there are not quoted prices for our individual geographic locations, fair value of our goodwill is estimated based upon a present value technique using discounted future cash flows, forecasted over a six year period (five years in the 2007 analysis), with residual growth rates forecasted at 2.0% to 4.0% in the 2008 model (3.0% to 5.0% in the 2007 model) thereafter. We use management business plans and projections as the basis for expected future cash flows. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. We make every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed. However, changes in the assumptions and estimates may affect the carrying value of goodwill. Factors that have the potential to create variances between forecasted cash flows and actual results include but are not limited to (i) fluctuations in sales volumes, which can be driven by multiple external factors, including global economic conditions; (ii) product costs, particularly commodities such as copper and steel; (iii) currency exchange fluctuations; (iv) pricing actions undertaken in response to rapidly changing commodity prices and other

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product costs, and customer acceptance of those actions; (v) interest rate fluctuations; and (vii) the intention to continue to operate the reporting unit. Refer to “Cautionary Statements Relating to Forward-Looking Statements” in Item 2 for other factors that have the potential to impact estimates of future cash flows.

Consistent with paragraph 24 of SFAS No. 142, “Goodwill and Other Intangible Assets,” discount rates utilized in the goodwill valuation analysis are derived from published resources such as Ibbotson. The rates utilized were 13.0% at December 31, 2008 and 11.23% at December 31, 2007 for all business units for which goodwill was recorded.

In evaluating such business plans for reasonableness in the context of their use for predicting discounted cash flows in our valuation model, we evaluate whether there is a reasonable basis for differences between actual results of the preceding year and projected results for the upcoming years. This methodology can potentially yield significantly different growth rates in the first few years of forecast data, due to factors such as improved efficiencies or incremental sales volume opportunities that are deemed to be reasonably likely to be achieved. Conversely, in our current year analysis, recent sales trends precipitated by the global recession resulted in forecasts of substantially lower-than-historical growth rates in 2009. In the India reporting unit, for example, the goodwill analysis performed at the end of 2008 projected a sales contraction of approximately 2.1% in 2009, before rebounding to positive growth of 12.1% in 2010 and moderating over the next several years to a 4.0% residual growth rate. Similarly, the Europe reporting unit projected sales declines of approximately 12.4% in 2009, recovering to a 5.3% growth rate in 2010, and ranging from 0.8% to 4.7% thereafter, with an assumed residual growth rate of 2.0%.

Operating profit before tax as a percentage of sales revenue is also a key assumption in the fair value calculation. The range of assumptions used incorporates the anticipated results of our ongoing productivity improvements over the life of the forecast model. The Europe reporting unit forecasted operating profit percentages of (0.1%) in 2009 and ranging from 0.8% to 2.0% thereafter, with operating profit in the terminal year forecasted at 2.0%. The India reporting unit forecasted operating profit at 0.0% of sales in 2009 ranging from 0.2% to 7.8% thereafter, with operating profit in the terminal year forecasted at 8.8%.

Based on our analysis, the fair value of our European and Indian reporting units had fallen below carrying value as of December 31, 2008. Accordingly, we determined that the entire goodwill balance associated with each of these reporting units had become impaired, and such amounts were written off resulting in no goodwill remaining as of December 31, 2008.

     Accrued and Contingent Liabilities

We have established reserves for environmental, warranty and legal contingencies in accordance with SFAS No. 5. We also have liabilities with regard to certain post-closing adjustments related to divested operations, which could be material. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. The valuation of reserves for contingencies is reviewed on a quarterly basis at the operating and corporate levels to assure that we are properly reserved. Reserve balances are adjusted to account for changes in circumstances for ongoing issues and the establishment of additional reserves for emerging issues. While management believes that the current level of reserves is adequate, changes in the future could impact these determinations.

We are involved in a number of environmental sites where we are either responsible for, or participating in, a cleanup effort. For additional information on environmental liabilities, see Note 16 of the Notes to the Consolidated Financial Statements.

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     Employee Related Benefits

Significant employee related benefit assumptions include, but are not limited to, the expected rates of return on plan assets, determination of discount rates for re-measuring plan obligations, determination of inflation rates regarding compensation levels and health care cost projections. Differences among these assumptions and our actual return on assets, financial market-based discount rates, and the level of cost sharing provisions will impact future results of operations.

We develop our demographics and utilize the work of actuaries to assist with the measurement of employee related obligations. The discount rate assumption is based on investment yields available at year-end on corporate long-term bonds rated AA by Moody’s. The expected return on plan assets reflects asset allocations and investment strategy. The inflation rate for compensation levels reflects our actual historical experience. The inflation rate for health care costs is based on an evaluation of external market conditions and our actual experience in relation to those market trends. Assuming no changes in any other assumptions, a 0.5% decrease in the discount rate and the rate of return on plan assets would increase 2008 expense by $1.5 million and $0.9 million, respectively.

Due primarily to the significant over-funding of the majority of U.S. pension plans and the resulting favorable return on plan assets, we recognized a net periodic benefit for pensions in our financial statements of $7.2 million and $14.2 million in 2008 and 2007, respectively. In 2008, we completed a reversion of our Salaried Retirement Plan. This reversion, which we completed in March of 2008, yielded net cash proceeds to us of approximately $80 million, representing gross proceeds of $100 million less excise taxes paid of $20 million. A portion of the overfunding for the old plan was utilized to pre-fund the benefits for both of the replacement plans for approximately the next six years.

In the fourth quarter of 2007, we announced the relocation of the manufacturing operations at our Tecumseh, Michigan facility to other locations in North America. As a result of this consolidation, we will also be executing a reversion of our Hourly pension plan. At December 31, 2008, this Plan reported approximately $73 million in overfunding. We expect that the conversion of this Plan will make net cash available of approximately $45 million. The timing of the distribution will be dependent on the length of time needed to meet IRS distribution requirements, and is currently expected to take place in 2009.

See Note 6 of the Notes to Consolidated Financial Statements for more information regarding costs and assumptions for post-employment benefits.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Postretirement Benefit Plans

Beginning in fiscal years ending after December 15, 2009, employers will be required to provide more transparency about the assets in their postretirement benefit plans, including defined benefit pension plans, as a result of the FASB’s recently issued Financial Statement of Position amending FASB Statement 132, “Employers’ Disclosures about Pensions and Other Retirement Benefits” (“FSP FAS 132R-1”). FSP FAS 132R-1 expands the disclosure requirements about the types of assets and associated risks in employers’ postretirement plans. The disclosures required by the FSP are required for fiscal years ending after December 15, 2009, and employers are not required to apply the amended disclosure requirements to earlier periods presented for comparative purposes. We do not currently expect these enhanced disclosures to materially impact our financial statements or results of operations.

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Derivative Instruments and Hedging Activities

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS 161”), which revised the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Among other things, SFAS 161 requires enhanced qualitative disclosures about an entity’s objectives and strategies for using derivatives, requires tabular quantitative disclosures about 1) the fair value of derivative instruments and 2) gains and losses on derivatives during the reporting period, and requires disclosures about contingent features in derivative instruments that relate to credit risk. SFAS 161 is effective for fiscal years and interim periods beginning on or after November 15, 2008, and we do not expect the enhanced disclosures to materially impact our financial statements or results of operations.

Classification and Measurement of Redeemable Securities

On May 1, 2008, the SEC staff announced revisions to EITF Topic D-98, “Classification and Measurement of Redeemable Securities” (“Topic D-98”). Among other things, the revisions 1) clarified that the guidance applies to noncontrolling interests, 2) outlined the SEC’s views on the interaction between Topic D-98 and SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” and 3) clarified other provisions of Topic D-98. These revisions are not expected to have an impact on our financial statements or results of operations.

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.

The outlook for 2009 is subject to many of the same variables that negatively impacted us in the year just ended. The condition of the global economy, commodity costs, key currency rates and weather are all important to future performance. While we have seen commodities and currencies generally move in directions favorable to us over the second half of 2008, our practice of mitigating our exposure to such movements will result in limited benefit being realized, particularly in the first half of 2009. These movements have been the result of very rapid fluctuations precipitated by an event that the former U.S. Federal Reserve Chairman described as a “once in a hundred year financial tsunami.” Whether such movements will reverse quickly or be sustained is unknown. In addition, recent rapid declines in forecasted sales volumes, at least through the first two quarters of 2009, have created an environment where our level of commodity and currency hedging has exceeded target levels, which further lengthens the period of time over which our average commodity cost will decline. In any event, we will continue our approach of mitigating the effect of short term swings through the appropriate use of hedging instruments.

We continue to be concerned about maintaining our expected level of sales volumes, particularly in light of current global economic conditions. Volumes in the first half of 2008 were consistent with our expectations; as anticipated, we began to see a slowdown when compared to prior periods. This trend continued at an accelerated pace in the third quarter, and became even more pronounced in the fourth quarter of the year. The negative volume trends in the third and fourth quarter of 2008 were significantly more pronounced than we had anticipated earlier in the year. We cannot project when market conditions will begin to improve, and currently expect that 2009 sales volumes will decline by 15% as compared to 2008 levels. If a greater-than-expected decline in volume occurs in our key markets, this could have a further adverse effect on our current outlook.

Certain key commodities, including copper, have seen significant fluctuations in pricing since the beginning of 2008; copper prices increased by over 30% through July and then dropped 62.8% in August through December. As of December 31, 2008, we held approximately 69% of our total projected copper

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requirements for 2009 in the form of forward purchase contracts and futures, which will provide us with substantial (though not total) protection from any resurgence in price during the remainder of the year but also will detract from our ability to benefit from any price decreases. We expect the total 2009 cost of our purchased materials for the full year, including the impact of our hedging activities, to be slightly higher than the prior year, depending on commodity cost levels (particularly steel costs) over the course of the year. As a partial means of addressing the escalating costs of commodities in 2008, we implemented price increases; over the course of 2009 we expect to closely monitor pricing levels to correspond appropriately with changes, either favorable or unfavorable, in our cost structure.

The Brazilian real, the euro and the Indian rupee continue significant volatility against the U.S. dollar. We have considerable forward purchase contracts to cover our exposure to additional fluctuations in value during the year. In the aggregate, we expect the changes in foreign currency exchange rates, after giving consideration to our contracts and including the impact of balance sheet re-measurement, to have a favorable financial impact totaling approximately $28 million when compared to 2008.

As part of our efforts to offset these worsening conditions, to improve profitability and reduce the consumption of capital resources, our plans for 2009 include additional cost reduction activities including, but not limited to, further employee headcount reductions, consolidation of productive capacity and rationalization of product platforms, and revised sourcing plans. During 2008, we reduced our headcount by approximately 2,400 people. Further actions that we expect to execute in 2009 are estimated to result in severance costs of $5 to $7 million. We have also recently completed our initiative to close one of our U.S. operating facilities located in Tecumseh, Michigan. The closure is expected to reduce annualized costs by $7.6 million. We are continuing to evaluate our corporate infrastructure in relation to the level of business activity that remains now that the majority of our restructuring programs are completed and in light of current sales volumes. Such actions could result in further restructuring and/or asset impairment charges in the foreseeable future, and, accordingly, could have a significant effect on our consolidated financial position and future operating results.

We incurred approximately $17.7 million in 2008 for professional fees outside the ordinary course of operations, which included (but was not limited to) legal fees for corporate governance issues and costs associated with a special meeting of shareholders. Due to these expenses, many of which were unforeseeable earlier in the year, we experienced a decline of only $2.1 million in such professional fees in 2008 compared to 2007. Due to pending legal actions, particularly those currently undertaken by Herrick Foundation and the ongoing antitrust investigation, we cannot state with certainty the level of spending that will be incurred in 2009. For further discussion of issues impacting our liquidity and cash flows, refer to “Liquidity and Capital Resources.”

After giving recognition to these factors, we believe it is highly unlikely that we will substantially improve 2009 operating results as compared to 2008, excluding impairments and restructuring costs. As discussed above, we remain particularly concerned about the general health of the global economy and the depth and duration of the current recession.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk during the normal course of business from credit risk associated with accounts receivable and from changes in interest rates, commodity prices and foreign currency exchange rates. The exposure to these risks is managed through a combination of normal operating and financing activities, which include the use of derivative financial instruments in the form of foreign currency forward exchange contracts, commodity forward purchasing contracts and commodity futures contracts. Fluctuations in commodity prices and foreign currency exchange rates can be volatile, and our risk management activities do not totally eliminate these risks. Consequently, these fluctuations can have a significant effect on results.

Credit Risk — Financial instruments which potentially subject us to concentrations of credit risk are primarily cash investments and accounts receivable. We place our cash investments, when available, in bank deposits and investment grade, short-term debt instruments (predominately commercial paper) with reputable credit-worthy counterparties and, by policy, limits the amount of credit exposure to any one counterparty. At December 31, 2008, all cash was held in the form of bank deposits.

We use contemporary credit review procedures to approve customer credit. Customer accounts are actively monitored, and collection efforts are pursued within normal industry practice. Management believes that concentrations of credit risk with respect to receivables are somewhat limited due to the large number of customers in our customer base and their dispersion across different industries and geographic areas.

A portion of accounts receivable of our Brazilian, European, and Indian subsidiaries are sold with recourse at a discount. Our Brazilian operations also discount certain receivables without recourse. Discounted receivables sold in these subsidiaries, including both with and without recourse amounts, were $61.4 million and $99.2 million, at December 31, 2008 and 2007, respectively, and the discount rate was 11.2% in 2008 and 9.1% in 2007. We maintain an allowance for losses based upon the expected collectability of all accounts receivable, including receivables sold.

Interest Rate Risk — We are subject to interest rate risk, primarily associated with our borrowings. Our $50 million North American credit agreement, if we were to have borrowings outstanding against it, would be variable-rate debt. Our current borrowings consist of variable-rate borrowings by our foreign subsidiaries. We also record interest expense associated with the accounts receivable discounting facilities described above. While changes in interest rates do not affect the fair value of our variable-interest rate debt, they do affect future earnings and cash flows. Based on our debt balances at December 31, 2008, a 1% increase in interest rates would increase interest expense for the year by approximately $0.3 million.

Commodity Price Risk — Our exposure to commodity cost risk is related primarily to the cost of copper and steel, as these are major components of our product cost. The rapid increase of steel prices has a particularly negative impact, as there is currently no well-established market for hedging against increases in the cost of steel. We use commodity forward purchasing contracts as well as commodity futures to help control the cost of other traded commodities, primarily copper. Company policy allows management to contract commodity forwards or futures for a limited percentage of projected raw material requirements up to 18 months in advance. Commodity forward contracts at our divisions and subsidiaries are essentially purchase contracts designed to fix the price of the commodities during the operating cycle. Our practice with regard to forward contracts has been to

Page 43

accept delivery of the commodities and consume them in manufacturing activities. At December 31, 2008 and 2007, we held a total notional value of $37.8 million and $64.4 million, respectively, in commodity forward purchasing contracts. These contracts were not recorded on the balance sheet as they did not require an initial cash outlay and do not represent a liability until delivery of the commodities is accepted. As discussed above, we have also initiated the purchase of commodity futures contracts in the third quarter of 2008, as these contracts provide us with greater flexibility in managing the substantial volatility in copper pricing. These futures are designated as hedges against the price of copper, and are accounted for as hedges on our balance sheet in accordance with SFAS 133. While we have been proactive in addressing the volatility of copper costs, including executing forward purchase contracts and futures contracts to cover approximately 69% of our anticipated copper requirements for 2009, renewed rapid escalation of these costs would nonetheless have an adverse affect on our results of operations both in the near and long term. In addition, while the use of forwards and futures can mitigate the risks of cost increases associated with these commodities by “locking in” costs at a specific level, we do not realize the full benefit of a rapid decrease in commodity prices. As a result, if market pricing becomes deflationary, our level of commodity hedging could result in lower operating margins and reduced profitability. Based on our current level of activity, and before consideration for commodity forward purchases and futures contracts, an increase in the price of copper of $100 per metric ton (an increase of 3.3% from 2008 year-end pricing) would adversely affect our annual operating profit by $1.4 million.

Foreign Currency Exchange Risk — Our results of operations are substantially affected by several types of foreign exchange risk. One type is balance sheet re-measurement risk, which results when assets and liabilities are denominated in currencies other than the functional currencies of the respective operations. This risk applies for our Brazilian operation, which denominates certain of its borrowings in U.S. dollars. The periodic re-measurement of these assets and liabilities is recognized in the income statement. In 2008, the abrupt weakening of the Brazilian real against the U.S. dollar resulted in re-measurement losses associated with dollar-denominated debt of $8.7 million which were reported in our results of operations.

Another significant risk for our business is transaction risk, which occurs when the foreign currency exchange rate changes between the date that a transaction is expected and when it is executed, such as collection of sales or purchase of goods. This risk affects our business adversely when foreign currencies strengthen against the dollar, which until recently has been the case for the last several years. We have developed strategies to mitigate or partially offset these impacts, primarily hedging against transactional exposure where the risk of loss is greatest. This involves entering into short-term forward exchange contracts to sell or purchase foreign currencies at specified rates based on estimated foreign currency cash flows. In particular, we have entered into foreign currency forward purchases to hedge the Brazilian export sales, some of which are denominated in U.S. dollars and some in euros. To a lesser extent, we have also entered into foreign currency forward purchases to mitigate the effect of fluctuations in the euro and the Indian rupee. However, these hedging programs only reduce exposure to currency movements over the limited time frame of three to fifteen months. Additionally, if the currencies weaken against the dollar, any hedge contracts that have been entered into at higher rates result in losses to our income statement when they are settled. From January 1 to December 31, 2008, the euro weakened against the dollar by 4.5%, the rupee weakened by 23.4% and the real weakened by 31.9%. In general, the strengthening of the U.S. dollar is favorable to our overall results over time; however, the rapid and significant weakening of foreign currencies in the third and fourth quarters of 2008 caused balance sheet re-measurement losses to out-weigh the favorable impacts of transactional gains in the period. A third type of foreign currency exchange exposure affects operations whose assets and liabilities are denominated in currencies other than U.S. dollars. On a normal basis, we do not attempt to hedge the foreign currency translation fluctuations in the net investments in our foreign subsidiaries. It is also our policy not to purchase

Page 44

financial and/or derivative instruments for speculative purposes. 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. Only one major competitor to our compressor business faces similar exposure to the real. Other competitors, particularly those with operations in countries where the currency has been substantially pegged to the U.S. dollar, currently enjoy a cost advantage over our compressor operations.

At December 31, 2008 and 2007, we held foreign currency forward contracts with a total notional value of $142.1 million and $232.7 million, respectively. We have a particularly concentrated exposure to the Brazilian real. Based on our current level of activity, and excluding any mitigation as the result of hedging activities, we believe that a strengthening in the value of the real of $0.10 per U.S. dollar would negatively impact our operating profit by approximately $7 million on an annual basis.

Page 45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Reports of Independent Registered Public Accounting Firms		47
Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006		49
Consolidated Balance Sheets at December 31, 2008 and 2007		50
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		51
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006		52
Notes to Consolidated Financial Statements		53

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Page 46

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Tecumseh Products Company

We have audited the accompanying consolidated balance sheets of Tecumseh Products Company and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tecumseh Products Company and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” effective January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tecumseh Products Company and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2009 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Southfield, Michigan
March 16, 2009

Page 47

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Tecumseh Products Company:

In our opinion, the consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2006 present fairly, in all material respects, the results of operations and cash flows of Tecumseh Products Company and its subsidiaries for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Detroit, MI
April 9, 2007, except for Note 2 as to which the date is March 13, 2009

Page 48

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
(Dollars in millions, except per share data)	2008			2007			2006
Net sales	$	968.9		$	1,116.8		$	1,002.7
Cost of sales and operating expenses		867.7			976.9			907.1
Selling and administrative expenses		128.8			130.8			123.0
Impairments, restructuring charges, and other items		43.5			7.2			2.4
Operating (loss) income		(71.1	)		1.9			(29.8	)
Interest expense		(24.4	)		(22.3	)		(19.4	)
Interest income and other, net		9.7			6.2			10.9
Loss from continuing operations before taxes		(85.8	)		(14.2	)		(38.3	)
Tax (benefit) provision		(5.9	)		(8.2	)		12.5
Net loss from continuing operations	$	(79.9	)	$	(6.0	)	$	(50.8	)
Income (loss) from discontinued operations, net of tax		29.4			(172.1	)		(29.5	)
Net loss	$	(50.5	)	$	(178.1	)	$	(80.3	)
Basic and diluted income (loss) per share*:
Loss from continuing operations	$	(4.32	)	$	(0.33	)	$	(2.75	)
Income (loss) from discontinued operations, net of tax		1.59			(9.31	)		(1.60	)
Net loss per share	$	(2.73	)	$	(9.64	)	$	(4.35	)
Weighted average shares, basic (in thousands)		18,480			18,480			18,480
Cash dividends declared per share	$	0.00		$	0.00		$	0.00

* In 2007, we issued a warrant to a lender to purchase 1,390,944 shares of our Class A Common Stock, which is equivalent to 7% of our fully diluted common stock (including both Class A and Class B shares). This warrant is not included in diluted earnings per share for the years ended December 31, 2008 and 2007, as the effect would be antidilutive.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 49

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
(Dollars in millions, except share data)	2008			2007
ASSETS
Current Assets:
Cash and cash equivalents	$	113.1		$	76.8
Restricted cash		12.5			6.8
Short term investments		—			5.0
Accounts receivable, trade, less allowance for doubtful accounts of $1.2 million in 2008 and $5.7 million in 2007		88.1			93.2
Inventories		123.0			143.4
Deferred and recoverable income taxes		23.2			10.7
Recoverable non-income taxes		11.7			19.5
Assets held for sale		21.7			21.9
Other current assets		19.3			20.4
Total current assets		412.6			397.7
Property, Plant, and Equipment, net		244.3			353.3
Goodwill		—			20.2
Long term investments		4.8			—
Prepaid pension expense		81.0			233.4
Recoverable income taxes		0.1			13.9
Recoverable non-income taxes		37.0			102.2
Other assets		18.7			44.2
Total assets	$	798.5		$	1,164.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade	$	109.6		$	123.0
Short-term borrowings		30.4			59.5
Liabilities held for sale		1.0			2.6
Accrued liabilities:
Employee compensation		26.1			31.1
Product warranty and self-insured risks		12.1			17.2
Fair value of hedge		38.6			—
Other		21.4			35.9
Total current liabilities		239.2			269.3
Long-term debt		0.4			3.3
Deferred income taxes		8.7			10.2
Other postretirement benefit liabilities		39.5			74.3
Product warranty and self-insured risks		8.0			10.0
Pension liabilities		18.7			14.8
Other		6.6			37.1
Total liabilities		321.1			419.0
Stockholders’ Equity
Class A common stock, $1 par value; authorized 75,000,000 shares; issued and outstanding 13,401,938 shares in 2008 and 2007		13.4			13.4
Class B common stock, $1 par value; authorized 25,000,000 shares; issued and outstanding 5,077,746 shares in 2008 and 2007		5.1			5.1
Paid in Capital		11.0			11.0
Retained earnings		504.4			547.9
Accumulated other comprehensive income		(56.5	)		168.5
Total stockholders’ equity		477.4			745.9
Total liabilities and stockholders’ equity	$	798.5		$	1,164.9

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 50

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
(Dollars in millions)	2008			2007			2006
Cash Flows from Operating Activities:
Net loss	$	(50.5	)	$	(178.1	)	$	(80.3	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		42.5			55.5			80.1
Non-cash restructuring charges and other items		—			15.9			30.9
Impairment of long-lived assets and goodwill		32.4			126.5			—
(Gain) loss on sale of discontinued operations		(7.9	)		3.2			(49.7	)
(Gain) loss on disposal of property and equipment		(4.6	)		1.0			(5.6	)
Share based compensation		1.4			—			—
Deferred and recoverable taxes		61.0			(19.8	)		7.1
Employee retirement benefits		29.5			(37.7	)		(24.2	)
Accounts receivable		(10.9	)		35.2			(7.4	)
Inventories		8.3			30.2			(18.9	)
Payables and accrued expenses		(28.4	)		(51.0	)		1.2
Other		(2.2	)		4.3			(27.6	)
Cash provided by (used in) operating activities		70.6			(14.8	)		(94.4	)
Cash Flows from Investing Activities:
Capital expenditures		(8.0	)		(9.2	)		(62.1	)
Short and long term investments		0.2			(5.0	)		—
Restricted cash		(5.7	)		(6.8	)		—
Business acquisitions, net of cash acquired		—			—			(2.0	)
Proceeds from sale of assets		23.2			265.3			135.0
Cash provided by investing activities		9.7			244.3			70.9
Cash Flows from Financing Activities:
Debt issuance / amendment costs		(1.6	)		(2.5	)		(14.4	)
Repayment of Senior Guaranteed Notes		—			—			(250.0	)
Repayment of Industrial Development Revenue Bonds		—			—			(10.5	)
Proceeds from First Lien credit agreement		—			261.4			230.2
Repayments of First Lien credit agreement		—			(374.5	)		(117.1	)
Proceeds from old Second Lien credit agreement		—			—			100.0
Repayments of old Second Lien credit agreement		—			—			(100.0	)
Proceeds from new Second Lien credit agreement		—			—			100.0
Repayments of new Second Lien credit agreement		—			(100.0	)		—
Other (repayments) borrowings, net		(21.8	)		(21.9	)		52.6
Cash used in financing activities		(23.4	)		(237.5	)		(9.2	)
Effect of Exchange Rate Changes on Cash		(20.6	)		2.9			(2.0	)
Increase (decrease) in cash and cash equivalents		36.3			(5.1	)		(34.7	)
Cash and Cash Equivalents:
Beginning of Period		76.8			81.9			116.6
End of Period	$	113.1		$	76.8		$	81.9
Supplemental Schedule of Noncash Investing and Financing Activities:
Shareholder Option issued in conjunction with debt refinancing							$	3.7
Warrant issued in conjunction with debt financing					7.3
Paid-In-Kind Interest								0.2
Cash paid for interest		21.0			37.1			47.2
Cash paid for taxes		6.8			3.3			1.6

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 51

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in millions)

										Accumulated
										Other			Total
	Class A		Class B		Paid in		Retained			Comprehensive			Stockholders’
	$1 Par Value		$1 Par Value		Capital		Earnings			Income/(Loss)			Equity
Balance, December 31, 2005	$	13.4	$	5.1	$	—	$	806.7		$	(10.8	)	$	814.4
Comprehensive Income (Loss):
Net loss								(80.3	)					(80.3	)
Unrealized loss on investment holdings (net of tax of $0.0)											(4.0	)		(4.0	)
Loss on derivatives (net of tax of $2.8)											(6.3	)		(6.3	)
Translation adjustments (net of tax of $7.6)											31.3			31.3
Total Comprehensive Loss														(59.3	)
Shareholder Option*						3.7								3.7
Impact of the adoption of FAS 158 for pension plans (net of tax of $0.0)											39.6			39.6
Balance, December 31, 2006	$	13.4	$	5.1	$	3.7	$	726.4		$	49.8		$	798.4
Net loss								(178.1	)					(178.1	)
Impact of adoption of FIN 48								(0.4	)					(0.4	)
Gain on derivatives (net of tax of $0.0)											0.1			0.1
Translation adjustments (net of tax of $3.0)											28.4			28.4
Total Comprehensive Loss														(150.0	)
Shareholder warrant						7.3								7.3
Postretirement and postemployment benefits (net of tax of $0.5) (see Note 6)											90.2			90.2
Balance, December 31, 2007	$	13.4	$	5.1	$	11.0	$	547.9		$	168.5		$	745.9
Net loss								(50.5	)					(50.5	)
Loss on derivatives (net of tax of $1.9)											(42.9	)		(42.9	)
Translation adjustments (net of tax of $0.0)											(84.2	)		(84.2	)
Total Comprehensive Loss														(177.7	)
Change in pension measurement date (see Note 6)								7.0						7.0
Postretirement and postemployment benefits (net of tax of $0.6)(see Note 6)											(97.9	)		(97.9	)
Balance, December 31, 2008	$	13.4	$	5.1	$	11.0	$	504.4		$	(56.5	)	$	477.4

* Some of our major shareholders (Herrick Foundation, of which former Chairman Emeritus Todd W. Herrick and Director Kent B. Herrick are members of the Board of Trustees, and two Herrick family trusts, of which Todd W. Herrick is one of the trustees) entered into option agreements with a lender to induce the lender to make financing available to us. These option agreements, valued at $3.7 million, were recorded as loan origination fees and the expense was included with the loss from discontinued operations upon repayment of the loan.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 1. Accounting Policies

Business Description — Tecumseh Products Company (the “Company”) is a full line, independent global manufacturer of hermetic compressors for residential and commercial refrigerators, freezers, water coolers, dehumidifiers, window air conditioning units and residential and commercial central system air conditioners and heat pumps.

We formerly operated an Engine & Power Train Electrical Component business, as well as an Electrical Component business. During 2007, we sold our entire Engine & Power Train business, and the majority of the Electrical Component business. The remaining portions of the Electrical Component business are classified as held for sale. On June 30, 2008 we sold our MP Pumps business for $14.6 million in gross cash proceeds. MP Pumps was a small subsidiary which was not associated with our Compressor business or our former Electrical Components or Engine & Power Train business segments.

Principles of Consolidation — The consolidated financial statements include the accounts of the company and its subsidiaries, including Tecumseh do Brasil, Ltda., Tecumseh Products Company of Canada, Ltd., Tecumseh France S.A., and Tecumseh Products India Private Ltd. Refer to Exhibit 21 of this Report for a complete listing of the Company’s subsidiaries. All significant intercompany transactions and balances have been eliminated.

Prior period results of operations have been reclassed to reflect engineering expense as part of selling and administrative (“S&A”) expenses; previously, engineering expense was included in cost of sales and operating expenses. The amount of expense reclassed to S&A was $23.8 million and $26.0 million for the years ended December 31, 2007 and 2006 respectively.

Foreign Currency Translation — All of our foreign subsidiaries use the local currency of the country of operation as the functional currency. Assets and liabilities are translated into U.S. dollars at year-end exchange rates while revenues and expenses are translated at average monthly exchange rates. The resulting translation adjustments are recorded in other comprehensive income or loss, a component of stockholders’ equity. Realized foreign currency transaction gains and losses are included in cost of sales and operating expenses and amount to a net loss of $11.1 million in 2008, a net gain of $1.6 million in 2007, and a net gain of $6.3 million in 2006.

Cash and Cash Equivalents and Restricted Cash — Cash equivalents consist of bank deposits and other short-term investments that are readily convertible into cash with original maturities of three months or less.

In 2008, a portion of the overfunding for the terminated salaried retirement plan was utilized to pre-fund the benefits for both the defined benefit and defined contribution replacement plans for approximately the next six to eight years. As part of this pre-funding, a fund was established to allow us to fund future company contributions to our defined contribution plan. This fund is 100% invested in money market accounts. The arrangements we have made will fully secure the benefits payable under the old plan and will also fund the new plans, without additional annual contributions, for approximately six future years. At December 31, 2008, the balance of cash restricted for this purpose was $12.5 million.

Restricted cash in 2007 represents cash deposits related to letters of credit. These restrictions were lifted upon the termination of our previous First Lien credit agreement.

Page 53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and cash equivalents in foreign locations amounted to $43.5 million and $62.4 million at December 31, 2008 and 2007, respectively.

Short and long term investments — Investments with a maturity of greater than three months to one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term if we reasonably expect the investment to be realized in cash or sold or consumed during the normal operating cycle of the business; otherwise, they are classified as long-term. Investments available for sale are recorded at market value using the specific identification method. Investments held to maturity are measured at amortized cost in the statement of financial position if it is our intent and ability to hold those securities to maturity. Any unrealized gains and losses on available for sale securities are reported as other comprehensive income as a separate component of shareholders’ equity until realized or until a decline in fair value is determined to be other than temporary.

At December 31, 2008 and 2007, we held an Auction Rate Certificate (ARC). The ARC represents a security with a fixed maturity date, the interest rate of which is reset monthly. Our ARC is a Student Loan Asset-Backed Security guaranteed by the Federal Family Education Loan Program. The payments of principal and interest on these student loans are guaranteed by the state or not-for-profit-guaranty agency and the U.S. Department of Education. At the time of our initial investment and through the date of this filing, our ARC was rated by Moody’s as AAA.

The default interest rate on the ARC, which applies in the absence of an active market for the ARC, is the lesser of (1) the trailing twelve-month average of the 91 day U.S. Treasury bill rate plus 120 basis points, or (2) the trailing twelve-month average interest rate of the ARC. The weighted average interest rate on the ARC was 3.178% at December 31, 2008.

The ARC, originally valued at $5.0 million, matures at June 2046 and bears interest at rates determined every 28 days through an auction process, in which the applicable rate is set at the lowest rate submitted in the auction. In the absence of an active market for the ARC, the interest rate is set at the default rate discussed above. The interest rate on the ARC is capped at 17%.

At December 31, 2008, we valued this security using a pricing model which is not a market model, but which does reflect some discount due to the current lack of liquidity of the investment as a result of recently failed auctions (refer to Note 15 — Fair Value Measurements, for a description of the model). This valuation results in a recognized loss to our results of operations of approximately $0.7 million as of December 31, 2008, which is included in cost of sales and operating expenses.

In October 2008, we agreed to an offer from UBS AG (UBS) to sell at par value, at any time from June 30, 2010 through July 2, 2012, the ARC purchased from UBS. The Auction Rate Security Right (ARSR), which is similar to a freestanding put option, is non-transferable and is not traded on any exchange. We have valued the ARSR using a present value model (see Note 15 — Fair Value Measurements for a description of the model). This valuation results in a recognized gain of approximately $0.5 million at December 31, 2008, which is also included with cost of sales and operating expenses. The combined impact of the valuation of the ARC and the ARSR resulted in a net loss of $0.2 million.

The ARSR also grants UBS the right to purchase our ARC at par value at any time without notice. As a result, we have classified the ARC as a “trading security” in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Page 54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounts Receivable — We maintain an allowance for uncollectible accounts considering a number of factors, including the length of time trade accounts receivable are past due and the customer’s current ability to pay its obligation. The allowance for doubtful accounts was $1.2 million and $5.7 million at December 31, 2008 and 2007 respectively.

Inventories — Inventories are valued at the lower of cost or market, on the first-in, first-out basis. Cost in inventory includes purchased parts and materials, direct labor and applied manufacturing overhead. We maintain an allowance for slow-moving inventory for inventory items which we do not expect to sell within the next 24 months. The allowance was $5.5 million and $7.6 million at December 31, 2008 and 2007 respectively.

Property, Plant and Equipment — Expenditures for additions, major renewals and betterments are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. For financial statement purposes, depreciation is determined using the straight-line method at rates based upon the estimated useful lives of the assets, which generally range from 15 to 40 years for buildings and from 2 to 12 years for machinery, equipment and tooling.

Goodwill — In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill deemed to have indefinite life is no longer amortized but is subject to impairment testing on at least an annual basis. We perform our annual impairment testing during the fourth quarter each year. The impairment test compares the estimated fair value of the reporting unit to its carrying value to determine if there is any potential impairment. If the estimated fair value is less than the carrying value, an impairment loss is recognized to the extent that the estimated fair value of the goodwill within the reporting unit is less than the carrying value. See Note 5 for additional disclosures related to goodwill.

Revenue Recognition — Revenues from the sale of our products are recognized once the risk and rewards of ownership have transferred to the customers, which, in most cases, coincide with shipment of the products. For other cases involving export sales, title transfers either when the products are delivered to the port of embarkation or received at the port of the country of destination.

Shipping and Handling — Shipping and handling fee revenue is not significant. Shipping and handling costs are included in cost of goods sold.

Income Taxes — Income taxes are accounted for using the liability method under which deferred income taxes are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the currently enacted tax rates.

Derivative Financial Instruments — Derivative financial instruments are utilized to manage risk exposure to movements in foreign exchange rates and commodity prices. We enter into forward exchange contracts to obtain foreign currencies at specified rates based on expected future cash flows related to product sales in our South American, European, and Asian locations. Changes in the value of derivative financial instruments are measured at the balance sheet date and recognized in current earnings or other comprehensive income depending on whether the derivative is designated as part of a hedge transaction under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133), and, if it is, the type of transaction. We do not hold derivative financial instruments for trading purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the third quarter of 2008, we initiated the use of commodity futures contracts. The intent of these contracts is to enable us to minimize the impact of market fluctuations in commodity prices on our financial results. Accordingly, we now manage our exposure to the volatility in the prices of commodities, particularly copper, through a combination of commodity forward contracts and commodity futures. The commodity futures contracts qualify for hedge accounting under SFAS 133, and are discussed further in Note 15 to the financial statements.

Product Warranty — Provision is made for the estimated cost of maintaining product warranties at the time the product is sold based upon historical claims experience by product line. Warranty coverage on our compressors is provided for a period of twenty months to two years from date of manufacture. An estimate for warranty expense is recorded at the time of sale, based on historical warranty return rates and repair costs.

Self-Insured Risks — Provision is made for the estimated costs of known and anticipated claims under the deductible portions of our health, liability and workers’ compensation insurance programs. In addition, provision is made for the estimated cost of post-employment benefits.

Environmental Expenditures — Expenditures for environmental remediation are expensed or capitalized, as appropriate. Liabilities relating to probable remedial activities are recorded when the costs of such activities can be reasonably estimated, in accordance with SOP 94-6, “Disclosure of Certain Significant Risks and Uncertainties.” Liabilities are not discounted or reduced for possible recoveries from insurance carriers.

Earnings (Loss) Per Share — On April 9, 2007, we issued a warrant to our Second Lien lender to purchase 1,390,944 shares of our Class A Common Stock, which was equivalent to 7% of our fully diluted common stock. Accordingly, the weighted average number of common shares used in the calculation of diluted shares outstanding was 19,870,628, 19,494,389, and 18,479,684 in 2008, 2007, and 2006 respectively. Due to net losses recorded from continuing operations, the warrant is not included in diluted loss per share for the years ended December 31, 2008 and 2007, as the effect would be antidilutive.

Basic earnings (loss) per share are computed based on the weighted average number of common shares outstanding for the periods reported. The weighted average number of common shares used in the computation of basic earnings per share was 18,479,684 in 2008, 2007 and 2006.

Research, Development and Testing Expenses — Company sponsored research, development and testing expenses related to present and future products are expensed as incurred and were $20.4 million, $28.1 million, and $33.8 million in 2008, 2007 and 2006, respectively. Such expenses consist primarily of salary and material costs and are included in cost of sales and operating expenses.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts during the reporting period and at the date of the financial statements. Significant estimates include accruals for product warranty, deferred tax assets, self-insured risks, pension and postretirement benefit obligations and environmental matters, as well as the evaluation of goodwill and long-lived asset impairment. Actual results could differ materially from those estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2. Discontinued Operations

Electrical Components

During the second quarter of 2007, our Board of Directors approved a plan to sell the assets of our Electrical Components business. On August 31, 2007, we completed an agreement to sell the Residential & Commercial and Asia Pacific operations of this business for $220 million in gross proceeds.

On November 1, 2007, we signed an agreement to sell our Automotive & Specialty business operations for $10 million in cash, subject to customary adjustments at closing. As a result of the agreement, we reduced the carrying value of the assets held for sale by $26.7 million in the third quarter of 2007, to reflect the net proceeds expected to be realized upon consummation of the transaction. The sale transaction closed on December 7, 2007.

The assets of the remaining businesses within the Electrical Components business have been classified as held for sale as of December 31, 2008. The results for Electrical Components for the years ended December 31, 2008, 2007 and 2006 are included in the loss from discontinued operations.

Engine & Power Train

On October 22, 2007, we signed a Definitive Stock Purchase Agreement to sell our Engine & Power Train business operations for $51 million in cash, subject to customary adjustments at closing. The transaction was completed on November 9, 2007. As a result of the agreement, we reduced the carrying value of the long lived assets of the business by $28.1 million in the third quarter of 2007, reflecting the net proceeds expected to be realized upon the completion of the sale. Favorable adjustments of $1.8 million, attributable to post-closing adjustments to the purchase price pursuant to the agreement, were recorded in the fourth quarter.

Interest expense of $36.0 million and $18.2 million was allocated to discontinued operations for the years ended December 31, 2007 and 2006, respectively, related to the operations divested in 2007. Approximately $17.8 million in deferred financing costs associated with the Second Lien debt, which we retired during the third quarter 2007, were expensed as part of the interest costs allocated to discontinued operations during that period.

Our First and Second Lien credit agreements required the proceeds from the Residential & Commercial and Asia Pacific sale to be utilized to repay our Second Lien credit agreement, as well as a substantial portion of our outstanding First Lien debt. The remainder of the balance under the First Lien Credit agreement was repaid upon the closing of the sale of the Engine & Power Train business on November 9, 2007.

In 2008, the purchaser of the business sought an adjustment to the purchase price through provisions in the agreement based upon working capital as of the date of closing of approximately $20.0 million. We did not agree with the amount claimed, and the dispute was settled through a binding arbitration process, as was originally contemplated by the sale agreement. In March 2009, the arbitrator awarded the purchaser $13.1 million for the working capital adjustment; we paid the adjustment within five days of receiving the arbitrator’s final decision. This adjustment is included

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in our 2008 results and is included in discontinued operations as part of impairments, restructuring and other items.

Following is a summary of income (loss) from discontinued operations related to the Electrical Components business for the years ended December 31, 2008, 2007 and 2006:

	For the Years Ended December 31,
(Dollars in millions)	2008		2007			2006
Sales	$	29.5	$	306.6		$	429.9
Cost of sales		26.1		277.0			399.3
Selling and administrative expenses		0.6		25.7			35.3
Impairments, restructuring charges, and other items		1.7		96.5			2.9
Operating income (loss)		1.1		(92.6	)		(7.6	)
Interest income		—		0.1			—
Loss on disposal		—		(5.5	)		—
Income (loss) from discontinued operations before income taxes	$	1.1	$	(98.0	)	$	(7.6	)

Following is a summary of income (loss) from discontinued operations related to the Engine & Power Train business for the years ended December 31, 2008, 2007 and 2006:

	For the Years Ended December 31,
(Dollars in millions)	2008			2007			2006
Sales	$	—		$	185.9		$	319.0
Cost of sales		—			185.3			329.5
Selling and administrative expenses		—			16.4			43.3
Impairments, restructuring charges, and other items		(28.0	)		26.0			27.0
Operating income (loss)		28.0			(41.8	)		(80.8	)
Interest income (expense)		—			0.1			(8.1	)
Gain on disposal		—			1.8			—
Income (loss) from discontinued operations before income taxes	$	28.0		$	(39.9	)	$	(88.9	)

The amounts recorded above in impairments, restructuring charges, and other items in 2008 for the Engine & Power Train business included a curtailment gain on the salaried retirement plan of $2.9 million, a curtailment gain on the salaried other postretirement benefit (“OPEB”) plan of $6.9 million and curtailment gains on other OPEB plans of $34.9 million. These gains were offset in part by the $13.1 million working capital adjustment discussed above, as well as other expenses incurred post-closing including legal fees, adjustments to the worker’s compensation obligation, and other miscellaneous expenses.

Other businesses

On June 30, 2008 we sold our MP Pumps business for $14.6 million in gross cash proceeds. We recorded a gain of $7.9 million upon the sale of the business. MP Pumps was a small subsidiary which was not associated with our Compressor business or our former Electrical Components or Engine & Power Train business segments. MP Pumps recorded sales of $9.5 million, $16.6 million and $15.0 million for the years ended December 31, 2008, 2007 and 2006 respectively, and income

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from discontinued operations of $1.6 million, $2.2 million and $1.8 million for the years ended December 31, 2008, 2007 and 2006 respectively.

During the third quarter of 2007, we also sold Manufacturing Data Systems Inc., a small subsidiary not associated with any of our major business operations. Sales of $0.8 million and pretax losses of $0.9 million were recorded for the year ended December 31, 2007, and sales of $2.5 million and pretax losses of $2.2 million were recorded for the year ended December 31, 2006.

On April 21, 2006, we completed the sale of our 100% ownership interest in Little Giant Pump Company for $120.7 million. Its results for the year ended December 31, 2006 are included in loss from discontinued operations. Interest expense of $2.9 million was allocated to discontinued operations for the year ended December 31, 2006 related to the Little Giant divestiture, because our financing agreements required the proceeds from the sale to be utilized to repay portions of our debt.

Following is a summary of income (loss) from discontinued operations related to Little Giant Pump Company for the year ended December 31, 2006:

	Year Ended
	December 31,
(Dollars in millions)	2006
Net sales	$	32.9
Cost of sales		23.9
Selling and administrative expenses		6.9
Operating income		2.1
Interest expense allocated		2.9
(Loss) gain from discontinued operations before income taxes		(0.8	)
Gain on disposal		78.0
Income from discontinued operations	$	77.2

The following table summarizes income (loss) from discontinued operations, net of tax, for the years ended December 31, 2008, 2007 and 2006:

	For the Years Ended December 31,
(Dollars in millions)	2008			2007			2006
Electrical Components	$	1.1		$	(98.0	)	$	(7.6	)
Engine & Power Train		28.0			(39.9	)		(88.9	)
Manufacturing Data Systems, Inc.		—			(0.9	)		(2.2	)
MP Pumps		9.5			2.2			1.8
Little Giant Pump Company		—			—			77.2
Allocated interest expense related to 2007 divestitures		—			(36.0	)		(18.2	)
Tax (provision) benefit		(9.2	)		0.5			8.4
Income (loss) from discontinued operations, net of tax	$	29.4		$	(172.1	)	$	(29.5	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following summary balance sheet information is derived from the assets that are classified as held for sale as of December 31, 2008, which management believes is representative of the net assets of the business held for disposal. This balance sheet information includes remaining operations within the Electrical Components Group, and other long-lived assets that were held for sale at December 31, 2008.

	December 31,
(Dollars in millions)	2008
ASSETS:
Current Assets:
Accounts receivable, net	$	2.5
Inventories		9.5
Property, plant, and equipment, net		9.7
Total assets held for sale	$	21.7
LIABILITIES:
Current Liabilities:
Accounts payable, trade	$	0.6
Accrued liabilities		0.4
Total current liabilities held for sale	$	1.0
Net assets held for sale	$	20.7

NOTE 3. Inventories

The components of inventories at December 31 were:

(in millions)	2008			2007
Raw materials	$	62.6		$	79.6
Work in progress		9.3			9.0
Finished goods		57.2			62.8
Reserve for obsolete and slow moving inventory		(5.5	)		(7.6	)
Reserve for lower of cost or market		(0.6	)		(0.4	)
	$	123.0		$	143.4

NOTE 4. Property, Plant and Equipment, net

The components of property, plant and equipment, net are as follows:

	December 31,
(Dollars in millions, except share data)	2008		2007
Land and land improvements	$	16.5	$	21.6
Buildings		95.1		121.9
Machinery and equipment		734.3		935.9
		845.9		1,079.4
Less accumulated depreciation		603.9		730.6
		242.0		348.8
Assets in process		2.3		4.5
Property, plant and equipment, net	$	244.3	$	353.3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5. Goodwill

SFAS 142, “Goodwill and Other Intangible Assets,” requires that, at a minimum on an annual basis, we estimate the fair value of the reporting unit as compared to its recorded book value. If the estimated fair value is less than the book value, then an impairment is deemed to have occurred. As required by SFAS 142, we measure the amount of goodwill impairment by allocating the estimated fair value to the tangible and intangible assets within the reporting unit.

As there are not quoted prices for our individual geographic locations, fair value of our goodwill is estimated based upon a present value technique using discounted future cash flows, forecasted over a six year period (five years in our 2007 analysis), with residual growth rates forecasted at 2.0% to 4.0% in the 2008 model (3.0% to 5.0% in the 2007 model) thereafter. We use management business plans and projections as the basis for expected future cash flows. Assumptions in estimating future cash flows are subject to a high degree of judgment and complexity. We make every effort to forecast these future cash flows as accurately as possible with the information available at the time the forecast is developed. However, changes in the assumptions and estimates may substantially affect the carrying value of goodwill. Factors that have the potential to create variances between forecasted cash flows and actual results include but are not limited to (i) fluctuations in sales volumes, which can be driven by multiple external factors, including global economic conditions; (ii) product costs, particularly commodities such as copper and steel; (iii) currency exchange fluctuations; (iv) pricing actions undertaken in response to rapidly changing commodity prices and other product costs, and customer acceptance of those actions; (v) interest rate fluctuations; and (vii) the intention to continue to operate the reporting unit.

Consistent with paragraph 24 of SFAS No. 142, “Goodwill and Other Intangible Assets,” discount rates utilized in the goodwill valuation analysis are derived from published resources such as Ibbotson. The rates utilized were 13.0% at December 31, 2008 and 11.23% at December 31, 2007 for all business units for which goodwill was recorded.

In evaluating such business plans for reasonableness in the context of their use for predicting discounted cash flows in our valuation model, we evaluate whether there is a reasonable basis for differences between actual results of the preceding year and projected results for the upcoming years. This methodology can potentially yield significantly different growth rates in the first few years of forecast data, due to factors such as improved efficiencies or incremental sales volume opportunities that are deemed to be reasonably likely to be achieved. Conversely, in our current year analysis, recent sales trends precipitated by the global recession resulted in forecasts of substantially lower-than-historical growth rates in 2009. In the India reporting unit, for example, the goodwill analysis performed at the end of 2008 projected a sales contraction of approximately 2.1% in 2009, before rebounding to positive growth of 12.1% in 2010 and moderating over the next several years to a 4.0% residual growth rate. Similarly, the Europe reporting unit projected sales declines of approximately 12.4% in 2009, recovering to a 5.3% growth rate in 2010, and ranging from 0.8% to 4.7% thereafter, with an assumed residual growth rate of 2.0%.

Operating profit before tax as a percentage of sales revenue is also a key assumption in the fair value calculation. The range of assumptions used incorporates the anticipated results of our ongoing productivity improvements over the life of the forecast model. The Europe reporting unit forecasted operating profit percentages of (0.1%) in 2009 and ranging from 0.8% to 2.0% thereafter, with operating profit in the terminal year forecasted at 2.0%. The India reporting unit forecasted operating

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

profit at 0.0% of sales in 2009 ranging from 0.2% to 7.8% thereafter, with operating profit in the terminal year forecasted at 8.8%.

Based on our analysis, the fair value of our European and Indian reporting units had fallen below carrying value as of December 31, 2008. Accordingly, we determined that the entire goodwill balance associated with each of these reporting units ($11.8 million and $6.4 million for the European and Indian reporting units respectively) had become impaired, and such amounts were written off resulting in no goodwill remaining as of December 31, 2008.

In 2007, in light of the classification of the Electrical Components business as a discontinued operation as of the end of the second quarter, we performed an interim analysis of the fair value of the business unit at June 30. We utilized the final purchase price agreed upon as an indication of fair market valuation of the Residential & Commercial and Asia Pacific operations of the Electrical Components business. With respect to the remaining divisions of the Electrical Components business, we considered initial indications of interest from potential acquirers of those businesses to evaluate the overall marketplace value of the business unit. Based on the outcome of this analysis, we determined that $39.3 million of the goodwill balance associated with the Electrical Components business had become impaired. The remainder of the goodwill balance associated with the Electrical Components business was associated with the Residential & Commercial operations and was included with the sale to Regal Beloit, which was completed on August 31. The only other changes in goodwill during 2007 were due to foreign currency fluctuations.

The changes in the carrying amount of goodwill by reporting unit follow:

							Electrical
(in millions)	Europe			India			Comp.			Total
Balance at Jan. 1, 2007	$	11.2		$	7.0		$	108.8		$	127.0
Impairment		—			—			(39.3	)		(39.3	)
Sale of Residential & Commercial and Asia Pacific operations		—			—			(72.1	)		(72.1	)
Foreign currency translation		1.2			0.8			2.6			4.6
Balance at Dec. 31, 2007	$	12.4		$	7.8		$	—		$	20.2
Impairment		(11.8	)		(6.4	)		—			(18.2	)
Foreign currency translation		(0.6	)		(1.4	)		—			(2.0	)
Balance at Dec. 31, 2008	$	—		$	—		$	—		$	—

NOTE 6. Pension and Other Postretirement Benefit Plans

We have defined benefit retirement plans that cover substantially all domestic employees. Plans covering salaried employees generally provide pension benefits that are based on average earnings and years of credited service. Plans covering hourly employees generally provide pension benefits of stated amounts for each year of service. We sponsor a retiree health care benefit plan, including retiree life insurance, for eligible salaried employees and their eligible dependents. At certain divisions, we also sponsor retiree health care benefit plans for hourly retirees and their eligible dependents. The retiree health care plans, which are unfunded, provide for coordination of benefits with Medicare and any other insurance plan covering a participating retiree or dependent, and have lifetime maximum benefit restrictions. Some of the retiree health care plans are contributory, with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

some retiree contributions adjusted annually. We have reserved the right to interpret, change or eliminate these health care benefit plans. Our foreign subsidiaries also record liabilities for certain retirement benefits that are not defined benefit plans.

We use December 31 as the measurement date for determining pension and postretirement (OPEB) benefit obligations. Information regarding the funded status and net periodic benefit costs was reconciled to or stated as of the fiscal year end of December 31. SFAS 158, “Employers’ Accounting for Defined Benefit and Other Postretirement Plans (SFAS 158) eliminated a company’s ability to select a date to measure plan assets and obligations that is prior to its year-end balance sheet date. We changed the measurement date from September 30 to December 31 as of December 31, 2007. As a result of this measurement date change, we recognized a gain of $3.1 million for pension plans and $3.9 million for OPEB plans, which was recorded to retained earnings. These amounts represented the net periodic benefit cost for the period between September 30, 2007 and December 31, 2007. Accordingly, while 15 months of service costs, interest costs, and benefit payments were included in calculating our projected benefit obligation for U.S. plans as of December 31, 2008, only 12 months of these costs are included in the income statement. No significant events took place between September 30 and December 31 that would have materially impacted the assumptions utilized at the measurement date.

Amounts recognized for both U.S.-based and foreign pension and OPEB plans in the consolidated balance sheets and in accumulated other comprehensive income as of December 31 consist of:

	Pension Benefit						Other Benefit
(in millions)	2008			2007			2008			2007
Amounts recognized in the consolidated balance sheets:
Prepaid pension expense	$	81.0		$	233.4			—			—
Liability — current		—			—			(5.5	)		(7.8	)
Liability — long term		(19.9	)		(16.5	)		(37.3	)		(71.0	)
Net amount recognized	$	61.1		$	216.9		$	(42.8	)	$	(78.8	)
Accumulated other comprehensive income:
Prior service credit		(3.6	)		(3.8	)		(28.8	)		(78.6	)
Net actuarial loss (gain)		34.5			(20.1	)		(34.7	)		(27.6	)
Net transition obligation		0.1			0.3			—			—
Total postretirement and postemployment benefits	$	31.0		$	(23.6	)	$	(63.5	)	$	(106.2	)

The net periodic benefit (credit) cost of the postretirement plans for the years ended December 31 was:

	Pension Benefit					Other Benefit
(in millions)	2008		2007			2008			2007
Accumulated other comprehensive income:
Prior service cost (credit)	$	0.1	$	(2.1	)	$	49.9		$	(43.7	)
Net actuarial loss (gain)		54.5		(17.7	)		(7.1	)		(26.7	)
Net transition obligation		—		(0.1	)		—			—
Total postretirement and postemployment benefits	$	54.6	$	(19.9	)	$	42.8		$	(70.4	)

The estimated net experience (loss) gain and prior service credit that will be adjusted from accumulated other comprehensive income into pension / OPEB expense over the 2009 fiscal year are ($0.1) million and $8.8 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides a reconciliation of the changes in the pension and postretirement plans’ benefit obligations and fair value of plan assets for 2008 and 2007:

	Pension Benefit						Other Benefit
(in millions)	2008			2007			2008			2007
Change in benefit obligation
Benefit obligation at beginning of period	$	402.1		$	410.6		$	78.8		$	175.2
Service cost		3.2			8.2			1.5			3.2
Interest cost		19.8			22.7			4.9			6.8
Plan change		—			1.3			(15.0	)		(59.8	)
Actuarial loss (gain)		3.3			(8.8	)		(11.8	)		(27.7	)
Curtailment loss (gain)		1.9			(2.8	)		(6.7	)		(11.2	)
Benefit payments		(38.7	)		(33.5	)		(8.9	)		(7.7	)
Special termination benefits		3.6			1.8			—			—
Settlements		(192.2	)		—			—			—
Effect of changes in exchange rate		(2.0	)		2.6			—			—
Benefit obligation at measurement date	$	200.9		$	402.1		$	42.8		$	78.8
Change in plan assets
Fair value at beginning of period	$	619.0		$	598.4
Actual return on plan assets		(12.5	)		52.2
Employer contributions		0.3			0.5
Benefit payments		(36.8	)		(32.2	)
Settlements		(192.2	)		—
Revisions and transfers to 401(k) plans		(114.6	)		—
Effect of changes in exchange rate		1.2			0.1
Fair value at measurement date	$	262.0		$	619.0

In the first quarter of 2008, we completed the reversion of our former salaried pension plan. This conversion yielded net cash proceeds to us of approximately $80 million, net of consideration for excise taxes of $20 million which were paid in cash in the second quarter of 2008. The replacement retirement program includes both defined benefit and defined contribution plans. A portion of the overfunding for the old plan was utilized to pre-fund the benefits for both the defined benefit and defined contribution replacement plans for approximately the next six years. The settlement of this plan reduced our benefit obligations and the value of our plan assets by $192.2 million.

The following table provides the funded status of the plans for 2008 and 2007:

	Pension Benefits				Other Benefits
(in millions)	2008		2007		2008			2007
Funded status
Funded status at measurement date	$	61.1	$	216.9	$	(42.8	)	$	(78.8	)
Net amount recognized	$	61.1	$	216.9	$	(42.8	)	$	(78.8	)

The accumulated benefit obligation for all defined benefit pension plans was $193.5 million and $389.3 million at December 31, 2008 and September 30, 2007, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

	Dec. 31,		Sept. 30,
(in millions)	2008		2007
Projected benefit obligation	$	126.3	$	19.0
Accumulated benefit obligation		125.7		19.0
Fair value of plan assets		117.8		3.3

Components of net periodic benefit (income) cost during the year:

	Pension Benefits						Other Benefits
(in millions)	2008			2007			2008			2007
Service cost	$	2.5		$	8.2		$	1.1		$	3.2
Interest cost		14.0			22.7			3.7			6.8
Expected return on plan assets		(21.7	)		(45.4	)		—			—
Amortization of net loss (gain)		0.3			0.7			(1.8	)		(0.4	)
Amortization of actuarial transition obligation		0.1			0.1			—			—
Amortization of unrecognized prior service costs		(0.5	)		(0.5	)		(10.5	)		(10.4	)
Additional income due to curtailments, settlements and terminations (see below)		(1.9	)		—			(60.9	)		(17.6	)
Net periodic benefit income	$	(7.2	)	$	(14.2	)	$	(68.4	)	$	(18.4	)

A summary of the curtailment losses (gains), settlement gains and special termination charges recorded as part of income (loss) under the various plans for 2008 and 2007 is as follows:

	Pension Benefits					Other Benefits
(in millions)	2008			2007		2008			2007
Recorded in continuing operations:
Hourly pension plan curtailment loss	$	3.9		$	—	$	—		$	—
Hourly plan special termination benefit charge		2.4			—		—			—
Salaried plan settlement gain on annuities		(6.3	)		—		—			—
Salaried plan special termination benefit charge		1.1			—		—			—
Hourly plan OPEB curtailment gain		—			—		(19.1	)		—
Total — continuing operations		1.1			—		(19.1	)		—
Recorded in discontinued operations:
Salaried plan curtailment gain		(2.9	)		—		—			—
Consolidated plan curtailment gain		(0.1	)		—		—			—
Salaried OPEB plan curtailment gain		—			—		(6.9	)		—
Engine & Power Train curtailments		—			—		(34.9	)		(17.6	)
Total — discontinued operations		(3.0	)		—		(41.8	)		(17.6	)
Total — curtailments, settlements and terminations	$	(1.9	)	$	—	$	(60.9	)	$	(17.6	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additional Information

Assumptions

Weighted-average assumptions used to determine benefit obligations;

	Pension Benefits						Other Benefits
	2008			2007			2008			2007
U.S.-Based Plans — *
Discount rate		6.25	%		6.03-6.27	%		6.25	%		5.21-6.20	%
Rate of compensation increase		4.25	%		4.25	%		N/A			N/A
Europe-Based Plans — at December 31,		2008			2007			2008			2007
Discount rate		5.00	%		4.80	%		N/A			N/A
Rate of compensation increase		2.10	%		2.10	%		N/A			N/A
India-Based Plans — at December 31,		2008			2007			2008			2007
Discount rate		9.35	%		7.50	%		N/A			N/A
Rate of compensation increase		6.50	%		5.50	%		N/A			N/A

* Measurement for U.S.-based plans was as of December 31 in 2008, September 30 in 2007.

Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31:

	Pension Benefits						Other Benefits
	2008			2007			2008			2007
U.S.-Based Plans:
Discount rate		6.03-6.27	%		5.56-5.71	%		5.21-6.20	%		5.39-5.69	%
Expected long-term return on plan assets		6.30	%		7.50	%		N/A			N/A
Rate of compensation increase		4.25	%		4.25	%		N/A			N/A
Europe.-Based Plans:		2008			2007			2008			2007
Discount rate		5.00	%		4.80	%		N/A			N/A
Expected long-term return on plan assets		N/A			N/A			N/A			N/A
Rate of compensation increase		2.10	%		2.10	%		N/A			N/A
India.-Based Plans:		2008			2007			2008			2007
Discount rate		9.35	%		7.50	%		N/A			N/A
Expected long-term return on plan assets		9.35	%		9.00	%		N/A			N/A
Rate of compensation increase		6.50	%		5.50	%		N/A			N/A

The expected long-term return, variance, and correlation of return with other asset classes are determined for each class of assets in which the plan is invested. That information is combined with the target asset allocation to create a distribution of expected returns. The selected assumption falls within the best estimate range, which is the range in which it is reasonably anticipated that the actual results are more likely to fall than not.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assumed health care cost trend rates, at December 31, 2008 and September 30, 2007:

	2008		2007
Health care cost trend rate assumed for next year		8.0-11.5%		8.5-12.0%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.0%		5.0%
Year that the rate reaches the ultimate trend rate		2015-2016		2015-2016

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The health care cost trend rates are based on an evaluation of external market conditions and adjusted to reflect our actual experience in relation to those market trends. A one-percentage-point increase in the assumed health care cost trend rate would increase the postretirement benefit obligation by $4.0 million, and a one-percentage-point decrease in the assumed health care cost trend rate would decrease the postretirement benefit obligation by $3.4 million.

Plan Assets

The following table provides pension plan asset allocations at December 31, 2008 and September 30, 2007:

	2008			2007*
Asset Category:
Debt securities		72	%		23	%
Equity securities		8	%		28	%
Cash*		20	%		49	%
Total		100	%		100	%

* The allocation to cash as of December 31, 2008 was due to the anticipated reversion of our Hourly Retirement plan. This reversion is expected to be completed during 2009. The allocation to cash as of September 30, 2007 was due to the anticipated reversion of our Salaried Retirement plan. This reversion, which was completed in March of 2008, yielded cash proceeds to us of $80 million, which represents gross proceeds of $100 million net of excise tax of $20 million. The new retirement program includes both defined benefit and defined contribution plans. A portion of the overfunding for the old plan was utilized to pre-fund the benefits for both of the replacement plans for approximately the next six to eight years.

Our primary investment objectives are 1) preservation of principal, 2) minimizing the volatility of our assets and liabilities from changes in interest rates and market conditions, and 3) providing liquidity to meet benefit payments and expenses. These objectives are accomplished by investing the estimated payment obligations into fixed income portfolio where maturities match the expected benefit payments. This portfolio consists of investments rated “A” or better by Moody’s or Standard & Poor’s. Funds in excess of the estimated ten-year payment obligations are invested in equal proportions in a separate bond portfolio and an equity portfolio.

Equity securities include Tecumseh Products Company common stock in the amounts of $0.9 million (0.4% of plan assets) at December 31, 2008 and $3.5 million (0.6% of total plan assets) at September 30, 2007.

We expect to make contributions of $0.2 million to our pension plans in 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Projected Benefit		Projected Benefit Payments
(in millions)	Payments from		From Postretirement Medical
Year	Pension Plans		And Life Insurance Plans
2009	$	23.0	$	5.3
2010		13.7		3.9
2011		13.6		3.8
2012		13.6		3.5
2013		13.6		3.4
Aggregate for 2014-2018		67.7		15.2

Foreign Pension Plans

Our foreign subsidiaries also record liabilities for certain retirement benefits that are not defined benefit plans. The net liability for those other postretirement employee benefit plans recorded in the consolidated balance sheet was $1.1 million for 2008 and $1.5 million for 2007.

Defined Contribution Plans

We have defined contribution retirement plans that cover substantially all domestic employees. The combined expense for these plans was $2.8 million and $2.2 million in 2008 and 2007, respectively. We funded $1.8 million of the 2008 contribution from the proceeds obtained from the reversion of our former Salaried pension plan, as is discussed above as well as in Note 1.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7. Recoverable Non-Income Taxes

We pay various value-added taxes in jurisdictions outside of the United States. These include taxes levied on material purchases, fixed asset purchases, and various social taxes. The majority of these taxes are creditable when goods are sold to customers domestically or against income taxes due. Since the taxes are recoverable upon completion of these procedures, they are recorded as assets upon payment of the taxes.

Historically, due to the concentration of exports, such taxes were typically credited against income taxes due. However, with reduced profitability, primarily in Brazil, we instead sought these refunds via alternate proceedings. As a result, there was a substantial increase in the balance of these recoverable taxes leading up to the fourth quarter of 2008. During that quarter, we received the first of our expected refunds on the outstanding prepaid and recoverable taxes in Brazil. As of December 31, 2008 and based on the exchange rate between the Brazilian real and the U.S. dollar as of that date, we had received approximately $45.0 million in refunds.

We have completed refund procedures for the remaining balances. We expect to recover approximately $3 million of the outstanding refundable taxes in Brazil during 2009, with the remainder, approximately $37 million, expected to be recovered in 2010. The actual amounts received as expressed in U.S. dollars will vary depending on the exchange rate against the Brazilian real at the time of receipt or future reporting date.

Following is a summary of the recoverable non-income taxes recorded on our balance sheet at December 31, 2008 and 2007:

	December 31,		December 31,
(Dollars in millions)	2008		2007
Brazil	$	40.2	$	114.5
India		8.5		7.2
Total recoverable non-income taxes	$	48.7	$	121.7

At December 31, 2008, a receivable of $11.7 million was included in current assets and $37.0 million was included in non-current assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8. Warranties

Reserves are recorded on the consolidated balance sheet to reflect our contractual liabilities relating to warranty commitments to customers. Changes in the carrying amount and accrued product warranty costs for the years ended December 31, 2008 and 2007 are summarized as follows:

(in millions)
Balance at January 1, 2007	$	26.2
Current year accruals for warranties		7.5
Adjustments to preexisting warranties		0.4
Settlements of warranty claims (in cash or in kind)		(9.3	)
Sale of businesses / reclass to held for sale*		(15.5	)
Effect of foreign currency translation		0.4
Balance at December 31, 2007	$	9.7
Current year accruals for warranties		5.5
Adjustments to preexisting warranties		(0.3	)
Settlements of warranty claims (in cash or in kind)		(7.5	)
Effect of foreign currency translation		(0.7	)
Sale of MP Pumps		(0.1	)
Balance at December 31, 2008	$	6.6

* Reflects the impact of the sale of the Engine & Power Train business, the sale of portions of the Electrical Components business, and the classification of the remaining Electrical Components business as held for sale.

At December 31, 2008, $5.9 million was included in current liabilities and $0.7 million was included in non-current liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9. Debt

(in millions)	2008			2007
Short-term borrowings consist of the following:
Borrowings by foreign subsidiaries under revolving credit agreements, advances on export receivables and overdraft arrangements with banks used in the normal course of business; weighted average interest rate at December 31 of 10.5% in 2008 and 9.0% in 2007	$	27.8		$	55.7
Current maturities of long-term debt		2.6			3.8
Total short-term borrowings	$	30.4		$	59.5
Long-term debt consists of the following:
Unsecured borrowings, primarily with banks, by foreign subsidiaries with weighted average interest rate at December 31 of 8.5% in 2008 and 11.0% in 2007 and maturing in 2009 through 2013	$	3.0		$	7.1
Less: Current maturities of long-term debt		(2.6	)		(3.8	)
Total long-term debt	$	0.4		$	3.3

On March 20, 2008, we terminated our previous $75 million first lien credit agreement and entered into a new $50 million credit agreement with JPMorgan Chase Bank, N.A. as administrative agent. The agreement provides us with a $50 million revolving line of credit expiring on March 20, 2013. The agreement contains certain covenants, including a minimum fixed charge coverage ratio, which applies only if liquidity or availability, each as defined by the credit agreement, falls below a specified level. As of December 31, 2008 we did not meet the minimum fixed charge coverage ratio criteria; while this is not an event of default, it reduces our available credit under the facility by $20.0 million. As of December 31, 2008, we had no borrowings outstanding against this agreement, and our levels of liquidity and availability were such that the covenants did not apply. We paid $1.6 million in fees associated with the new agreement, which were capitalized and will be amortized over the term of the agreement. $1.4 million in fees associated with the previous First Lien Credit Agreement were expensed as interest cost upon its termination.

At December 31, 2008, we had cash balances in North America of approximately $76.5 million and outstanding letters of credit of $6.7 million. Due to the fixed charge ratio as of that date as described above, U.S. availability under our domestic Credit Agreement was approximately $0.2 million. The credit agreement also authorized us to obtain a maximum in additional financing of $150.2 million in foreign jurisdictions. The interest rate under these arrangements, had balances been outstanding, would have been 2.35% at December 31, 2008.

Although we have terminated our former second lien credit agreement, the former lender still possesses a warrant to purchase 1,390,944 shares of Class A Common Stock, which is equivalent to 7% of our fully diluted common stock. This warrant, valued at $7.3 million or $5.29 per share, expires in April of 2012. The costs associated with this warrant, while originally accounted for as additional interest to be expensed over the remaining terms of the credit agreement, were accelerated upon full repayment of the debt, and resulted in expense of $6.2 million in the third quarter of 2007, which was included in the loss from discontinued operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In addition to our North American credit agreement, we have various borrowing arrangements at our foreign subsidiaries to support working capital needs and government sponsored borrowings which provide advantageous lending rates.

Our weighted average interest rate for all borrowings was 10.4% at December 31, 2008.

Scheduled maturities of debt for each of the five years subsequent to December 31, 2008 are as follows:

(in millions)
2009	$	30.4
2010		0.1
2011		0.1
Thereafter		0.2
	$	30.8

Cash interest paid was $21.0 million in 2008, $37.1 million in 2007 and $47.2 million in 2006.

NOTE 10. Stockholders’ Equity

The shares of Class A common stock and Class B common stock are substantially identical except as to voting rights. Class A common stock has no voting rights except the right to i) vote on any amendments that could adversely affect the Class A Protection Provision in the articles of incorporation and ii) vote in other limited circumstances, primarily involving mergers and acquisitions, as required by law.

A Shareholders’ Rights Plan is in effect for each class of stock. These plans protect shareholders against unsolicited attempts to acquire control of the company that do not offer an adequate price to all shareholders. The rights are not currently exercisable, but would become exercisable at an exercise price of $180 per share, subject to adjustment, if certain events occurred relating to a person or group acquiring or attempting to acquire 10% or more of the outstanding shares of Class B common stock. The rights have no voting or dividend privileges and are attached to, and do not trade separately from, the Class A and Class B common stock. The rights expire on August 25, 2009. As of December 31, 2008, 13,401,938 shares of authorized but unissued Class A common stock and 5,077,746 shares of authorized but unissued Class B common stock were reserved for future exercise under the plans.

We have no current expectation to resume payment of dividends.

In April of 2007, as part of the amendment to our Second Lien credit agreements, we granted a warrant to purchase a number of shares of Class A Common Stock equal to 7% of our fully diluted common stock, or 1,390,944 shares. This warrant, valued at $7.3 million, expires five years from the date of the execution of the amendment to the Second Lien credit agreement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 11. Accumulated Other Comprehensive Income

Accumulated other comprehensive income is shown in the Consolidated Statements of Stockholders’ Equity and includes the following:

(Dollars in millions)	2008			2007
Foreign currency translation adjustments	$	(49.0	)	$	35.2
Gain (loss) on derivatives		(39.4	)		3.5
Postretirement and postemployment benefits:
Prior Service Credit		32.4			82.4
Net Actuarial Gain		0.2			47.7
Net Transition Obligation		(0.1	)		(0.3	)
U.S. deferred income tax		(0.6	)		—
Total postretirement and postemployment benefits		31.9			129.8
Total — Accumulated other comprehensive income	$	(56.5	)	$	168.5

NOTE 12. Share-based Compensation Arrangements

In the first quarter of 2008, we approved a new Long-Term Incentive Cash Award Plan for members of our senior management. The plan authorizes two types of incentive awards, both of which are based upon our Class A shares; stock appreciation rights (“SARs”) and phantom stock shares. Both types of awards are settled in cash.

A summary of the grants made under the plans during 2008 is as follows:

			Number of		Initial value		2008		2009		2010		2011
	Award Date		awards		per award		Vesting		Vesting		Vesting		Vesting
SARs:		3/4/08		435,933	$	15.16		108,334		145,311		145,311		36,977
Phantom		3/4/08		148,030	$	28.82		—		—		89,552		58,478
Shares:		11/20/08		183,374		8.18		—		61,125		122,249		—
		12/31/08		31,315		9.58		—		—		31,315		—
				362,719				—		61,125		243,116		58,478

With the exception of one-third of the 325,002 SARs awarded on March 4 to our Chief Executive Officer, which vested on August 13, 2008, none of the awards vested or expired during the year.

In general, the SARs vest in equal amounts on the first, second, and third anniversaries of the grant date, and expire seven years from the grant date. For some of the SARs and phantom stock shares awarded to our Chief Executive Officer on March 4, these anniversaries are measured from his August 13, 2007 hire date rather than from the grant date.

The initial value of the phantom stock shares was based on the closing price of our Class A shares as of the grant date. The SARs, which are the economic equivalent of options, were valued as of the grant date using a Black-Scholes model. The assumptions used in the Black-Scholes model for the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SARs included a risk-free interest rate of 3.37%, a dividend yield of 0%, an expected life of seven years and a volatility of 51.18%. Using a strike price of $28.82, this yielded a value as of the grant date of $15.16.

Our liability with regard to these awards is remeasured in each quarterly reporting period. The value of the phantom stock shares is determined by comparing the closing stock price on our Class A common stock on the last day of the period to the initial grant date value. At December 31, 2008, the closing stock price on our Class A common stock was $9.58. We measure the fair value of each SAR, also on the last day of each period, using a Black-Scholes model, and compare that result to the original calculated value. At December 31, 2008, this calculation yielded a value per SAR of $4.85.

As both the SARs and the phantom stock shares are settled in cash rather than by issuing equity instruments, we record them as expense with a corresponding liability on our balance sheet. The expense is based on the fair value of the awards on the last day of the reporting period and represents an amortization of that fair value over the three-year vesting period of the awards. Total compensation expense related to the plan for the year ended December 31, 2008 was $1.4 million. The balance of the fair value that has not yet been recorded as expense is considered an unrecognized liability. The total unrecognized liability as calculated at December 31, 2008 was $4.3 million.

The SARs and phantom stock shares do not entitle recipients to receive any shares of our common stock, nor do they provide recipients with any voting or other stockholder rights. Similarly, since the awards are not paid out in the form of equity, they do not change the number of shares we have available for any future equity compensation we may elect to grant, and they do not create stockholder dilution. However, because the value of the awards is tied to the price of our Class A common stock, we believe they align employee and stockholder interests, and provide retention benefits in much the same way as would stock options and restricted stock awards.

NOTE 13. Impairments, Restructuring Charges, and Other Items

A summary of the charges (gains) recorded as restructuring, impairment and other charges as of December 31 is as follows:

(Dollars in millions)	2008			2007		2006
Goodwill impairments	$	18.2		$	—	$	—
Excise tax expense on proceeds from salaried retirement plan reversion		20.0			—		—
Impairment of buildings and machinery		14.6			5.6		2.4
Severance, restructuring costs, and special termination benefits		12.2			1.6		—
Curtailment and settlement (gains) / losses		(21.5	)		—		—
Total impairments, restructuring charges, and other items	$	43.5		$	7.2	$	2.4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2008

2008 operating net loss included $43.5 million ($2.35 per basic and diluted share) of restructuring, impairment and other charges. The $14.6 million recognized for impairments of buildings and machinery was the result of the acceleration of our plans for relocating and consolidating of certain of our global manufacturing capabilities, in light of the pronounced softening of demand resulting from the current global financial conditions. The expense was recognized in Brazil ($11.0 million), North America ($3.0 million), and India ($0.6 million). The severance expense of $12.2 million was as a result of restructuring costs from previously announced actions recognized at our Brazilian ($5.2 million), North American ($3.7 million), Indian ($2.7 million) and European ($0.6 million) locations during the year.

2007

2007 operating net loss included $7.2 million ($0.39 per basic and diluted share) of restructuring, impairment and other charges. $4.2 million of these restructuring charges related to the impairment of long-lived compressor assets in India ($2.2 million) and North America ($2.0 million). These assets were primarily impaired as a result of the global consolidation of our manufacturing operations. We also incurred expense of $1.6 million associated with reductions in force at several of our North American facilities. The remaining charges reflect the impact of net losses on the sale of buildings ($0.5 million) and related charges ($0.9 million) as a result of the consolidation of corporate and other non-compressor facilities.

2006

2006 net loss included $2.4 million ($0.13 per share) of restructuring, impairment and other charges. We recorded these restructuring charges for impairment of long-lived compressor assets ($2.2 million) and related charges ($0.2 million) at two of our facilities in Mississippi.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 14. Income Taxes

Consolidated income (loss) from continuing operations before taxes consists of the following:

(in millions)	2008			2007			2006
U.S.	$	(23.6	)	$	(32.6	)	$	(27.3	)
Foreign		(62.2	)		18.4			(11.0	)
	$	(85.8	)	$	(14.2	)	$	(38.3	)

Provision for (benefit from) income taxes from continuing operations consists of the following:

(in millions)	2008			2007			2006
Current:
U.S. federal	$	0.8		$	1.3		$	1.0
State and local		(0.1	)		—			—
Foreign income and withholding taxes		1.9			2.8			2.6
		2.6			4.1			3.6
Deferred:
U.S. federal		(8.9	)		(13.4	)		—
State and Local		—			1.3			—
Foreign		0.4			(0.2	)		8.9
		(8.5	)		(12.3	)		8.9
Provision for (benefit from) income taxes from continuing operations	$	(5.9	)	$	(8.2	)	$	12.5
Income taxes paid, net	$	6.8		$	3.3		$	1.6

A reconciliation between the actual income tax expense (benefit) provided and the income tax expense (benefit) computed by applying the statutory federal income tax rate of 35% to income before tax is as follows:

(in millions)	2008			2007			2006
Income taxes (benefit) at U.S. statutory rate	$	(30.0	)	$	(5.0	)	$	(13.4	)
Foreign tax differential (and withholding tax)		2.3			0.6			5.0
Change in valuation allowance		14.7			(2.4	)		10.6
State and local income taxes		(0.1	)		1.3			—
Excise tax on pension reversion		7.0			—			—
Expiration of statute on uncertain tax positions		0.4			(2.2	)		—
Other		(0.2	)		(0.5	)		10.3
	$	(5.9	)	$	(8.2	)	$	12.5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income taxes reflect the effect of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. Provisions are also made for estimated taxes which may be incurred on the remittance of subsidiaries’ undistributed earnings, none of which are deemed to be permanently reinvested.

Significant components of our deferred tax assets and liabilities as of December 31 were as follows:

(in millions)	2008			2007
Deferred tax assets:
Other postretirement liabilities	$	19.4		$	22.1
Product warranty and self-insured risks		5.7			8.4
Net operating loss carryforwards		297.8			231.8
Translation adjustments		—			0.5
Tax credit carryovers		59.0			53.8
Loss on hedges		12.3			—
Other accruals and miscellaneous		16.2			37.2
		410.4			353.8
Valuation allowance		(336.3	)		(229.5	)
Total deferred tax assets		74.1			124.3
Deferred tax liabilities:
Tax over book depreciation		16.4			21.1
Pension		43.9			75.8
Unremitted foreign earnings		5.6			20.6
Other		5.4			5.1
Total deferred tax liabilities		71.3			122.6
Net deferred tax assets	$	2.8		$	1.7

Deferred tax detail is included in the consolidated balance sheet as follows:

Tax assets (including refundable of $12.2 and $13.9)	$	23.2	$	24.6
Non-current deferred tax liabilities		8.7		10.2
Total	$	14.5	$	14.4

At December 31, 2008, we had the following loss carryforwards:

	Carryforward amount		Expiration
U.S. Federal: ordinary loss	$	478.0		2025 to 2028
U.S Federal: capital loss		209.0		2012
U.S. State		355.2		2008 to 2028
Brazil		88.0	None
India		13.6	None

In 2008, the $100 million in gross proceeds from the reversion of our Salaried Retirement plan generated a tax gain that was fully offset against our existing NOL carryforwards. In 2009, we

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expect approximately $55 to $60 million in gross proceeds from the reversion of our Hourly Retirement plan, which will also generate a tax gain that will be fully offset against our NOL carryforwards.

Foreign tax credit and research credit carryforwards of approximately $58.2 million will expire from 2012 through 2018. Furthermore, we also had various state tax credit carryovers of $0.8 million, which expire at various dates from 2009 to 2020. Due to a change in law during 2008, which allows for a portion of certain tax credits to be refundable for US federal tax purposes, we recognized $0.2 million of tax benefit.

Income taxes are recorded pursuant to SFAS No. 109, “Accounting for Income Taxes,” which specifies the allocation method of income taxes between categories of income defined by that statement as those that are included in net income (continuing operations and discontinued operations) and those included in comprehensive income but excluded from net income.

SFAS 109 is applied by tax jurisdiction, and in periods in which there is a pre-tax loss from continuing operations and pre-tax income in another category (such as other comprehensive income or discontinued operations), tax expense is allocated to the other sources of income with a related benefit recorded in continuing operations. The full year results of 2008 reflected a tax benefit in continuing operations, tax expense in other discontinued operations and no US federal income tax impact for other comprehensive income.

We evaluate our deferred income taxes quarterly to determine if valuation allowances are required or should be adjusted. SFAS 109 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard.

Based on our analysis, we have recorded a valuation allowance for all net U.S. federal deferred tax assets, state deferred tax assets and certain tax assets arising in foreign tax jurisdictions that in the judgment of management are not likely to be realized in the foreseeable future. The valuation allowance increased by $106.8 million and $110.1 million in 2008 and 2007 respectively. The 2008 change is the result of $108.4 million for current year losses offset by a decrease of $1.6 million for the impact of currency exchange on foreign balances. The 2007 change is the result of the release of a valuation allowance for our operations in France of $3.8 million, $133.0 million for current year losses and credits and a net decrease of $19.1 million in the balance of other deferred tax assets.

At December 31, 2008 and 2007, in accordance with FIN 48, the amount of gross unrecognized tax benefits before valuation allowances and the amount that would favorably affect the effective income tax rate in future periods after valuation allowances were $0.6 million and $0.9 million respectively. At December 31, 2008 and 2007, there was no reduction of deferred tax assets relating to uncertain tax positions.

We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2008 and 2007, we had accrued interest and penalties of $0.6 million and $0.7 million respectively. The tax reserves relate to potential state tax nexus issues and the entire amount would have an impact on our effective tax rate. We expect an increase in the range of zero to $0.2 million in the unrecognized tax benefits in the next twelve months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in millions)
Balance at January 1, 2008	$	1.0
Lapse of statute of limitations		(0.4	)
Balance at December 31, 2008	$	0.6

We file U.S., state and foreign income tax returns in jurisdictions with varying statues of limitations. During 2008, we closed the audits for our U.S. federal income tax returns for 2003 and 2004. There was no impact on the income statement or the unrecognized tax benefits as a result of the completion of these audits. The years 2004 through 2008 generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, tax years before 2005 are no longer subject to audit.

As part of the process of finalizing the audit of our 2003 tax year, we reached an agreement with the IRS in December 2008 regarding the refund of federal income taxes previously paid related to that period. Under the agreement, we will receive a tax refund of $12.2 million plus interest of $2.1 million accrued through 2008, for a total of $14.3 million. This amount is recognized in our balance sheet as of December 31, 2008 as a component of deferred and recoverable income taxes (current). Receipt of this refund is expected during 2009.

NOTE 15. Fair Value Measurements

In accordance with SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), we utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

We categorize assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are as follows:

Level 1	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Cash and cash equivalents

The carrying amount of cash equivalents approximates fair value due to their liquidity and short-term maturities. We classify cash and cash equivalents as Level 1.

     Short and long term investments

Investments with a maturity of greater than three months up to one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term if we reasonably expect the investment to be realized in cash or sold or consumed during the normal operating cycle of the business; otherwise, they are classified as long-term. Investments available for sale are recorded at market value. Investments held to maturity are measured at amortized cost in the statement of financial position if it is our intent and ability to hold those securities to maturity. Any unrealized gains and losses on available for sale securities are reported as other comprehensive income as a separate component of shareholders’ equity until realized or until a decline in fair value is determined to be other than temporary.

As described in Note 1, our investment in the Auction Rate Certificate (ARC) is not valued using a market model due to the recent absence of auctions. The ARC was valued using a discounted cash flow analysis because there is presently no active market for the ARC from which to determine value. The valuation analysis utilized a discount rate based on the reported rate for a comparable security (i.e., similar student loan portfolios and holding periods) in active markets, plus a factor for the present market illiquidity associated with the ARC. The reported rate for a comparable security was the sum of (1) the base rate that is used in the reporting of that security, in this case three month LIBOR, and (2) the interest rate spread above the base rate, as reported from the active market for that security. The illiquidity factor was established based on the credit quality of the ARC determined by the percentage of the underlying loans guaranteed by the Federal Family Education Loan Program (FFELP). The resulting discount rate used in the valuation analysis was 6.1%.

Since they are non-transferable and not traded on any exchange, we have elected to measure the Auction Rate Securities Right (ARSR) using the fair value option permitted by SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities.” The ARSR represents a guarantee of the par value of the ARC, and we have valued the ARSR using a present value model as permitted by SFAS No. 157, “Fair Value Measurements.” In valuing the ARSR, we calculated the present value of the difference between the par value of the ARC and the current fair value of the ARC. The present value model utilized a discount rate of 3.49%, which is a combination of the credit default swap rate risk of UBS (2.15%) and the rate on a U.S. Treasury interest rate swap (1.14%). The sum of those rates was increased by an additional 0.2% to account for any potential liquidity risk should UBS not be able to fulfill its obligation under the ARSR agreement. The ARSR is included in “Long-Term Investments” in the consolidated balance sheet.

     Foreign currency forward purchases and commodity futures contracts

Derivative instruments recognized on our balance sheet consist of foreign currency forward exchange contracts and commodity futures contracts. These contracts are recognized at the estimated amount at which they could be settled based on market observable inputs, such as forward market exchange rates. We classify our derivative instruments as Level 2.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our foreign subsidiaries use forward exchange contracts to hedge foreign currency receivables, payables, and other known and forecasted transactional exposures for periods consistent with the expected cash flow of the underlying transactions. The contracts generally mature within one year and are designed to limit exposure to exchange rate fluctuations. On the date a forward exchange contract is entered into, it is designated as a foreign currency cash flow hedge. Subsequent changes in the fair value of the contract that is highly effective and qualifies as a foreign currency cash flow hedge are recorded in other comprehensive income. Our European subsidiaries had contracts for the sale of $0.0 million and $29.2 million at December 31, 2008 and 2007, respectively. Our India subsidiary had contracts for the sale of $23.5 million and $20.3 million at 2008 and 2007, respectively. Finally, the Brazilian subsidiaries had contracts for the sale of $100.0 million and $183.3 million at December 31, 2008 and 2007, respectively.

We do not utilize financial instruments for trading or other speculative purposes. We generally do not hedge the net investment in our subsidiaries. All derivative financial instruments held at December 31, 2008 will mature within twelve months. All such instruments held at December 31, 2007 matured in 2008.

Short and long term borrowings

The carrying value of any variable interest rate debt represents fair value. We classify all our short and long term borrowings as Level 1.

Assets and liabilities recorded at fair value on a recurring basis

The following table presents the amounts recorded on our balance sheet for assets and liabilities measured at fair value on a recurring basis as of December 31, 2008.

	Total Fair
(Dollars in millions)	Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	112.9	$	112.9	$	—	$	—
Auction rate certificates		4.3						4.3
Auction rate securities rights		0.5		—		—		0.5
Balance as of December 31, 2008	$	117.7	$	112.9	$	—	$	4.8
Liabilities:
Commodity futures contracts	$	13.2	$	—	$	13.2	$	—
Foreign currency derivatives		25.4		—		25.4		—
Short-term borrowings		30.4		30.4		—		—
Long-term debt		0.4		0.4		—		—
Balance as of December 31, 2008	$	69.4	$	30.8	$	38.6	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the changes in Level 3 assets for the year ended December 31, 2008:

	Auction Rate			Auction Rate
(Dollars in millions)	Certificates			Securities Rights
Balance at January 1, 2008	$	5.0		$	—
Gains (losses) included in investment loss		(0.7	)		0.5
Balance at December 31, 2008	$	4.3		$	0.5

NOTE 16. Environmental Matters

Although the locations described below that have been affected by environmental proceedings were associated with our Engine & Power Train business, which we sold during 2007, we have retained any potential liabilities that may arise in connection with these locations.

We were named by the U.S. Environmental Protection Agency (“EPA”) as a potentially responsible party (“PRP”) in connection with the Sheboygan River and Harbor Superfund Site in Wisconsin. In 2003, with the cooperation of the EPA, the company and Pollution Risk Services, LLC (“PRS”) entered into a Liability Transfer and Assumption Agreement (the “Liability Transfer Agreement”). Under the terms of the Liability Transfer Agreement, PRS assumed all of our responsibilities, obligations and liabilities for remediation of the entire Site and the associated costs, except for certain specifically enumerated liabilities. Also, as required by the Liability Transfer Agreement, we purchased Remediation Cost Cap insurance, with a 30 year term, in the amount of $100.0 million and Environmental Site Liability insurance in the amount of $20.0 million. We believe such insurance coverage will provide sufficient assurance for completion of the responsibilities, obligations and liabilities assumed by PRS under the Liability Transfer Agreement. In conjunction with the Liability Transfer Agreement, we completed the transfer of title to the Sheboygan Falls, Wisconsin property to PRS.

Through 2007, we maintained a reserve of $0.5 million to reflect our potential environmental liability arising from operations at the Site, including potential residual liabilities not assumed by PRS pursuant to the Liability Transfer Agreement. During 2008, substantially all of work with respect to the primary contamination site was completed, and based on the most recent information received from the EPA we eliminated this reserve.

In cooperation with the WDNR, we also conducted an investigation of soil and groundwater contamination at our Grafton, Wisconsin plant. In 2008, the remainder of the work required by the WDNR was completed. Based on an evaluation of the reduced liability of the site, the reserve was reduced in 2008. At December 31, 2008 and 2007, we had accrued $0.5 million and $2.2 million respectively for the total estimated cost associated with the investigation and remediation of the on-site contamination.

In addition to the above-mentioned sites, we are also currently participating with the EPA and various state agencies at certain other sites to determine the nature and extent of any remedial action that may be necessary with regard to such other sites. At December 31, 2008 and 2007, we had accrued a total of $0.6 million and $3.0 million, respectively, for environmental remediation. As these matters continue toward final resolution, amounts in excess of those already provided may be necessary to discharge us from our obligations for these sites. Such amounts, depending on their

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amount and timing, could be material to reported net income in the particular quarter or period that they are recorded. In addition, the ultimate resolution of these matters, either individually or in the aggregate, could be material to the consolidated financial statements.

NOTE 17. Commitments and Contingencies

We are also the subject of, or a party to, a number of other pending or threatened legal actions involving a variety of matters, including class actions, incidental to our business. Although their ultimate outcome cannot be predicted with certainty, and some may be disposed of unfavorably to us, management considers that appropriate reserves have been established and does not believe that the disposition of these other matters will have a material adverse effect on our consolidated financial position or results of operations.

A nationwide class-action lawsuit filed against us and other defendants (Ronnie Phillips et al v. Sears Roebuck Corporation et al., No. 04-L-334 (20^th Judicial Circuit, St. Clair County, IL)) alleged that the horsepower labels on the products the plaintiffs purchased, which included products manufactured by our former Engine & Power Train business, were inaccurate. The plaintiffs sought certification of a class of all persons in the United States who, beginning January 1, 1995 through the present, purchased a lawnmower containing a two stroke or four stroke gas combustible engine up to 20 horsepower that was manufactured by defendants. On March 30, 2007, the Court issued an order granting the defendants’ motion to dismiss, and on May 8, 2008 the Court issued an opinion that (i) dismissed all the claims made under the Racketeer Influenced and Corrupt Organization (RICO) Act with prejudice; (ii) dismissed all claims of the 93 non-Illinois plaintiffs with instructions to re-file amended claims in individual state courts; and (iii) ordered that any amended complaint for the three Illinois plaintiffs be re-filed by May 30, 2008. Since that time, four plaintiff’s firms have filed 45 class action matters in 33 states, asserting claims on behalf of consumers in each of those states with respect to lawnmower purchases from January 1, 1994 to the present. While we believe we have meritorious defenses and intend to assert them vigorously, there can be no assurance that we will prevail. We also may pursue settlement discussions. It is not possible to reasonably estimate the amount of our ultimate liability, if any, or the amount of any future settlement, but the amount could be material to our financial position, consolidated results of operations and cash flows.

In 2008, the purchaser of the business sought an adjustment to the purchase price through provisions in the agreement based upon working capital as of the date of closing of approximately $20.0 million. We did not agree with the amount claimed, and the dispute was settled through a binding arbitration process, as was originally contemplated by the sale agreement. In March 2009, the arbitrator awarded the purchaser $13.1 million for the working capital adjustment. This adjustment is included in our 2008 results and is included in discontinued operations.

On February 17, 2009, we received a subpoena from the United States Department of Justice Antitrust Division (“DOJ”) and a formal request for information from the Secretariat of Economic Law of the Ministry of Justice of Brazil (“SDE”) related to investigations by these authorities into possible anti-competitive pricing arrangements among certain manufacturers in the compressor industry. The European Commission began an investigation of the industry on the same day.

We intend to cooperate fully with the investigations. In addition, we have entered into a conditional amnesty agreement with the DOJ under the Antitrust Division’s Corporate Leniency Policy. Pursuant to the agreement, the DOJ has agreed to not bring any criminal prosecution with respect to the investigation against the company as long as we, among other things, continue our full cooperation in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the investigation. We have received similar conditional immunity from the European Commission and the SDE.

While we have taken steps to avoid fines, penalties and other sanctions as the result of proceedings brought by regulatory authorities in the identified jurisdictions, the amnesty does not extend to civil actions brought by private plaintiffs under U.S. antitrust laws. Several purported class action lawsuits relating to the matters being investigated by the DOJ have been filed recently against us and other compressor manufacturers, and more lawsuits may follow. We have not yet had an opportunity to analyze the plaintiffs’ claims in the suits that have been filed and cannot say whether they have any merit. Under U.S. antitrust law, persons who engage in price-fixing can be jointly and severally liable for three times the actual damages caused by their joint conduct. As an amnesty recipient, however, we believe our liability, if any, would be limited to any actual damages suffered by our customers due to our conduct and that we would not be liable for treble damages or for claims against other participants in connection with the alleged anticompetitive conduct being investigated.

We anticipate that we will incur additional expenses as we continue to cooperate with the investigations and defend the lawsuits. Such expenses and any restitution payments could negatively impact our reputation, compromise our ability to compete and result in financial losses in an amount we are unable to predict.

We have minimal capital and operating leases, as substantially all employed facilities and equipment are owned. Our payments by period as of December 31, 2008 for our long-term contractual obligations under operating leases are as follows:

Payments by Period (in millions)

	Total		2009		2010/2011		2012/2013		Other
Operating leases		5.7		1.3		2.0		1.5		0.9

These obligations include minimum payments for leased facilities and equipment.

A portion of accounts receivable at our Brazilian, European, and Indian subsidiaries are sold with limited recourse at a discount. Our Brazilian subsidiary also sells portions of its accounts receivable without recourse. Discount receivables sold, including both with and without recourse amounts, were $61.4 million and $99.2 million at December 31, 2008 and 2007, respectively, and the discount rate was 11.2% in 2008 and 9.1% in 2007.

NOTE 18. Business Segments

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker(s) in deciding how to allocate resources and in assessing performance. The accounting policies of the reportable segments are the same as those described in Note 1 of Notes to the Consolidated Financial Statements. In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” we previously reported three operating segments; Compressor Products, Electrical Components, and Engine & Power Train. However, as a result of the sale of the majority of the Electrical Components business and the entire Engine & Power Train business during 2007,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

these segments are no longer reported. The remaining unsold businesses within Electrical Components are included in discontinued operations.

Until 2006, we also reported a Pump Products business segment; however, as a result of the decision, during the first quarter of 2006, to sell 100% of our ownership in Little Giant Pump Company, such operations are no longer reported in income (loss) from continuing operations before tax. Little Giant operations represented approximately 90% of that previously reported segment. Subsequent to 2006 and until its sale in 2008, operating results of the remaining pump business were included in Other for segment reporting purposes.

Another business within Other, Manufacturing Data Systems Inc., was sold and reclassified to discontinued operations during the third quarter of 2007.

Accordingly, our remaining results of operations are comprised solely of businesses formerly reported under our Compressor Products segment.

External customer sales by geographic area are based upon the destination of products sold. We have no single customer that accounts for 10% or more of consolidated net sales. Long-lived assets by geographic area are based upon the physical location of the assets.

Business Segment Information (in millions)

	2008		2007		2006
Assets:
Compressor Products	$	583.7	$	833.4	$	738.6
Electrical Component Products		—		—		412.4
Engine & Power Train		—		—		237.3
Corporate and consolidating items		193.1		302.3		387.1
Assets held for sale		21.7		21.9		—
Other		—		7.3		7.3
Total assets	$	798.5	$	1,164.9	$	1,782.7
Capital expenditures:
Compressor Products	$	5.3	$	2.7	$	37.9
Electrical Component Products		—		—		4.7
Engine & Power Train		—		—		7.7
Corporate and consolidating items		2.7		0.1		11.7
Other		—		0.2		0.1
Total capital expenditures	$	8.0	$	3.0	$	62.1
Depreciation and amortization:
Compressor Products	$	35.6	$	36.2	$	33.4
Electrical Component Products		—		—		19.4
Engine & Power Train		—		—		18.3
Corporate and consolidating items		6.9		6.6		0.4
Other		—		0.3		8.6
Total depreciation and amortization	$	42.5	$	43.1	$	80.1

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Geographic Information (in millions)

Customer Sales by Destination	2008		2007		2006
North America
United States	$	173.2	$	214.9	$	213.3
Other North America		28.0		38.1		27.0
Total North America		201.2		253.0		240.3
Brazil		194.4		194.1		143.3
Other South America		105.1		121.7		92.8
Total South America		299.5		315.8		236.1
Europe		248.8		322.7		337.1
Middle East and Asia		219.4		225.3		189.2
	$	968.9	$	1,116.8	$	1,002.7

	2008		2007		2006
Net Fixed Assets
United States	$	23.1	$	67.0	$	165.1
Brazil		134.6		206.7		248.2
Rest of world		86.6		79.6		139.1
	$	244.3	$	353.3	$	552.4

NOTE 19. Quarterly Financial Data – Unaudited

	Quarter
(in millions, except per share data)	First			Second			Third			Fourth			Total
2008
Net sales	$	275.2		$	273.8		$	256.2		$	163.7		$	968.9
Gross profit		45.6			33.5			17.5			4.6			101.2
Net income (loss)		17.0			9.0			(13.2	)		(63.3	)		(50.5	)
Basic and diluted earnings (loss) per share	$	0.92		$	0.49		$	(0.71	)	$	(3.43	)	$	(2.73	)
2007(a)
Net sales	$	289.3		$	297.0		$	278.4		$	252.1		$	1,116.8
Gross profit		34.6			35.6			34.0			35.7			139.9
Net income (loss)		(16.8	)		(88.2	)		(77.2	)		4.1			(178.1	)
Basic and diluted earnings (loss) per share	$	(0.91	)	$	(4.77	)	$	(4.18	)	$	0.22		$	(9.64	)

(a) Restated to reflect the reclassification of MP Pumps as discontinued operations and the reclassification of Engineering expense from cost of sales to selling and administrative expense.

NOTE 20. New Accounting Standards

Postretirement Benefit Plans

Beginning in fiscal years ending after December 15, 2009, employers will be required to provide more transparency about the assets in their postretirement benefit plans, including defined benefit pension plans, as a result of the FASB’s recently issued Financial Statement of Position amending

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FASB Statement 132, “Employers’ Disclosures about Pensions and Other Retirement Benefits” (“FSP FAS 132R-1”). FSP FAS 132R-1 expands the disclosure requirements about the types of assets and associated risks in employers’ postretirement plans. The disclosures required by the FSP are required for fiscal years ending after December 15, 2009, and employers are not required to apply the amended disclosure requirements to earlier periods presented for comparative purposes. We do not expect these enhanced disclosures to materially affect our financial statements or results of operations.

Derivative Instruments and Hedging Activities

In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“FAS 161”), which revised the disclosure requirements of Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Among other things, FAS 161 requires enhanced qualitative disclosures about an entity’s objectives and strategies for using derivatives, requires tabular quantitative disclosures about 1) the fair value of derivative instruments and 2) gains and losses on derivatives during the reporting period, and requires disclosures about contingent features in derivative instruments that relate to credit risk. FAS 161 is effective for fiscal years and interim periods beginning on or after November 15, 2008, and we do not expect the enhanced disclosures to materially affect our financial statements or results of operations.

Classification and Measurement of Redeemable Securities

On May 1, 2008, the SEC staff announced revisions to EITF Topic D-98, “Classification and Measurement of Redeemable Securities” (“Topic D-98”). Among other things, the revisions 1) clarified that the guidance applies to noncontrolling interests, 2) outlined the SEC’s views on the interaction between Topic D-98 and FAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” and 3) clarified other provisions of Topic D-98. These revisions are not expected to have an impact on our financial statements or results of operations.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

     Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and Vice President, Treasurer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our Disclosure Committee and management, including the President and Chief Executive Officer and our Vice President, Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon such evaluation, and as of December 31, 2008, our President and Chief Executive Officer along with our Vice President, Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2008. Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

     Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management has assessed the effectiveness of its internal control over financial reporting as of December 31, 2008. In making its assessment, management used the criteria described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on these criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2008.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by Grant Thornton LLP, our independent registered public accounting firm, as stated in their report which is included in this Item 9A of this report on Form 10-K.

     Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

     Limitations on the Effectiveness of Controls and Procedures

Management of the company, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will detect or prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objective will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected.

In addition, projection of any evaluation of the effectiveness of internal control over financial reporting to future periods is subject to the risk that controls may become inadequate because of changes in condition, or that the degree of compliance with policies and procedures included in such controls may deteriorate.

Our independent registered public accounting firm, Grant Thornton LLP, has issued an attestation report on our internal control over financial reporting. Their report appears below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Tecumseh Products Company

We have audited Tecumseh Products Company and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Tecumseh Products Company and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Tecumseh Products Company and subsidiaries’ internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Tecumseh Products Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Tecumseh Products Company and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended and our report dated March 16, 2009 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Southfield, Michigan
March 16, 2009

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

EXECUTIVE OFFICERS OF THE COMPANY

The following are our executive officers:

		Period of Service
Name and Age	Office or Position Held	as an Officer
Edwin L. Buker, 56	President and Chief Executive Officer (1)	Since August 13, 2007
James S. Nicholson, 47	Vice President, Treasurer, and Chief Financial Officer (2)	Since March 31, 2004
James Wainright, 54	Vice President of Global Operations (3)	Since October 8, 2007

(1)	Last five years of business experience – Present position since August 13, 2007. President and Chief Executive Officer of Citation Corporation, a leading supplier of metal components based in Birmingham, Alabama, 2002 – 2007.
(2)	Last five years of business experience – Present position since March 31, 2004. Corporate Controller, Tecumseh Products Company 2002 – 2004.
(3)	Last five years of business experience – Present position since October 8, 2007. Senior Vice President of Operations, A.O. Smith Corporation – Electrical Products Division, 2001 – 2007.

The information pertaining to directors required by Item 401 of Regulation S-K will be set forth under the caption “Proposal No. 1- Election of Directors” in our definitive proxy statement relating to our 2009 annual meeting of shareholders and is incorporated herein by reference. The information required to be reported pursuant to Item 405 of Regulation S-K will be set forth under the caption “Proposal No. 1- Election of Directors – Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement relating to our 2009 Annual Meeting of Shareholders and is incorporated herein by reference.

We have adopted a series of Corporate Policies, which together comprise a code of conduct that applies to all of our directors, officers and employees. Current copies of the Corporate Policies are posted at the Investor Relations section of our website at www.tecumseh.com.

The information required to be reported pursuant to paragraphs (d)(4) and (d)(5) of Item 407 of Regulation S-K will be set forth under the caption “Information Concerning the Board of Directors - Audit Committee” in our definitive proxy statement relating to our 2009 annual meeting of shareholders and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information under the caption “Executive Compensation,” and the information under the sub-caption “Compensation Committee Interlocks and Insider Participation” under the caption “Information Concerning the Board of Directors — Compensation Committee” in our definitive proxy statement relating to our 2009 annual meeting of shareholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information under the caption “Proposal No. 2 – The Recapitalization Proposal – Interests of Certain Persons in the Recapitalization” in our definitive proxy statement relating to our 2009 annual meeting of shareholders is incorporated herein by reference. No information is required to be reported pursuant to Item 201(d) of Regulation S-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information under the sub-captions “Board Independence” and “Transactions with Related Persons” under the caption “Information Concerning the Board of Directors” and the information under the sub-caption “Compensation Committee Interlocks and Insider Participation” under the caption “Information Concerning the Board of Directors — Compensation Committee” in our definitive proxy statement relating to our 2009 annual meeting of shareholders is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information under the caption “Proposal No. 3 – Ratification of Independent Accountant — Audit and Non-Audit Fees” in our definitive proxy statement relating to our 2009 annual meeting of shareholders is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (1) and (2) Financial Statements

          See “Financial Statements”

     (3) See Index to Exhibits (See Item 15 (b), below)

       Exhibits

Exhibit
No.	Description
2.1	Purchase Agreement dated as of July 3, 2007 among Regal Beloit Corporation, Tecumseh Products Company, Fasco Industries, Inc., and Motores Fasco de Mexico, S. de R.L. de C.V. (incorporated by reference to Exhibit 2 to registrant’s Current Report on Form 8-K filed September 7, 2007, File No. 0-452) [NOTE: Schedules, annexes, and exhibits are omitted. The registrant agrees to furnish supplementally a copy of any omitted schedule, annex, or exhibit to the Securities and Exchange Commission upon request.]
2.2	Purchase Agreement dated as of October 22, 2007 by and between Snowstorm Acquisition Corporation and Tecumseh Products Company (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, File No. 0-452) [NOTE: Schedules, annexes, and exhibits are omitted. The registrant agrees to furnish supplementally a copy of any omitted schedule, annex, or exhibit to the Securities and Exchange Commission upon request.]
2.3	Contribution and Purchase Agreement dated as of November 1, 2007 among Tecumseh Products Company, Von Weise USA, Inc., Specialty Motors Operations, Inc., and Specialty Motors Holding Corp. (incorporated by reference to Exhibit 2.3 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 0-452) [NOTE: Schedules, annexes, and exhibits are omitted. The registrant agrees to furnish supplementally a copy of any omitted schedule, annex, or exhibit to the Securities and Exchange Commission upon request.]
2.4	Stock purchase agreement between Tecumseh Products Company and MP Pumps Acquisition Corp. dated as of June 30, 2008 (incorporated by reference to Exhibit 2 to registrant’s Current Report on Form 8-K filed July 7, 2008, File No. 0-452)
3.1	Restated Articles of Incorporation of Tecumseh Products Company (incorporated by reference to Exhibit (3) to registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-452)

Exhibit
No.	Description
3.2	Certificate of Amendment to the Restated Articles of Incorporation of Tecumseh Products Company (incorporated by reference to Exhibit B-5 to registrant’s Form 8 Amendment No. 1 dated April 22, 1992 to Form 10 Registration Statement dated April 24, 1965, File No. 0-452)
3.3	Certificate of Amendment to the Restated Articles of Incorporation of Tecumseh Products Company (incorporated by reference to Exhibit (4) to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, File No. 0-452)
3.4	Amended and Restated Bylaws of Tecumseh Products Company as amended through December 4, 2008 (incorporated by reference to Exhibit 3.1 to registrant’s Current Report on Form 8-K, filed December 5, 2008, File No. 0-452)
4.1	Credit Agreement dated as of March 20, 2008 among Tecumseh Products Company, the Lenders Party thereto, and JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 4.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, File No. 0-452)
4.2*	First Amendment to the Credit Agreement dated as of June 16, 2008
4.3*	Second Amendment to the Credit Agreement dated as of January 30, 2009 Note: Other instruments defining the rights of holders of long-term debt are not filed because the total amount authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant hereby agrees to furnish a copy of any such agreement to the Commission upon request.
9	Not applicable
10.1	Amended and Restated Class B Rights Agreement (incorporated by reference to Exhibit 4 to Form 8 Amendment No. 1 dated April 22, 1992 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991, File No. 0-452)
10.2	Amendment No. 1 to Amended and Restated Class B Rights Agreement (incorporated by reference to Exhibit 4 to Form 8 Amendment No. 2 dated October 2, 1992 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991, File No. 0-452)
10.3	Amendment No. 2 to Amended and Restated Class B Rights Agreement (incorporated by reference to Exhibit 4 to Form 8-A/A Amendment No. 3 dated June 22, 1993 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991, File No. 0-452)

Exhibit
No.	Description
10.4	Amendment No. 3 to Amended and Restated Class B Rights Agreement (incorporated by reference to Exhibit 4.2 to registrant’s Current Report on Form 8-K as filed August 26, 1999, File No. 0-452)
10.5	Amendment No. 4 to Amended and Restated Class B Rights Agreement, dated as of August 22, 2001, between Tecumseh Products Company and State Street Bank and Trust Company, N.A., as successor Class B Rights Agent (incorporated by reference to Exhibit 4.4 to Form 8-A/A Amendment No. 5 dated September 19, 2001 to Form 8-A registering Common Stock Purchase Rights dated January 23, 1991, File No. 0-452)
10.6	Amendment No. 5 to Amended and Restated Class B Rights Agreement, dated as of July 15, 2002, between Tecumseh products Company, State Street Bank and Trust Company, N.A. as the existing agent, and Equiserve Trust Company, N.A. as successor Class B Rights Agent (incorporated by reference to Exhibit 10.6 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-452)
10.7	Class A Rights Agreement (incorporated by reference to Exhibit 4 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992, File No. 0-452)
10.8	Amendment No. 1 to Class A Rights Agreement (incorporated by reference to Exhibit 4 to Form 8 Amendment No. 1 dated October 2, 1992 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992, File No. 0-452)
10.9	Amendment No. 2 to Class A Rights Agreement (incorporated by reference to Exhibit 4 to Form 8-A/A Amendment No. 2 dated June 22, 1993 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992, File No. 0-452)
10.10	Amendment No. 3 to Class A Rights Agreement (incorporated by reference to Exhibit 4.1 to registrant’s Current Report on Form 8-K filed August 26, 1999, File No. 0-452)
10.11	Amendment No. 4 to Class A Rights Agreement dated as of August 22, 2001, between Tecumseh products Company and State Street Bank and Trust Company, N.A., as successor Class A Rights Agent (incorporated by reference to Exhibit 4.4 to Form 8-A/A Amendment No. 4 dated September 19, 2001 to Form 8-A registering Class A Common Stock Purchase Rights dated April 22, 1992, File No. 0-452)
10.12	Amendment No. 5 to Class A Rights Agreement, dated as of July 15, 2002, between Tecumseh products Company, State Street Bank and Trust Company, N.A. as the existing agent, and Equiserve Trust Company, N.A. as successor Class A Rights Agent (incorporated by reference to Exhibit 10.12 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-452)

Exhibit
No.	Description
10.13	Description of Death Benefit Plan (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit (10)(f) to registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, File No. 0-452)
10.14	Key employee bonus plan(management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed April 16, 2007, File No. 0-452)
10.15	Annual Incentive Plan adopted December 17, 2007 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.15 to registrant’s Annual Report on Form 10-K For the year ended December 31, 2007, File No. 0-452)
10.16	Long-Term Term Incentive Cash Award Plan adopted March 4, 2008 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed March 10, 2008, File No. 0-452)
10.17	Form of Award Agreement (Phantom Shares) under Long-Term Incentive Cash Award Plan (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed March 10, 2008, File No. 0-452)
10.18	Form of Award Agreement (SARs) under Long-Term Incentive Cash Award Plan (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.3 to registrant’s Current Report on Form 8-K filed March 10, 2008, File No. 0-452)
10.19*	Amended and Restated Supplemental Executive Retirement Plan effective June 27, 2001 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.16 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 0-452)
10.20	Outside Directors’ Voluntary Deferred Compensation Plan adopted November 25, 1998 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit (10)(k) to registrant’s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-452)
10.21	Amendment No. 1 to Outside Directors’ Voluntary Deferred Compensation Plan adopted August 28, 2002 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.21 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, File No. 0-452)
10.22	Executive Deferred Compensation Plan adopted on March 29, 2006, effective as of January 1, 2005 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 0-452)

Exhibit
No.	Description
10.23*	Amendment dated December 19, 2008 to Executive Deferred Compensation Plan (management contract or compensatory plan or arrangement)
10.24	Director Retention Phantom Share Plan as amended and restated on March 29, 2006 effective as of January 1, 2005 (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.3 to registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 0-452)
10.25*	Amendment dated December 19, 2008 to Director Retention Phantom Share Plan (management contract or compensatory plan or arrangement)
10.26	Outside Directors’ Deferred Stock Unit Plan adopted December 17, 2007 effective as of January 1, 2008 (management contract or compensatory plan or arrangement)
10.27	Employment Agreement dated as of August 1, 2007 with Edwin L. Buker (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed August 6, 2007, File No. 0-452)
10.28	First Amendment dated as of March 4, 2008 to Employment Agreement dated as of August 1, 2007 with Edwin L. Buker (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.4 to registrant’s Current Report on Form 8-K filed March 10, 2008, File No. 0-452)
10.29*	December 2008 Amendment dated as of December 22, 2008 to Employment Agreement with Edwin L. Buker (management contract or compensatory plan or arrangement)
10.30	Letter agreement dated November 20, 2008 with Edwin L. Buker (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed November 26, 2008, File No. 0-452)
10.31	Letter dated September 17, 2007 and accompanying term sheet setting forth terms of employment of James Wainright (management contract or compensatory plan or arrangement)
10.32	Form of retention bonus letter agreement (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed November 18, 2008, File No. 0-452). The registrant has entered into agreements substantially in this form with several of its executives, including the following executive officers named in the Summary Compensation Table in the registrant’s proxy statement for its 2009 annual meeting of shareholders: James S. Nicholson and James Wainright.

Exhibit
No.	Description
10.33	Form of Amended and Restated Change in Control and Severance Agreement (management contract or compensatory plan or arrangement) (incorporated by reference to Exhibit 10.5 to registrant’s Current Report on Form 8-K filed November 18, 2008, File No. 0-452) The registrant has entered into agreements substantially in this form with several of its executives, including the following executive officers named in the Summary Compensation Table in the registrant’s proxy statement for its 2009 annual meeting of shareholders: James S. Nicholson and James Wainright.
10.34	Liability Transfer and Assumption Agreement for Sheboygan River and Harbor Superfund Site dated March 25, 2003, by and between Tecumseh Products Company and Pollution Risk Services, LLC (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed April 9, 2003, File No. 0-452)
10.35	Consent Order entered into on December 9, 2004 with Wisconsin Department of Natural Resources and TRC Companies, Inc. (incorporated by reference to Exhibit 10.26 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-452)
10.36	Exit Strategy Agreement dated December 29, 2004 with TRC Companies, Inc. (incorporated by reference to Exhibit 10.27 to registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-452)
10.37	Stock Purchase Agreement dated as of March 17, 2006 between Tecumseh Products Company and Franklin Electric Co, Inc. relating to Little Giant Pump Company (schedules and exhibits omitted) (incorporated by reference to Exhibit 10-1 to registrant’s Current Report on Form 8-K filed March 21, 2006, File No. 0-452)
10.38	Out-of-Court Restructuring Agreement dated November 21, 2006 among Tecumseh Products Company, Tecumseh Power Company, TMT Motoco do Brasil, Ltda., and the banks named therein (incorporated by reference to Exhibit 10.1 to registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, File No. 0-452)
10.37	Agreement with AP Services, LLC and AlixPartners, LLP dated December 7, 2006 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed December 14, 2006, File No. 0-452)
10.38	First addendum dated January 19, 2007 to agreement with AP Services, LLC dated December 7, 2006 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed January 25, 2007, File No. 0-452)

Exhibit
No.	Description
10.39	Settlement and Release Agreement dated as of April 2, 2007 among Tecumseh Products Company; Herrick Foundation; Todd W. Herrick and Toni Herrick, each in their capacity as trustee for specified Herrick family trusts; Todd W. Herrick, Kent B. Herrick, and Michael Indenbaum, each in their capacity as members of the Board of Trustees of Herrick Foundation; Todd W. Herrick, Kent B. Herrick, Michael Indenbaum, and Toni Herrick, each in their individual capacities; and Albert A. Koch, Peter Banks, and David M. Risley, each in their capacity as directors of Tecumseh Products Company (incorporated by reference to Exhibit 10.3 to registrant’s Current Report on Form 8-K filed April 10, 2007, File No. 0-452)
10.40	Order Regarding a Special Meeting of Shareholders entered by the Circuit Court for the County of Lenawee, Michigan on August 11, 2008 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed August 13, 2008, File No. 0-452)
10.41	Warrant to Purchase Class A Common Stock of Tecumseh Products Company issued to Tricap Partners II L.P. on April 9, 2007 (incorporated by reference to Exhibit 10.1 to registrant’s Current Report on Form 8-K filed April 10, 2007, File No. 0-452)
10.42	Registration Rights Agreement dated as of April 9, 2007 between Tecumseh Products Company and Tricap Partners II L.P. (incorporated by reference to Exhibit 10.2 to registrant’s Current Report on Form 8-K filed April 10, 2007, File No. 0-452)
11	Not applicable
12	Not applicable
13	Not applicable
14	Not applicable
16	Not applicable
18	Not applicable
21*	Subsidiaries of the Company
22	Not applicable
23.1*	Consent of Independent Registered Public Accounting Firm – Grant Thornton LLP
23.2*	Consent of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP
24*	Power of Attorney
31.1*	Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).

Exhibit
No.	Description
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1*	Certification of President and Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
33	Not applicable
34	Not applicable
35	Not applicable
99	Not applicable
100	Not applicable

* Filed herewith

Financial Statement Schedules

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TECUMSEH PRODUCTS COMPANY
Date: March 16, 2009		By /s/ Edwin L. Buker .
		Edwin L. Buker President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Office	Date of Signing
/s/ Edwin l. Buker	President and Chief Executive Officer	March 16, 2009
Edwin L. Buker	(Principal Executive Officer)
/s/ James S. Nicholson	Vice President, Treasurer and Chief Financial Officer	March 16, 2009
James S. Nicholson	(Principal Accounting and Principal Financial Officer)
*	Director	March 16, 2009
Peter M. Banks
*	Director	March 16, 2009
William E. Aziz
	Director
Kent B. Herrick
*	Director	March 16, 2009
Jeffry N. Quinn
*	Director	March 16, 2009
David M. Risley
*	Director	March 16, 2009
Steven J. Lebowski

*By:	/s/ James S. Nicholson
	James S. Nicholson
	Attorney-in-Fact

EX-4.2

Exhibit 4.2

FIRST AMENDMENT TO CREDIT AGREEMENT

     THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of June 16, 2008 (this “Amendment”), is among TECUMSEH PRODUCTS COMPANY (the “Borrower”), the lenders party thereto from time to time (the “Lenders”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent (in such capacity, together with its successors and assigns, the “Administrative Agent”).

RECITAL

     The Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement dated as of March 20, 2008 (as amended from time to time, the “Credit Agreement”). The Borrower and the Loan Guarantors desire to amend the Credit Agreement as set forth herein and the Lenders are willing to do so in accordance with the terms hereof.

TERMS

     In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows:

ARTICLE 1.
AMENDMENTS

     The Credit Agreement is amended as follows:

     1.1 The definitions of Banking Services and Loan Guarantor in Section 1.01 are restated as follows:

          “Banking Services” means each and any of the following bank services provided to the Borrower or any of its Subsidiaries by Chase or any of its Affiliates: (a) commercial credit cards, (b) stored value cards and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services, and further including without limitation all ACH debit, ACH credit and daylight overdraft services and financial accommodations by Chase or any of its Affiliates in any amount and all transactions related thereto.

          “Banking Services Obligations” means any and all obligations of the Borrower and its Subsidiaries, or any of them, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

          “Loan Guarantor” means each (a) present and future Domestic Subsidiary and Canadian Subsidiary of the Borrower and their successors and assigns, (b) in addition to the other Loan Guarantors, the Borrower shall be a Loan Guarantor with respect to all Secured Obligations owing by any of its Subsidiaries at any time, and (c) any other Person executing a Guaranty at any time; provided that (i) Hayton Property Company, LLC, a Wisconsin limited liability company, shall not be required to be a Guarantor so long as it has no assets other than the existing real estate in Wisconsin owned as of the date hereof as described by the Borrower and has no business or material net worth, and (ii) each of The Lauson Company, a Wisconsin corporation, Power Products Company, Inc., a Wisconsin corporation, and Providence Controls Company, a Rhode Island corporation, shall not be required to be a Guarantor so long as the aggregate fair market value of all of their assets does not exceed $250,000.

ARTICLE 2.
REPRESENTATIONS

     The Loan Parties represent and warrant to the Lenders and Administrative Agent that:

     2.1 The execution, delivery and performance of this Amendment are within its powers and have been duly authorized by it. This Amendment is the legal, valid and binding obligation of it, enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

     2.2 After giving effect to the amendments herein contained, the representations and warranties contained in the Credit Agreement and the representations and warranties contained in the other Loan Documents are true in all material respects on and as of the date hereof with the same force and effect as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date), and no Default or Event of Default exists or has occurred and is continuing on the date hereof.

ARTICLE 3.
CONDITIONS PRECEDENT.

     This Amendment shall be effective when each of the following conditions is satisfied:

     3.1 This Amendment shall be executed by each of the Loan Parties, the Lenders and the Administrative Agent.

     3.2 The Loan Parties shall deliver such other documents as reasonably requested by the Administrative Agent.

ARTICLE 4.
MISCELLANEOUS.

     4.1 References in the Credit Agreement or in any other Loan Document to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby and as further amended from time to time.

     4.2 Except as expressly amended hereby, each of the Loan Parties agree that the Loan Documents are ratified and confirmed and shall remain in full force and effect and that it has no set off, counterclaim, defense or other claim or dispute with respect to any of the foregoing. This Amendment is a Loan Document terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.

     4.3 This Amendment may be signed upon any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument, and signatures sent by telecopy or electronic mail message shall be enforceable as originals.

2

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

TECUMSEH PRODUCTS COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President, Treasurer and Chief Financial Officer
TECUMSEH PRODUCTS OF CANADA, LIMITED
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
By	/s/ Lynn Dennison
	Name:	Lynn Dennison
	Title:	Secretary
TECUMSEH COMPRESSOR COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
VON WEISE USA, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
M. P. PUMPS, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
DATA DIVESTCO, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer

3

EVERGY, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
TECUMSEH TRADING COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
TECUMSEH DO BRASIL USA, LLC
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	President
JPMORGAN CHASE BANK, N.A., individually, as Administrative Agent, Issuing Bank and Swingline Lender
By	/s/ Matthew Brewer
	Name:	Matthew Brewer
	Title:	Assistant Vice President

4

EX-4.3

Exhibit 4.3

SECOND AMENDMENT TO CREDIT AGREEMENT

     THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of January 30^th, 2009 (this “Amendment”), is among TECUMSEH PRODUCTS COMPANY (the “Borrower”), the other Loan Parties party hereto, the lenders party hereto (the “Lenders”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent (in such capacity, together with its successors and assigns, the “Administrative Agent”).

RECITAL

     The Borrower, the other Loan Parties, the Lenders and the Administrative Agent are parties to a Credit Agreement dated as of March 20, 2008 (as amended from time to time, the “Credit Agreement”). The Borrower and the Loan Guarantors desire to amend the Credit Agreement as set forth herein and the Lenders are willing to do so in accordance with the terms hereof.

TERMS

     In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows:

ARTICLE 1.
AMENDMENTS

     The Credit Agreement is amended as follows:

     1.1 The following definition is added to Section 1.1:

          “Cash Collateral” means cash collateral provided by the Borrower to the Lenders in accordance with Section 5.13(e).

     1.2 The following definitions in Section 1.1 are restated as follows:

          “Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based on the rate appearing on the Reuters Screen LIBOR01 Page 1 (or on any successor or substitute page) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.

          “Borrowing Base” means, at any time, the sum of:

               (a) 85% of Eligible Accounts at such time, plus

               (b) the lesser of (i) 70% of Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time and (ii) 85% multiplied by the Net

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Orderly Liquidation Value percentage identified in the most recent inventory appraisal ordered by the Administrative Agent multiplied by Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time, plus

               (c) at any time on or before February 28, 2009 (but not at any time thereafter), the lesser of (i) $7,500,000 or (ii) 100% of the Cash Collateral, plus

               (d) the PP&E Component, minus

               (e) Reserves.

     The Agent may, in its Permitted Discretion, reduce the advance rates set forth above or reduce one or more of the other elements used in computing the Borrowing Base.

          “Defaulting Lender” means any Lender, as determined by the Administrative Agent, that has (a) failed to fund any portion of its Loans or participations in Letters of Credit or Swingline Loans within three Business Days of the date required to be funded by it hereunder, (b) notified the Borrower, the Administrative Agent, the Issuing Bank, the Swingline Lender or any Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Loans and participations in then outstanding Letters of Credit and Swingline Loans, (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

     1.3 Section 2.19(b) is amended by adding the following before the first parenthetical in Section 2.19(b): “, or any Lender is otherwise a Defaulting Lender”.

     1.4 The following new Section 2.21 is added to the Credit Agreement:

     2.21 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:

     (a) fees shall cease to accrue on the unfunded portion of the Available Commitment of such Defaulting Lender pursuant to Section 2.12(a);

     (b) if any Swingline Loan or Letter of Credit exists at the time a Lender is a Defaulting Lender, the Borrowers shall within one Business Day following notice by the Administrative Agent (i) prepay

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such Swingline Loan or, if agreed by the applicable Swingline Lender, cash collateralize the pro rata share of the Swingline Loans of the Defaulting Lender on terms satisfactory to the applicable Swingline Lender, and (ii) cash collateralize such Defaulting Lender’s pro rata share of the existing Letters of Credit in accordance with the procedures set forth herein for so long as Letters of Credit are outstanding; and

     (c) no LC Issuer shall be required to issue, amend or increase any Letter of Credit unless it is satisfied that cash collateral will be provided in accordance with Section 2.21(b).

Notwithstanding anything herein to the contrary, (a) no Defaulting Lender shall be entitled to vote (whether to consent or to withhold its consent) with respect to any amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document or any departure therefrom or any direction from the Lenders to the Administrative Agent, and, for purposes of determining the Required Lenders at any time, the Commitments and the Credit Exposure of each Defaulting Lenders shall be disregarded and (b) any modification of this Section 2.21 shall require the written consent of the Borrowers, the Required Lenders, the Administrative Agent, the Swingline Lenders and the LC Issuers.

     1.5 The following new Section 5.13(e) is added to the Credit Agreement:

     (e) The Borrower may provide Cash Collateral to the Lenders by depositing cash in an account (the “Cash Collateral Account”) with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Secured Creditors, which Cash Collateral shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account and the Borrower hereby grants the Administrative Agent a security interest in the Cash Collateral Account and assets therein to secure the Secured Obligations. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such Cash Collateral Account shall be applied to satisfy the Secured Obligations at any time after and during the continuance of an Event of Default. The amount of cash in the Cash Collateral Account upon and during the continuance of an Event of Default up to the amount of Letters of Credit secured thereby shall count toward the amount of cash required to be deposited in the LC Collateral Account under Section 2.06(j).

ARTICLE 2.
REPRESENTATIONS

     The Loan Parties represent and warrant to the Lenders and Administrative Agent that:

     2.1 The execution, delivery and performance of this Amendment are within its powers and have been duly authorized by it. This Amendment is the legal, valid and binding obligation of it, enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

     2.2 After giving effect to the amendments herein contained, the representations and warranties contained in the Credit Agreement and the representations and warranties contained in the other Loan Documents are true in all material respects on and as of the date hereof with the same force

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and effect as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date), and no Default or Event of Default exists or has occurred and is continuing on the date hereof.

ARTICLE 3.
CONDITIONS PRECEDENT.

     This Amendment shall be effective when each of the following conditions is satisfied:

     3.1 This Amendment shall be executed by each of the Loan Parties, the Lenders and the Administrative Agent.

     3.2 The Loan Parties shall deliver such other documents, if any, as reasonably requested by the Administrative Agent.

ARTICLE 4.
MISCELLANEOUS.

     4.1 References in the Credit Agreement or in any other Loan Document to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby and as further amended from time to time.

     4.2 Except as expressly amended hereby, each of the Loan Parties agree that the Loan Documents are ratified and confirmed and shall remain in full force and effect and that it has no set off, counterclaim, defense or other claim or dispute with respect to any of the foregoing. This Amendment is a Loan Document terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.

     4.3 This Amendment may be signed upon any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument, and signatures sent by telecopy or electronic mail message shall be enforceable as originals.

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

TECUMSEH PRODUCTS COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President, Treasurer and Chief Financial Officer
TECUMSEH PRODUCTS OF CANADA, LIMITED
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
By	/s/ Lynn Dennison
	Name:	Lynn Dennison
	Title:	Secretary
TECUMSEH COMPRESSOR COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
VON WEISE USA, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
M. P. PUMPS, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
DATA DIVESTCO, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer

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EVERGY, INC.
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
TECUMSEH TRADING COMPANY
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	Vice President and Treasurer
TECUMSEH DO BRASIL USA, LLC
By	/s/ James S. Nicholson
	Name:	James S. Nicholson
	Title:	President

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JPMORGAN CHASE BANK, N.A., individually, as Administrative Agent, Issuing Bank and Swingline Lender
By	/s/ Monica Stariha
	Name:	Monica Stariha
	Title:	Senior Vice President

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EX-10.19

Exhibit 10.19

TECUMSEH PRODUCTS COMPANY
SUPPLEMENTAL RETIREMENT PLAN
Amended and Restated effective as of January 1, 2005)

ARTICLE I
PURPOSE

     1.1 Tecumseh Products Company, a Michigan corporation (the “Company”), continues the Tecumseh Products Company Supplemental Retirement Plan (the “Plan”) for the purpose of providing certain management or highly compensated Employees with retirement benefits in excess of (or in addition to) those benefits provided under the Salaried Retirement Plan (“Salaried Plan”) or under the Consolidated Pension and Retirement Plan (“Consolidated Plan”) of Tecumseh Products Company. The Salaried Plan and/or the Consolidated Plan are sometimes referred to as the “Retirement Plan(s)”).

     1.2 This Plan supplements benefits for Selected Participants under the Salaried Plan to the extent such benefits are

(i)	reduced due to the limits of Section 401(a)(17) and Section 415 of the Internal Revenue Code of 1986, as amended (the “Code”), and/or
(ii)	reduced as a result of a change in the Salaried Plan benefit formula that became effective as of January 1, 1993.

     1.3 This Plan supplements benefits for Deferral Participants under the Salaried or Consolidated Plan as payable to Deferral Participants in accordance with Section 6.8 of the Executive Deferred Compensation Plan and/or Section 6.8 of the Voluntary Deferred Compensation Plan of Tecumseh Products Company.

     1.4 This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated Employees as described in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

ARTICLE II
DEFINITIONS

     Unless a different meaning is expressly assigned, all capitalized terms used in this Plan have the same meaning as in the applicable Retirement Plan. In addition, the following terms shall have the following meanings unless the context in which the term is used clearly indicates that another or different meaning is intended:

     2.1 “Adjusted Retirement Benefits”

     A. For Selected Participants: “Adjusted Retirement Benefits” means the benefits that a Selected Participant or his surviving spouse would have received under the Salaried Plan based

on the terms of the Salaried Plan at April 30, 2007 had those Salaried Plan benefits commenced at the time and in the form specified in Section 5.2, but as if —

(i) the limitation on benefits imposed by Section 415 of the Code were disregarded;

(ii) Base Compensation were computed without reduction due to the limits of Section 401(a)(17) of the Code; and

(iii) such benefits were computed by applying whichever of the following two benefit formulas results in the largest monthly amount when applied to all of the Participant’s Benefit Service under the Salaried Plan as of the time benefits become payable under this Plan (subject, however, to the 30 and 35 year limits on service, as described in the formulas; provided that Formula 1 shall not apply to any person who first became a covered under the Salaried Plan after January 1, 1993):

Formula 1 The difference, “A” minus “B”, where -

“A” represents 1-1/2% of the Participant’s Average Monthly Compensation multiplied by his years and fractional years of Benefit Service (provided that no Benefit Service in excess of 35 years shall be included), and

“B” represents 1-2/3% of the Participant’s Primary Social Security Benefit multiplied by his years and fractional years of Benefit Service (provided that no Benefit Service in excess of 30 years shall be included). However, if “B” as computed pursuant to the preceding sentence exceeds 50% of “A”, then “B” shall be reduced to 50% of “A”.

Formula 2 The amount “G”, where “G” represents 1-1/4% of the Participant’s Average Monthly Compensation multiplied by his years and fractional years of Benefit Service (provided that no Benefit Service in excess of 35 years shall be included).

B. For Deferral Participants: For an Employee who has experienced a reduction in his or her benefits under a Retirement Plan as a consequence of having made elective deferrals of compensation under the Executive Deferred Compensation Plan or the Voluntary Deferred Compensation Plan of Tecumseh Products Company (as provided under Section 6.8 of each of those deferred compensation plans), “Adjusted Retirement Benefits” means the benefits in the form and amount that a Deferral Participant or his surviving spouse would have received under the applicable Retirement Plan if those elective deferrals had been included in his Compensation or Base Compensation for the year in which such compensation (but for the deferral election) would have been paid. In the determination of Adjusted Retirement Benefits under subsection A above for a Deferral Participant who is also a Selected Participant, elective deferrals of Base Compensation shall be included in Base Compensation for the year in which such compensation (but for the deferral election) would have been paid.

     2.2 “Board” means the Board of Directors of the Company.

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     2.3 “Retirement Benefits” means benefits in the form and amount that would have been payable to the Participant or his surviving spouse (if any) under the applicable Retirement Plan had those Retirement Plan benefits commenced at the applicable time and in the applicable form specified in Section 5.2.

     2.4 “Employee” means any individual employed by the Company or any of its subsidiaries.

     2.5 The following terms are defined elsewhere in this Plan:

“Administration Committee”	Sec. 9.1;
“Code”	Sec. 1.2;
“Company”	Sec. 1.1;
“Deferral Participant”	Sec. 4.1;
“ERISA”	Sec. 1.2;
“Participating Employer(s)”	Sec. 3.2;
“Plan”	Sec. 1.1;
“Reason”	Sec. 6.2;
“Retirement Plan”	Sec. 1.1;
“Selected Participant”	Sec. 4.1;
“Subsidiary”	Sec. 3.1;
“Vested”	Sec. 6.1.

ARTICLE III
EMPLOYER PARTICIPATION

     3.1 If a Subsidiary of the Company wishes to participate in the Plan and its participation is approved by the Administration Committee, the board of directors of the Subsidiary shall adopt a resolution in form and substance satisfactory to the Administration Committee authorizing participation by the Subsidiary in the Plan with respect to its Employees. As used herein, the term “Subsidiary” means any corporation at least one-half of whose outstanding voting stock is owned, directly or indirectly, by the Company.

     3.2 A Subsidiary participating in the Plan may cease to be a Participating Employer at any time by action of the Administration Committee, or by action of the board of directors of such Subsidiary, which latter action shall be effective not earlier than the date of delivery to the Secretary of the Company of a certified copy of a resolution of the Subsidiary’s board of directors taking such action. If the participation in the Plan of a Subsidiary shall terminate, such termination shall not relieve it of any obligations heretofore incurred by it under the Plan except with the approval of the Board of Directors of the Company. The Company and each of its Subsidiaries participating in this Plan are sometimes called “Participating Employer(s)” in this Plan.

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ARTICLE IV
PARTICIPATION

     4.1 “Selected Participants” shall be those Participants in the Salaried Plan whose Base Compensation for the purpose of determining benefits under the Salaried Plan is limited by Section 401(a)(17), or whose benefit under the Salaried Plan is limited by Section 415 of the Code and who are selected for participation in this Plan by the Administration Committee. Selected Participants are listed on attached Exhibit A, as modified from time to time. The Administration Committee shall promptly notify each Selected Participant in writing of his selection for participation in or removal from or other cessation of participation in this Plan. The Administration Committee shall maintain a record of all Selected Participants.

     4.2 The Plan also covers two additional categories of Participants as described below:

(i)

Benefits remaining payable to certain Employees and surviving spouses under supplemental executive retirement agreements dated October 19, 1992 (and effective January 1, 1993) have been incorporated in Section 2.1 (Formula 1) of this Plan. Such Employees are listed on attached Exhibit A as “1993 Participants.”

(ii)

Additionally, this Plan shall cover, as “Deferral Participants,” any Employee who has experienced a reduction in his or her benefits under the Salaried Plan or the Consolidated Plan as a consequence of making elective deferrals of compensation under the Executive Deferred Compensation Plan or the Voluntary Deferred Compensation Plan of Tecumseh Products Company (as provided under Section 6.8 of each of those deferred compensation plans).

     4.3 A Participant shall cease to accrue benefits under this Plan on the earliest of (i) termination of employment, (ii) retirement, (iii) Total and Permanent Disability, (iv) death, (v) withdrawal from participation in the Plan by the Participant’s Participating Employer, or (vi) removal of the Participant from participation by the Administration Committee; provided, however, that no such event shall impair the right to receive benefits earned and/or vested under this Plan prior to such event, recognizing that the amount of such benefits may increase or decrease over time, depending on the various factors taken into account in computing the benefit.

ARTICLE V
BENEFITS

     5.1 Subject to becoming and remaining vested under Article VI, a Participant’s benefits under the Plan shall be his Adjusted Retirement Benefits reduced by his Retirement Benefits, with the initial benefit payment(s) to be reduced or eliminated in amounts up to $5,000 in the aggregate, as described in Section 5.5, on account of obligations to the Company as described in Section 12.6.

     5.2 Any benefits payable under this Plan to a Selected Participant and to his surviving spouse (if any) pursuant to this Plan shall commence either (A) on that first date on which the

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Participant is entitled to commence a retirement or deferred benefit under the applicable Retirement Plan (whether or not he actually commences his Retirement Plan benefit at that time), or (B) on that date on which the Participant has a “separation from service” with the Employer (as determined in accordance with Code Section 409A), whichever of those two dates is later, and shall be paid in one of the following three forms, whichever form applies to that Participant, commencing on the later of those two dates:

a.	if the Participant is unmarried at the benefit commencement date, the benefits shall be paid in the form of a single-life annuity;
b.	if at the benefit commencement date the Participant has attained age 55, has accrued 10 or more Years of Service under the Retirement Plan and is married, the benefits shall be paid in the form of a joint-and-surviving spouse annuity using the “95%-55%” formula found in Art. II Sec. 8(F)(1) of the Salaried Plan; or
c.	if at the benefit commencement date the Participant is married but does not meet the other criteria in (b) above, the benefits shall be paid in the form of a joint-and-surviving spouse annuity using the “50% survivor option” formula found in Art. VII Sec. 2(E)(1) of the Salaried Plan.

Any benefits payable under this Plan by reason of someone being a Deferral Participant shall be calculated actuarially at such Participant’s death or his 65^th birthday, whichever is earlier, and paid as soon as practicable thereafter in a lump sum to the Participant or his surviving spouse, if any, otherwise to the Participant’s estate.

     5.3 If a Selected Participant dies before benefits commence under this Plan, the Participant’s surviving spouse (if any) shall be entitled to a survivor benefit under this Plan equal to (a) the survivor benefit provided for in the applicable Retirement Plan calculated as though the Participant’s benefit under that Retirement Plan was his Adjusted Retirement Benefit, reduced by (b) the survivor benefit then payable to the surviving spouse under that Retirement Plan, with the initial benefit payment(s) to be reduced or eliminated, up to $5,000, as described in Section 5.5, on account of any obligations to the Company as described in Section 12.6. Survivor benefits in respect of Selected Participants under this Plan shall be paid in the applicable form of surviving spouse benefit specified in Section 5.2, commencing as soon as practicable following the earliest date on which the Participant could have commenced a retirement or deferred benefit under the applicable Retirement Plan had the Participant lived until that date and then immediately separated from service. Survivor benefits payable to Deferral Participants shall be determined pursuant to the final sentence of Section 5.2.

     5.4 If a Participant dies after benefits under this Plan commence, surviving spouse benefits, if any, shall be paid in accordance with Section 5.2.

     5.5 If a Participant is obligated to the Company as described in Section 12.6 at the time benefits first become payable to the Participant or his spouse under the Plan, then the initial monthly benefit payment(s), net of required withholding taxes, shall be applied in reduction of

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such obligations (not to exceed $5,000) until they are fully repaid. Only after such benefits are fully repaid shall payments commence to the Participant or his spouse under the Plan.

     5.6 Notwithstanding the foregoing provisions of this Article V, in the case of a “specified employee,” commencement of benefit installments based on such employee’s “separation from service” with the Employer (as determined in accordance with Code Section 409A) shall be delayed until six months following the date of such separation from service (or until death, if earlier) and the first installment paid shall include the total of installments otherwise payable during the period of delay. (“Specified employees” are employees who (i) own more than 5 percent of the stock of the Company; (ii) own more than 1 percent of the stock of the Company and have compensation from the Employer in excess of $150,000 a year (not indexed); or (iii) are officers of the Employer with compensation in excess of $145,000 a year (indexed)).

ARTICLE VI
VESTING

     6.1 Except as otherwise provided in the Plan, a Participant’s entitlement to benefits under the Plan shall become vested on the first day of the calendar month after such Participant has become entitled to a Deferred Benefit under Article VII, Section 2 of the Salaried Plan, or under Article VII-A, Section 2 of the Consolidated Plan or at such earlier date as he dies or has a Disability. “Disability” means any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months: (i) which renders an employee unable to engage in any substantial gainful activity; or (ii), which enables an employee to receive income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the employee’s Employer, provided that this definition shall be interpreted in accordance with Code Section 409A(a)(2)(A)(v) and regulations and other guidance thereunder. Notwithstanding (i) and (ii), an employee shall be deemed to have a total and permanent disability when determined to be totally disabled by the Social Security Administration. As used in the Plan, “vested” refers to the right to receive a benefit calculated pursuant to Section 5.1, recognizing that the amount of such benefit may increase or decrease over time, depending on the various factors taken into account in computing the benefit. The provisions of Sections 6.2 and 6.3 shall govern the forfeiture of benefits which are not vested and, in certain circumstances, even those which had become fully vested. Subject to Section 12.7, a Participant’s benefits, to the extent not previously vested, shall become fully vested and payable as of the Participant’s Normal Retirement Date.

     6.2 Any unpaid vested benefits shall be forfeited as a result of termination of employment for one or more Reasons specified below, as determined by the Administration Committee. Also, any previously unpaid vested benefits in pay status shall be forfeited for any one or more of the Reasons specified in subsections (iv) and (v) below. Such “Reason,” for the sole purpose of determining whether a Participant’s otherwise vested benefits are to be forfeited, shall be deemed to exist where -

(i) The Participant, after receiving written notice of prior breach from his Participating Employer, again breaches any material written rules, regulations or

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policies of the Participating Employer now existing or hereafter arising which are uniformly applied to all Employees of the Participating Employer or which rules, regulations and policies are promulgated for general application to executives, officers or directors of the Participating Employer; or

(ii)	The Participant willfully and repeatedly fails to substantially perform the duties of his employment (other than any such failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to him by his immediate supervisor, which demand specifically identifies the manner in which the supervisor believes that the Participant has not substantially performed his duties; or
(iii)	The Participant is repeatedly or habitually intoxicated or under the influence of drugs while on the premises of the Participating Employer or while performing his employment duties, after receiving written notice thereof from the Participating Employer, such that the Administration Committee determines in good faith that the Participant is impaired in performing the duties of his employment; or
(iv)	The Participant is convicted of a felony under state or federal law, or commits a crime involving moral turpitude; or
(v)	The Participant embezzles any property belonging to the Company or any of its Subsidiaries such that he may be subject to criminal prosecution therefor or the Participant intentionally and materially injures the Company or any of its Subsidiaries or their personnel or property.

Nothing in this Plan shall alter the at-will nature of the Participant’s employment relationship with his Participating Employer. Nothing in this Plan shall confer upon any Participant the right to continue in the employ of the Company or any of its Subsidiaries.

     6.3 Except as provided in Section 6.1, if a Participant voluntarily terminates his employment with the Participating Employer or is terminated by the Participating Employer for no reason or for any reason whatsoever, his benefits shall be forfeited, except for that portion (if any) which the Administration Committee, in its sole and absolute discretion, permits him to retain. Nothing in this Plan shall alter the at-will nature of the Participant’s employment relationship with his Participating Employer. Nothing in this Plan shall confer upon any Participant the right to continue in the employ of the Company or any of its Subsidiaries.

ARTICLE VII
SOURCE OF PAYMENT

     7.1 Each Participating Employer shall pay the benefits earned by and payable to a Participant under this Plan to the extent that the Participant’s benefit is based on compensation paid from the Participating Employer’s payroll. Notwithstanding the withdrawal of a Participating Employer from this Plan, it shall continue to be liable for benefits earned by each Participant on its payroll prior to its withdrawal.

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     7.2 The benefits payable under this Plan shall be paid only from the general funds of each Participating Employer, and each Participant and his surviving spouse shall be no more than unsecured general creditors of the Participating Employer, with no special or prior right to any assets of the Participating Employer for payment of any obligations hereunder. Nothing contained in this Plan or elsewhere shall be deemed to create a trust or escrow of any kind for the benefit of any Participant or any surviving spouse with respect to any assets of any Participating Employer. Any assets (including without limitation insurance policies or annuities) which a Participating Employer chooses to use to pay benefits under this Plan shall constitute general assets of the Participating Employer, shall be subject to the claims of the Participating Employer’s general creditors and shall not cause this to be a funded plan within the meaning of any section of ERISA or the Code. No Participant or surviving spouse shall have any prior or special claim to any such asset.

     7.3 The Board, upon the recommendation of the Administration Committee, may authorize the creation of trusts or other arrangements to facilitate or ensure payment of some or all benefit obligations under the Plan, provided that such trusts and arrangements are consistent with the “unfunded” status of the Plan. A Participant shall have no right, title, or interest whatsoever in or to any investments which a Participating Employer may make to aid it in meeting its obligations hereunder. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Participating Employer and the Participant or any other person. To the extent that any person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Participating Employer. All payments to be made hereunder shall be paid in cash from the general funds of the Participating Employer and no special or separate fund shall be established and no segregation of assets shall be made to assure payments of such amounts.

ARTICLE VIII
WITHHOLDING

     8.1 The Participant and (if applicable) his surviving spouse shall make appropriate arrangements with the Participating Employer by which he was or is employed for the satisfaction of any federal, state or local income tax withholding requirements and federal social security, Medicare, or other employment tax requirements applicable to the payment or vesting of benefits. If no other arrangements are made, the Participating Employer may provide, at its discretion, for such withholding and tax payments as may be required.

ARTICLE IX
ADMINISTRATION OF THE PLAN

     9.1 The Plan shall be administered by the Administration Committee which shall have full power, discretion and authority to interpret, construe and administer the Plan and any part thereof, and the Administration Committee’s interpretation and construction thereof, and actions thereunder, shall be binding and conclusive on all persons for all purposes. The Administration Committee shall be the Governance Compensation and Nominating Committee of the Board, or such other committee as the Board may subsequently appoint to administer the Plan. All actuarial determinations shall be made by the actuary for the applicable Retirement

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Plan, and the Administration Committee shall be entitled to rely on the good faith determinations of such actuary. Any Participant who is a member of the Administration Committee shall take no part in any discretionary action by the Administration Committee which affects only him. Decisions of the Administration Committee shall be final and binding on all parties who have an interest in the Plan.

ARTICLE X
AMENDMENT OR TERMINATION OF THE PLAN

     10.1 The Board may at any time amend, alter, modify or terminate the Plan; provided, however, that any such action shall not reduce any benefits earned under the Plan prior to such action. In the event of termination of the Plan, the Administration Committee (in its sole discretion) may accelerate the time of vesting and/or date of payment applicable to such benefits.

ARTICLE XI
CLAIMS AND DISPUTES

     11.1 Claims for benefits under the Plan shall be made in writing to the Administration Committee. The Participant may furnish the Administration Committee with any written material he believes necessary to perfect his claim.

     11.2 A person whose claim for benefits under the Plan has been denied, or his duly authorized representative, may request a review and may appeal such review in accordance with the Claims Procedure attached as Exhibit B.

     11.3 Unless otherwise required by law, any controversy or claim arising out of or relating to this Plan or the breach thereof, including in particular any controversy relating to Articles VI or IX and any appeal from a final decision under the Claims Procedure, shall be settled by binding arbitration in the City of Ann Arbor in accordance with the laws of the State of Michigan by three arbitrators, one of whom shall be appointed by the Company, one by the Participant (or in the event of his prior death, his beneficiary(-ies)), and the third of whom shall be appointed by the first two arbitrators. If the selected (third) arbitrator declines or is unable to serve for any reason, the appointed arbitrators shall select another arbitrator. Upon their failure to agree on another arbitrator, the jurisdiction of the Circuit Court of Lenawee County, Michigan shall be invoked to make such selection. The arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association except as provided in Section 11.4 below. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Review by the arbitrators of any decision, action or interpretation of the Board or Administration Committee shall be limited to a determination of whether it was arbitrary and capricious or constituted an abuse of discretion, within the guidelines of Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In the event the Participant or his beneficiary shall retain legal counsel and/or incur other costs and expenses in connection with enforcement of any of the Participant’s rights under this Plan, the Participant or beneficiary shall not be entitled to recover from the Company any attorneys fees, costs or expenses in connection with the enforcement of such rights (including enforcement of any arbitration award in court) regardless of the final outcome.

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     11.4 Any arbitration shall be conducted as follows:

     (a) The arbitrators shall follow the Commercial arbitration Rules of the American Arbitration Association, except as otherwise provided herein. The arbitrators shall substantially comply with the rules of evidence; shall grant essential but limited discovery; shall provide for the exchange of witness lists and exhibit copies; and shall conduct a pretrial and consider dispositive motions. Each party shall have the right to request the arbitrators to make findings of specific factual issues.

     (b) The arbitrators shall complete their proceedings and render their decision within 40 days after submission of the dispute to them, unless both parties agree to an extension. Each party shall cooperate with the arbitrators to comply with procedural time requirements and the failure of either to do so shall entitle the arbitrators to extend the arbitration proceedings accordingly and to impose sanctions on the party responsible for the delay, payable to the other party. In the event the arbitrators do not fulfill their responsibilities on a timely basis, either party shall have the right to require a replacement and the appointment of new arbitrators.

     (c) The decision of the arbitrator shall be final and binding upon the parties and accordingly a judgment by any Circuit Court of the State of Michigan or any other court of competent jurisdiction may be entered in accordance therewith.

     (d) The costs of the arbitration shall be borne equally by the parties to such arbitration, except that each party shall bear its own legal and accounting expenses relating to its participation in the arbitration.

     (e) Every asserted claim to benefits or right of action by or on behalf of any Participant, past, present, or future, or any spouse, child, beneficiary or legal representative thereof, against the Company or any Subsidiary arising out of or in connection with this Plan shall, irrespective of the place where such right of action may arise or be asserted, cease and be barred by the expiration of the earliest of: (i) one year from the date of the alleged act or omission in respect of which such right of action first arises in whole or in part, (ii) one year after the Participant’s termination of employment, or (iii) six months after notice is given to or on behalf of the Participant of the amount of benefits payable under this Plan.

ARTICLE XII
MISCELLANEOUS

     12.1 Governing Law; Indemnification. This Plan shall be governed by and construed, enforced, and administered in accordance with the laws of the State of Michigan excluding any such laws which direct an application of the laws of any other jurisdiction. At all times, the Plan will also be interpreted and administered to maintain intended income tax deferral in accordance with IRC Section 409A and regulations and other guidance issued thereunder. Subject to exhaustion of remedies under Article XI, the Company, the Participating Employers and the Administration Committee shall be subject to suit regarding the Plan only in the courts of the State of Michigan, and the Company shall fully indemnify and defend the Board and the

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Administration Committee with respect to any actions relating to this Plan made in good faith by such bodies or their members.

     12.2 Prohibition of Assignment. The benefits provided under Article V of this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any Participant, surviving spouse or other person, at any time, to any person whatsoever. These benefits shall be exempt from the claims of creditors or other claimants and from all orders, decrees, levies, garnishment or executions to the fullest extent allowed by law. It will not, however, be deemed a violation of this Section 12.2 to follow a Domestic Relations Order pursuant to the procedures outlined in attached Exhibit C.

     12.3 Severability. The provisions of this Plan shall be deemed severable and in the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. Furthermore, the Administration Committee shall have the power to modify such provision to the extent reasonably necessary to make the provision, as so changed, legal, valid and enforceable as well as compatible with the other provisions of the Plan.

     12.4 Interpretation. Titles and headings to the Articles of this Plan are included for convenience only and shall not control the meaning or interpretation of any provision of this Plan. Wherever reasonably necessary in this Plan, pronouns of any gender shall be deemed synonymous, as shall singular and plural pronouns.

     12.5 Participant Cooperation. A Participant shall cooperate with the Company by furnishing any and all information requested by the Company, taking such physical examinations as the Company may deem necessary, and taking such other relevant actions as may reasonably be required by the Company or Administration Committee for purposes of the Plan. If a Participant neglects or refuses so to cooperate, the Company shall have no further obligation to such Participant or his beneficiaries under the Plan, and any Plan benefits accrued prior to such neglect or refusal shall be forfeited.

     12.6 Obligations to Company. If any Participant becomes entitled to payment of benefits under this Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Company or any of its Subsidiaries, then, as provided in Article V, such amounts owed (but not to exceed $5,000) shall be an offset against the amount of benefits payable under this Plan.

     12.7 Release and Non-Disclosure/Non-Competition Agreements. As a condition precedent to commencement of benefit payments under the Plan, and in consideration of such payments, a Participant may be required to execute and acknowledge a general release of all claims against the Company (and the Participating Employer, if not the Company) in such form as the Company may then require. Upon termination of the Participant’s employment, at retirement or otherwise, the Participant (if the Company requires him to do so) shall execute and thereafter perform a Non-competition/Non-disclosure Agreement in such form as the Company may then require. In that event, five per cent (5%) of each payment to the Participant pursuant to the Plan shall be deemed a payment by the Company for such agreement. If the Participant subsequently violates the Non-competition/Non-disclosure Agreement, as determined by the

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Administration Committee, the Company may suspend payment of Plan benefits to the Participant and any surviving spouse or other beneficiary until such time as there is a final determination that no such violation had occurred.

     12.8 No Employment Contract. Nothing in this Plan shall be construed to limit in any way the right of the Company or any other Participating Employer to terminate a Participant’s employment at any time for any reason whatsoever; nor shall it be evidence of any agreement or understanding, express or implied, that the Company or any Participating Employer (i) will employ an Employee in any particular position or for any particular period of time, (ii) will ensure participation in any incentive program, or (iii) will grant any awards from any such program.

     12.9 Effective Date. The changes to the Plan (as amended and restated in this document) shall take effect as of January 1, 2005 pursuant to the Board’s approval of such changes on December 19, 2008.

TECUMSEH PRODUCTS COMPANY
By	/s/ Tim Atzinger
	Its VP Global Human Resources
	Signed the 29th day of December, 2008

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EXHIBIT A
(updated as of April 28, 2004)

Executives selected as Participants in the Tecumseh Products Company Supplemental Retirement Plan:

Todd W. Herrick
John H. Foss (retired effective September 30, 2001)
James E. Martinco (retired effective September 30, 2001)
Dennis McCloskey (terminated effective December 30, 2000)
David W. Kay (terminated effective March 15, 2004)
James S. Nicholson

1993 Participants:

George W. Gatecliff

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EXHIBIT B

Claims Procedure.

     If any person shall claim benefits for which the Administration Committee has determined he is ineligible, or shall dispute the amount or timing of benefits determined by the Administration Committee to be payable hereunder, he shall be entitled to make a claim for benefits pursuant to this Procedure. All claims for benefits under this Plan shall be in writing addressed and delivered to the Administration Committee, and shall contain the claimant’s name, mailing address and telephone number, if any, and shall identify the claim in a manner reasonably calculated to make the claim understandable to the Administration Committee. However, the Company may appoint one or more individuals or an institutional fiduciary to act as special claims fiduciary to the extent specified in such appointment. In that event, and to that extent, the special claims fiduciary shall act in place of the Administration Committee, and shall take the actions which the Administration Committee is required or permitted to take below. The Claimant(s) shall be given prompt written notice of the appointment of a special claims fiduciary.

     This Procedure constitutes the sole and exclusive remedy for a Participant, surviving spouse or any other person (“Claimant”) to make a claim for benefits under the Plan. This Procedure will be administered and interpreted in a manner consistent with the requirements of ERISA Section 503 and the regulations thereunder. Any electronic notices provided by the Administration Committee will comply with the standards imposed under regulations issued by the Department of Labor. All claims determinations made by the Administration Committee will be made in accordance with the provisions of this Procedure and the Plan, and will be applied consistently to similarly situated Claimants.

     (1) Written Claim: A Claimant, or the Claimant’s duly authorized representative, may file a claim for a benefit to which the Claimant believes that he or she is entitled under the Plan. Any such claim must be filed in writing with the Administration Committee.

     (2) Decision on Claim: The Administration Committee, in its sole and complete discretion, will make all initial determinations as to the right of any person to benefits. If the Administration Committee elects to hold a hearing, then such hearing shall be held at the Company’s main office during normal business hours, unless a different time and/or place are mutually agreed upon. Administration Committee members and others may participate in the hearing by conference phone if it would be a hardship for such person(s) to attend in person. Any hearing shall be attended by at least a majority of the Administration Committee. If the claim is denied in whole or in part, the Administration Committee will send the Claimant (and Claimant’s duly authorized representative, if applicable) a written or electronic notice, informing the Claimant of the denial. The notice must be written in a manner calculated to be understood by the Claimant and must contain the following information: the specific reason(s) for the denial; a specific reference to pertinent Plan provisions on which the denial is based; if additional material or information is necessary for the Claimant to perfect the claim, a description of such material or information and an explanation of why such material or information is necessary; an

C-1

explanation of the Plan’s claim review (i.e., appeal) procedures, and the time limits applicable to such procedures; and a statement that the claimant has the right to bring an action under Section 502(a) of ERISA.. Written or electronic notice of the denial will be given within a reasonable period of time (but no later than 90 days) from the date the Administration Committee receives the claim, unless special circumstances require an extension of time for processing the claim. In no event may the extension exceed 90 days from the end of the initial 90-day period. If an extension is necessary, prior to the expiration of the initial 90-day period, the Administration Committee will send the Claimant a written notice, indicating the special circumstances requiring an extension and the date by which the Administration Committee expects to render a decision.

          In the case of a claim for a disability benefit, notice of a benefit denial shall be given within a reasonable time, but not later than 45 days after receipt by the plan of the claim. Similarly, the extension of time for processing the claim may not exceed 30 days from the end of the initial 45-day period. If circumstances beyond the control of the plan require a further extension period, the period for making the determination may be extended for up to an additional 30 days. If an additional extension is necessary, prior to the expiration of the first 30-day extension period, the Administration Committee shall send the Claimant a written notice explaining the circumstances requiring the extension and the date by which the Administration Committee expects to render a decision. The notice also shall explain the standards on which entitlement to the disability benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. The Claimant shall have at least 45 days to provide the necessary information. If an internal rule, guideline, protocol or other similar criterion was relied upon in making the adverse decision, then a copy of the rule, guideline, protocol or other similar criterion will be made available to the Claimant free of charge. If the adverse benefit determination is based upon a medical necessity or experimental treatment or similar exclusion or limit, then the Claimant shall be provided with an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the Claimant’s circumstances.

     (3) Request for Appeal: If the Administration Committee denies a claim in whole or in part, the Claimant may elect to appeal the denial. If the Claimant does not appeal the denial pursuant to the procedures set forth herein, the denial will be final, binding and unappealable. A written request for appeal must be filed by the Claimant (or the Claimant’s duly authorized representative) with the Administration Committee within 60 days after the date on which the Claimant receives the Administration Committee’s notice of denial. If a request for appeal is timely filed, the Claimant will be afforded a full and fair review of the claim and the denial. As part of this review, the Claimant may submit written comments, documents, records, and other information relating to the claim, and the review will take into account all such comments, documents, records, or other information submitted by the Claimant, without regard to whether such information was submitted or considered in the Administration Committee’s initial benefit determination. The Claimant also may obtain, free of charge and upon request, records and other information relevant to the claim, without regard to whether such information was relied upon by the Administration Committee in making the initial benefit determination.

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          In the case of a disability benefit, a written request for appeal must be filed by the Claimant (or the Claimant’s duly authorized representative) with the Administration Committee within 180 days after the date on which the Claimant receives the Administration Committee’s notice of denial. If a request for appeal is timely filed, the Claimant will be afforded a full and fair review of the claim that does not give deference to the initial adverse determination and that is conducted by a named fiduciary of the plan who is neither the individual who made or was consulted in connection with the initial adverse determination nor the subordinate of such an individual. In deciding an appeal of any adverse benefit determination that is based in whole or in part on a medical judgment, the named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment. Medical and vocational experts who gave advice to the plan in connection with the adverse benefit determination shall be identified, without regard to whether the advice was relied upon.

     (4) Review Of Appeal: The Administration Committee will determine, in its sole and complete discretion, whether to uphold all or a portion of the initial claim denial. If the Administration Committee elects to hold a hearing, then such hearing shall be held at the Company’s main office during normal business hours, unless a different time and/or place are mutually agreed upon. Administration Committee members and others may participate in the hearing by conference phone if it would be a hardship for such person(s) to attend in person. Any hearing shall be attended by at least a majority of the Administration Committee. If, on appeal, the Administration Committee determines that all or a portion of the initial denial should be upheld, the Administration Committee will send the Claimant a written or electronic notice informing the Claimant of its decision to uphold all or a portion of the initial denial, written in a manner calculated to be understood by the Claimant and containing the following information: the specific reason(s) for the denial; a specific reference to pertinent Plan provisions on which the denial is based; a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents and other information relevant to the claim; and a statement that the claimant has the right to bring an action under Section 502(a) of ERISA. Written or electronic notice will be given within a reasonable period of time (but no later than 60 days) from the date the Administration Committee receives the request for appeal, unless special circumstances require an extension of time for reviewing the claim, but in no event may the extension exceed 60 days from the end of the initial 60-day period. If an extension is necessary, prior to the expiration of the initial 60-day period, the Administration Committee will send the Claimant a written notice, indicating the special circumstances requiring an extension and the date by which the Administration Committee expects to render a decision.

     (5) In the case of a claim for disability benefits, a period of 45 days shall apply instead of the 60 days discussed above. If an internal rule, guideline, protocol or other similar criterion was relied upon in making the adverse decision, then a copy of the rule, guideline, protocol or other similar criterion will be made available to the Claimant free of charge. If the adverse benefit determination is based upon a medical necessity or experimental treatment or similar exclusion or limit, then the Claimant shall be provided with an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the Claimant’s circumstances. The Claimant also shall be provided with the following statement: “You and your plan may have other voluntary alternative dispute resolution options, such as

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mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.”

     (6) Alternative Time For An Appeal To Be Decided: Notwithstanding, if the Administration Committee holds regularly scheduled meetings on a quarterly or more frequent basis, the Administration Committee may make its determination of the claim on appeal at its next regularly scheduled meeting if the Administration Committee receives the written request for appeal more than 30 days prior to its next regularly scheduled meeting or at the regularly scheduled meeting immediately following the next regularly scheduled meeting if the Administration Committee receives the written request for appeal within 30 days of the next regularly scheduled meeting. If special circumstances require an extension, the decision may be postponed to the third regularly scheduled meeting following the Administration Committee’s receipt of the written request for appeal if, prior to the expiration of the initial time period for review, the Claimant is provided with written notice, indicating the special circumstances requiring an extension and the date by which the Administration Committee expects to render a decision. If the extension is required because the Claimant has not provided information that is necessary to decide the claim, the Administration Committee may suspend the review period from the date on which notice of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

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EXHIBIT C

DOMESTIC RELATIONS ORDER PROCEDURES

A.	To the extent required under any final judgment, decree or order (including approval of a property settlement agreement), referred to as the “Order,” that (i) relates to the provision of child support, alimony payments, or marital property rights; (ii) is made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended and any regulations issued thereunder; and (iii) is made pursuant to a state domestic relations law, any portion of a Participant’s Account may be paid to a spouse, former spouse, child or other dependent of the Participant (the “Alternate Payee”). A separate Account shall be established with respect to the Alternate Payee, in the same manner as the Participant, and any amount so set aside for an Alternate Payee shall be paid out in the time and form of payment as specified in the terms of the Order. Any payment made to an Alternate Payee pursuant to this paragraph shall be reduced by required income tax withholding.
B.	The Plan’s liability to pay benefits to a Participant shall be reduced to the extent that amounts have been paid or set aside for payment to an Alternate Payee pursuant to an Order. No such transfer shall be effectuated unless the Administration Committee has been provided with such an Order.
C.	Neither the Company nor the Administration Committee shall be obligated to defend against or set aside any Order, or any legal order relating to the garnishment of a Participant’s benefits, unless the full expense of such legal action is borne by the Participant. In the event that the Participant’s action (or inaction) nonetheless causes the Company or the Administration Committee to incur such expense, the amount of the expense may be charged against the Participant’s Account and thereby reduce the Company’s obligation to pay benefits to the Participant. In the course of any proceeding relating to divorce, separation, or child support, the Company or the Administration Committee shall be authorized to disclose information relating to the Participant’s Account to the Alternate Payee (including the legal representatives of the Alternate Payee), or to a court.

D-1

EX-10.23

Exhibit 10.23

AMENDMENT TO
TECUMSEH PRODUCTS COMPANY
EXECUTIVE DEFERRED COMPENSATION PLAN

The Tecumseh Products Company Executive Deferred Compensation Plan (“Plan”) is amended, effective January 1, 2005, so that Exhibit B reads as follows:

Exhibit B

“Company Change in Control,” solely for the purposes of this Plan, shall mean (and be limited to) any change that qualifies as a change of control event pursuant to Section 409A of the Internal Revenue Code of 1986, as amended, Treasury Regulation § 1.409A-3(g)(5), and all subsequent relevant authority, including any one or more of the following events:

a) a change in the ownership of the Company in compliance with Treasury Regulation § 1.409A-3(g)(5)(v) pursuant to which any person or group acquires ownership of stock of the Company that, together with stock held by that person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company.

b) a change in the effective control of the Company pursuant to Treasury Regulation § 1.409A-3(g)(5)(vi), pursuant to which either:

(1) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership (including acquisition of beneficial ownership) of stock of the Company possessing 35 percent or more of the total voting power of the stock of the Company; or

(2) a majority of members of the Company’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors prior to the date of the appointment or election;

c) a change in the ownership of a substantial portion of the Company’s assets pursuant to Treasury Regulation § 1.409A-3(g)(5)(vii) pursuant to which any one person or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value (as defined in 1.409A-3(g)(5)(vii)) equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.

d) For purposes of this Exhibit B, the following terms shall have the following meanings:

i) “person” shall mean a person as defined in Section 3(a)(9) of the 1934 Act.

ii) “beneficial ownership” shall be determined in accordance with Rule 13d-3 promulgated under the 1934 Act or any successor regulation.

iii) “group” shall mean a group as described in Rule 13d-5 promulgated under the 1934 Act or any successor regulation provided such group falls within the purview of Treas. Reg. §§ 1.409A-3(g)(v)(B), 1.409A-3(g)(5)(vi)(D), or 1.409A-3(g)(5)(vii)(C), as applicable. (The formation of a

group hereunder shall have the effect described in paragraph (b) of Rule 13d-5 promulgated under the Securities Exchange Act of 1934 or any successor regulation.)

WITNESS execution of this amendment on December 19, 2008, on behalf of the Company by its duly authorized officer.

TECUMSEH PRODUCTS COMPANY
By	/s/ Tim Atzinger
	Its    VP Global Human Resources

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EX-10.25

Exhibit 10.25

AMENDMENT TO
TECUMSEH PRODUCTS COMPANY
DIRECTOR RETENTION PHANTOM STOCK PLAN PLAN

The Tecumseh Products Company Director Retention Phantom Stock Plan (“Plan”) is amended, effective January 1, 2005, so that Exhibit A reads as follows:

Exhibit A

For any portion of an Account becoming vested after December 31, 2004, “Company Change in Control,” solely for the purposes of this Plan, shall mean (and be limited to) any change that qualifies as a change of control event pursuant to Section 409A of the Internal Revenue Code of 1986, as amended, Treasury Regulation § 1.409A-3(g)(5), and all subsequent relevant authority, including any one or more of the following events:

a) a change in the ownership of the Company in compliance with Treasury Regulation § 1.409A-3(g)(5)(v) pursuant to which any person or group acquires ownership of stock of the Company that, together with stock held by that person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company.

b) a change in the effective control of the Company pursuant to Treasury Regulation § 1.409A-3(g)(5)(vi), pursuant to which either:

(1) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership (including acquisition of beneficial ownership) of stock of the Company possessing 35 percent or more of the total voting power of the stock of the Company; or

(2) a majority of members of the Company’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors prior to the date of the appointment or election;

c) a change in the ownership of a substantial portion of the Company’s assets pursuant to Treasury Regulation § 1.409A-3(g)(5)(vii) pursuant to which any one person or group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value (as defined in 1.409A-3(g)(5)(vii)) equal to or more than 40 percent of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.

d) For purposes of this Exhibit B, the following terms shall have the following meanings:

i) “person” shall mean a person as defined in Section 3(a)(9) of the 1934 Act.

ii) “beneficial ownership” shall be determined in accordance with Rule 13d-3 promulgated under the 1934 Act or any successor regulation.

iii) “group” shall mean a group as described in Rule 13d-5 promulgated under the 1934 Act or any successor regulation provided such group falls within the purview of Treas. Reg. §§ 1.409A-

3(g)(v)(B), 1.409A-3(g)(5)(vi)(D), or 1.409A-3(g)(5)(vii)(C), as applicable. (The formation of a group hereunder shall have the effect described in paragraph (b) of Rule 13d-5 promulgated under the Securities Exchange Act of 1934 or any successor regulation.)

WITNESS execution of this amendment on December 19, 2008, on behalf of the Company by its duly authorized officer.

TECUMSEH PRODUCTS COMPANY
By	/s/ Tim Atzinger
	Its    VP Global Human Resources

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EX-10.29

Exhibit 10.29

DECEMBER 2008 AMENDMENT
TO
EMPLOYMENT AGREEMENT

     This 2008 Amendment to Employment Agreement, dated as of the 22^nd day of December, 2008 (the “Amendment”) by and between TECUMSEH PRODUCTS COMPANY, a Michigan corporation (the “Company”), and EDWIN L. BUKER (“Executive”).

WITNESSETH:

     WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated August 1, 2007 (the “Employment Agreement”); and

     WHEREAS, the parties desire to amend the Employment to assure compliance with certain requirements of Section 409A of the Internal Revenue Code and Regulations thereunder.

     THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:

1. Amendment of Employment Agreement. Section 8(e) of the Employment Agreement is deleted in its entirety and replaced with the following:

     (e) Termination Payments — Without Cause. If the Company terminates Executive’s employment without Cause, then Executive shall be entitled to receive: (i) a cash payment in an amount equal to the aggregate of (A) accrued but unpaid Base Salary; (B) unused vacation days; (C) the Target Bonus on a pro rata basis through the Termination Date; (D) one and one-half (1.5) times the Base Salary then in effect; and (E) one (1) times the annual Target Bonus; and (ii) the ability to exercise any then vested Initial Incentive Award and Annual Awards in accordance with their terms for up to 180 days after the Termination Date. In addition, other than a continuation of Company-paid health insurance for up to one (1) year, Executive will not be entitled to receive any other post-termination payments or severance following such resignation. Any cash payments pursuant to Sections 8(e)(i)(A), (B) and (D) due under this Section 8(e) shall be payable in a lump sum within ninety (90) days of the Termination Date, provided that payment occurs no later than March 15 of the year following the year in which the Termination Date falls.

2. Conflicts. In the event there is a conflict between the terms of the Employment Agreement and the terms of this Amendment, the terms of this Amendment shall control.

3. Employment Agreement. The Employment Agreement, as hereby amended, shall continue in full force and effect, to the fullest extent not inconsistent with this Amendment.

4. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Michigan applicable to contracts made and to be performed within such State without regards to the principles of conflicts of law.

5. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

TECUMSEH PRODUCTS COMPANY
By:	/s/ Tim Atzinger
	Its: VP Global Human Resources
EXECUTIVE
/s/ Edwin L. Buker
Edwin L. Buker

EX-21

Exhibit 21

Subsidiaries of the Company

The following is a list of subsidiaries of the Company as of December 31, 2008 except that certain subsidiaries, the sole function of which is to hold the stock of operating subsidiaries, which in the aggregate do not constitute significant subsidiaries, have been omitted. Subject to the foregoing in each case, 100% of the voting securities (except for directors’ qualifying shares, if required) are owned by the subsidiary’s immediate parent as indicated by indentation.

	State or Country
Name of Subsidiaries of the Company	of Organization
Tecumseh Compressor Company	Delaware
Tecumseh do Brasil, Ltda.	Brazil
Tecumseh do Brasil Europe Srl.	Italy
Tecumseh do Brasil USA	Delaware
Tecumseh Products Company of Canada, Ltd.	Canada
Tecumseh France S.A.	France
Tecumseh Services Sárl	France
Tecumseh Europe SA	France
Société Immobiliere de Construction de la Verpilliére	France
Tecumseh Europe-Far East Sdn. Bhd.	Malaysia
TMT Motoco do Brasil Ltda.	Brazil
Tecumseh Products India Private Ltd.	India
TPC Refrigeration de Mexico, S. de R.L. de C.V.	Mexico

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 16, 2009, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Tecumseh Products Company and subsidiaries on Form 10-K for the year ended December 31, 2008. We hereby consent to the incorporation by reference of said reports in the Registration Statement of Tecumseh Products Company and subsidiaries on Form S-3 (File No. 333-150495, effective May 7, 2008).

/s/  GRANT THORNTON LLP

Southfield, Michigan
March 16, 2009

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-150495) of Tecumseh Products Company of our report dated April 9, 2007, except for Note 2 as to which the date is March 13, 2009 relating to the financial statements, which appear in this Form 10-K.

/s/  PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Detroit, Michigan
March 13, 2009

EX-24

Exhibit 24

POWER OF ATTORNEY WITH RESPECT TO
ANNUAL REPORT OF TECUMSEH PRODUCTS COMPANY
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008

Each of the undersigned, a director or officer of TECUMSEH PRODUCTS COMPANY, appoints each of Edwin L. Buker and James S. Nicholson as his true and lawful attorney and agent to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable in order to enable TECUMSEH PRODUCTS COMPANY to comply with the Securities Exchange Act of 1934, and with any requirements of the Securities and Exchange Commission, in connection with the Annual Report of TECUMSEH PRODUCTS COMPANY on Form 10-K for the year ended December 31, 2008 and any and all amendments thereto, including, but not limited to, power and authority to sign his name (whether on behalf of TECUMSEH PRODUCTS COMPANY, or as a director or officer of TECUMSEH PRODUCTS COMPANY, or otherwise) to such instruments and to such Annual Report and any amendments thereto, and to file them with the Securities and Exchange Commission. The undersigned ratifies and confirms all that either of the attorneys and agents shall do or cause to be done by virtue hereof. Any one of the attorneys and agents shall have, and may exercise, all the powers conferred by this instrument.

Signature	Date
/s/ Edwin L. Buker Edwin L. Buker	March 12, 2009
/s/ James S. Nicholson James S. Nicholson	March 12, 2009
/s/ David M. Risley David M. Risley	March 12, 2009
Kent B. Herrick
/s/ Peter M. Banks Peter M. Banks	March 12, 2009
/s/ Jeffry N. Quinn Jeffry N. Quinn	March 12, 2009
/s/ Steven J. Lebowski Steven J. Lebowski	March 12, 2009
/s/ William E. Aziz William E. Aziz	March 12, 2009

EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Edwin L. Buker, certify that:

1. I have reviewed this Annual Report on Form 10-K of Tecumseh Products Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent function):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 16, 2009	BY:	/s/ Edwin L. Buker
		Edwin L. Buker
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James S. Nicholson, certify that:

1. I have reviewed this Annual Report on Form 10-K of Tecumseh Products Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent function):

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 16, 2009	BY:	/s/ JAMES S. NICHOLSON
		James S. Nicholson
		Vice President, Treasurer   and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

In connection with the Annual Report of Tecumseh Products Company (the “Company”) on Form 10-K for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), I, Edwin L. Buker, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)	the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)	the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 16, 2009	BY:	/s/ Edwin L. Buker
		Edwin L. Buker
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

In connection with the Annual Report of Tecumseh Products Company (the “Company”) on Form 10-K for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), I, James S. Nicholson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(3)	the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(4)	the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 16, 2009	BY:	/s/ James S. NICHOLSON
		James S. Nicholson
		Vice President, Treasurer,   and Chief Financial Officer