SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

COMMISSION FILE NUMBER: 0-452

TECUMSEH PRODUCTS COMPANY

(Exact name of registrant as specified in its charter)

MICHIGAN		38-1093240
(State of Incorporation)		(IRS Employer Identification Number)
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

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Yes o    No 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 Exchange Act).

     Yes o    No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class of Stock		Outstanding at October 31, 2009
Class B Common Stock, $1.00 par value			5,077,746
Class A Common Stock, $1.00 par value			13,401,938

 

 

TABLE OF CONTENTS

		Page
Part I. Financial Information (unaudited)
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets (unaudited)			3
Consolidated Condensed Statements of Operations (unaudited)			4
Consolidated Condensed Statements of Cash Flows (unaudited)			5
Notes to Consolidated Condensed Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			49
Part II. Other Information
Item 1. Legal Proceedings			51
Item 1A. Risk Factors			53
Item 4. Submission of Matters to a Vote of Security Holders			54
Item 6. Exhibits			55
Signatures			57
Exhibits and Schedules to 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		Exh. 4.1
Amendment No. 4, dated as of October 20, 2009, to the 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		Exh. 4.2
Settlement Agreement and Waiver of All Rights and Claims, dated as of October 5, 2009, between Tecumseh Products Company and Edwin L. Buker.		Exh. 10.1
Certification of President Pursuant to Section 302		Exh 31.1
Certification of CFO Pursuant to Section 302		Exh 31.2
Certification of President Pursuant to Section 906		Exh 32.1
Certification of CFO Pursuant to Section 906		Exh 32.2
EX-4.1
EX-4.2
EX-10.1
EX-31
EX-32

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

		September 30,				December 31,
(Dollars in millions, except share data)		2009				2008
ASSETS
Current Assets:
Cash and cash equivalents		$	84.9			$	113.1
Restricted cash and cash equivalents			11.4				12.5
Accounts receivable, trade, less allowance for doubtful accounts of $1.0 in 2009 and $1.2 in 2008			98.8				88.1
Inventories			106.1				123.0
Deferred and recoverable income taxes			7.2				23.2
Recoverable non-income taxes			12.9				11.7
Assets held for sale			15.9				21.7
Fair value of hedge			10.5				—
Prepaid expenses			10.5				13.8
Other current assets			7.5				5.5
Total current assets			365.7				412.6
Property, plant and equipment, net			259.4				244.3
Long-term investments			4.9				4.8
Prepaid pension expense			82.9				81.0
Recoverable non-income taxes			51.7				37.0
Other assets			19.5				18.8
Total assets		$	784.1			$	798.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	108.1			$	109.6
Short-term borrowings			34.9				30.4
Liabilities held for sale			1.6				1.0
Accrued liabilities:
Employee compensation			31.0				26.1
Product warranty and self-insured risks			11.2				12.1
Fair value of hedge			3.5				38.6
Other			21.8				21.4
Total current liabilities			212.1				239.2
Long-term debt			0.3				0.4
Deferred income taxes			6.5				8.7
Other postretirement benefit liabilities			38.6				39.5
Product warranty and self-insured risks			5.9				8.0
Pension liabilities			19.2				18.7
Other non-current liabilities			7.3				6.6
Total liabilities			289.9				321.1
Stockholders’ Equity
Class A common stock, $1 par value; authorized 75,000,000 shares; issued and outstanding 13,401,938 shares in 2009 and 2008			13.4				13.4
Class B common stock, $1 par value; authorized 25,000,000 shares; issued and outstanding 5,077,746 shares in 2009 and 2008			5.1				5.1
Paid in capital			11.0				11.0
Retained earnings			441.5				504.4
Accumulated other comprehensive (loss) income:
Other comprehensive loss			(4.0	)			(88.4	)
Postretirement and postemployment benefits			27.2				31.9
Total stockholders’ equity			494.2				477.4
Total liabilities and stockholders’ equity		$	784.1			$	798.5

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions, except per share data)		2009				2008				2009				2008
Net sales		$	208.0			$	256.2			$	517.3			$	805.2
Cost of sales			189.4				238.7				484.3				708.6
Selling and administrative expenses			29.4				33.7				94.7				99.6
Impairments, restructuring charges, and other items			3.6				16.2				10.6				20.0
Operating loss			(14.4	)			(32.4	)			(72.3	)			(23.0	)
Interest expense			3.0				7.0				7.9				20.5
Interest income and other, net			0.5				2.7				1.8				7.8
Loss from continuing operations before taxes			(16.9	)			(36.7	)			(78.4	)			(35.7	)
Tax (benefit) expense			(0.7	)			(0.2	)			(14.4	)			0.6
Loss from continuing operations			(16.2	)			(36.5	)			(64.0	)			(36.3	)
Income from discontinued operations, net of tax			2.1				23.3				1.1				49.1
Net (loss) income		$	(14.1	)		$	(13.2	)		$	(62.9	)		$	12.8
Basic (loss) earnings per share:*
Loss from continuing operations			(0.87	)			(1.98	)			(3.46	)			(1.96	)
Income from discontinued operations, net of tax			0.11				1.27				0.06				2.65
Net (loss) income per share, basic		$	(0.76	)		$	(0.71	)		$	(3.40	)		$	0.69
Diluted (loss) earnings per share:**
Loss from continuing operations			(0.87	)			(1.98	)			(3.46	)			(1.96	)
Income from discontinued operations, net of tax			0.11				1.27				0.06				2.65
Net (loss) income per share, diluted		$	(0.76	)		$	(0.71	)		$	(3.40	)		$	0.69
Weighted average shares, basic (in thousands)			18,480				18,480				18,480				18,480
Weighted average shares, diluted (in thousands)			19,871				19,871				19,871				19,871
Cash dividends declared per share		$	0.00			$	0.00			$	0.00			$	0.00

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended
		September 30,
(Dollars in millions)		2009				2008
Cash Flows from Operating Activities:
Net (loss) income		$	(62.9	)		$	12.8
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization			30.8				34.6
Impairment of long-lived assets and goodwill			2.2				13.4
Gain on sale of discontinued operations			—				(7.9	)
Impairment of prepaid asset			1.5
Loss (gain) on disposal of property and equipment			2.4				(3.5	)
Changes in assets and liabilities:
Accounts receivable			0.9				(36.9	)
Inventories			31.0				8.0
Payables and accrued expenses			(7.8	)			(2.8	)
Employee retirement benefits			(10.0	)			34.4
Deferred and recoverable taxes			(11.6	)			3.3
Other			12.7				(31.3	)
Cash (used in) provided by operating activities			(10.8	)			24.1
Cash Flows from Investing Activities:
(Payments made) proceeds from sale of assets			(13.3	)			22.6
Capital expenditures			(5.7	)			(5.5	)
Long-term investments			(0.2	)			—
Change in restricted cash and cash equivalents			1.2				(7.6	)
Cash (used in) provided by investing activities			(18.0	)			9.5
Cash Flows from Financing Activities:
Debt issuance / amendment costs			—				(1.6	)
Other (payments) borrowings, net			(3.0	)			0.5
Cash used in financing activities			(3.0	)			(1.1	)
Effect of exchange rate changes on cash			3.6				16.8
(Decrease) increase in cash and cash equivalents			(28.2	)			49.3
Cash and Cash Equivalents:
Beginning of period			113.1				76.8
End of period		$	84.9			$	126.1
Refunds received for income taxes			(13.2	)			(4.0	)
Cash paid for interest			9.1				16.3

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. The consolidated condensed financial statements of Tecumseh Products Company and Subsidiaries (the “Company”) are unaudited and reflect all adjustments (which are all normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of the financial position and operating results for the interim periods. The December 31, 2008 consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”). The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our Annual Report for the fiscal year ended December 31, 2008. Due to the seasonal nature of certain product lines, the results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year.

2. Restricted Cash and Cash Equivalents

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 provide 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. The balance of cash restricted for this purpose was $11.4 million and $12.5 million at September 30, 2009 and December 31, 2008 respectively.

3. Discontinued Operations and Sale of Businesses

Electrical Components

During 2007, our Board of Directors approved a plan to sell the assets of our Electrical Components business. We completed the sale of the majority of the assets of the business in the same year. The net amount of the residual assets within the Electrical Components business have been classified as held for sale as of September 30, 2009 and December 31, 2008. The results for Electrical Components for the three and nine month periods ended September 30, 2009 and 2008 are included in the income (loss) from discontinued operations.

Following is a summary of pretax income (loss) from discontinued operations related to the Electrical Components business for the three months ended September 30, 2009 and 2008:

		Three Months				Three Months
		Ended				Ended
		September 30,				September 30,
(Dollars in millions)		2009				2008
Net sales		$	3.3			$	9.2
Cost of sales			1.7				7.9
Selling and administrative expenses			0.1				0.2
Impairments, restructuring charges, and other items			(2.1	)			1.5
Operating income (loss)			3.6				(0.4	)
Income (loss) from discontinued operations before income taxes		$	3.6				($0.4	)

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

Following is a summary of pretax income from discontinued operations related to the Electrical Components business for the nine months ended September 30, 2009 and 2008:

		Nine Months				Nine Months
		Ended				Ended
		September 30,				September 30,
(Dollars in millions)		2009				2008
Net sales		$	9.8			$	23.6
Cost of sales			8.9				20.4
Selling and administrative expenses			1.1				0.5
Impairments, restructuring charges, and other items			(3.5	)			1.0
Operating income			3.3				1.7
Income from discontinued operations before income taxes		$	3.3			$	1.7

In the first quarter of 2009, we received $2.4 million related to the sale of the Residential & Commercial portion of the Electrical Components business, which is included in impairments, restructuring charges, and other items. We received an additional $3.0 million in the third quarter of 2009. These amounts represented the settlement of amounts previously held in escrow related to the resolution of certain contingent liabilities. Also recorded in impairments, restructuring charges, and other items were net expenses totaling $0.9 million and $1.9 million respectively for the three and nine months ended September 30, 2009. These included legal fees and settlements, asset impairments and costs of settling a dispute with the purchaser of the Automotive & Specialty portion of the business.

Post-closing sales price adjustments related to the divestiture of the businesses, which netted additional proceeds to the Company of $1.3 million, are included in impairments, restructuring charges, and other items in the nine months ended September 30, 2008.

Other businesses

In 2007, we completed the sale of our Engine & Power Train business operations, other than our engine operations in Brazil, which are being liquidated. The results for the Engine & Power Train business for the three and nine month periods ended September 30, 2009 and 2008 are included in the income from discontinued operations. Engine & Power Train recorded no sales for the three and nine months ended September 30, 2009 and 2008; the business recorded (loss) income of ($1.0) million and $28.3 million in the three months ended September 30, 2009 and 2008, respectively, and (loss) income of ($2.0) million and $42.2 million in the nine months ended September 30, 2009 and 2008, respectively. The loss in 2009 relates primarily to legal fees, while the profit recorded in 2008 relates primarily to 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 $35.0 million.

On June 30, 2008 we sold our MP Pumps business. 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 businesses. MP Pumps recorded sales of $3.9 million and profit of $0.7 million for the three months ended September 30, 2008. Sales of $9.5 million and profit of $1.8 million were recorded for MP Pumps for the nine months ended September 30, 2008.

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes income from discontinued operations for the three and nine months ended September 30, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Electrical Components		$	3.6			$	(0.4	)		$	3.3			$	1.7
Engine & Power Train			(1.0	)			28.3				(2.0	)			42.2
MP Pumps (including gain on sale)			—				0.7				—				9.7
Income taxes on discontinued operations			(0.5	)			(5.3	)			(0.2	)			(4.5	)
Income from discontinued operations		$	2.1			$	23.3			$	1.1			$	49.1

The following summary balance sheet information is derived from the businesses that are classified as held for sale as of September 30, 2009, which management believes is representative of the net assets of the remaining businesses within the former Electrical Components business.

		September 30,
(Dollars in millions)		2009
ASSETS:
Accounts receivable, net		$	1.8
Inventories			5.8
Other assets			0.1
Property, plant and equipment, net			8.2
Total assets held for sale		$	15.9
LIABILITIES:
Accounts payable, trade		$	1.0
Accrued liabilities			0.6
Total liabilities held for sale		$	1.6
Net assets held for sale		$	14.3

4. Inventories

		September 30,				December 31,
(Dollars in millions)		2009				2008
Raw material		$	53.9			$	62.6
Work in progress			1.0				9.3
Reserve for obsolete and slow moving inventory			(4.9	)			(5.5	)
Finished goods			56.6				57.2
Less: reserve for lower of cost or market			(0.5	)			(0.6	)
Finished goods, net			56.1				56.6
Total inventories		$	106.1			$	123.0

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

5. Property, Plant and Equipment, net

		September 30,				December 31,
(Dollars in millions)		2009				2008
Land and land improvements		$	16.0			$	16.5
Buildings			104.4				95.1
Machinery and Equipment			844.8				734.3
			965.2				845.9
Less accumulated depreciation			(708.4	)			(603.9	)
			256.8				242.0
Construction in process			2.6				2.3
Property, plant and equipment, net		$	259.4			$	244.3

6. Pension and Other Postemployment Benefit (OPEB) Plans

Components of net periodic benefit (income) cost are as follows:

		Pension Benefits								Other Benefits
		Three Months Ended								Three Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Service cost		$	0.6			$	0.6			$	0.1			$	0.3
Interest cost			2.9				3.0				0.6				0.9
Expected return on plan assets			(4.1	)			(4.6	)			—				(0.1	)
Amortization of prior service costs			—				(0.1	)			(2.4	)			(2.5	)
Amortization of net gain			—				—				(0.1	)			(0.4	)
Net periodic benefit income			(0.6	)		$	(1.1	)			(1.8	)		$	(1.8	)
Curtailment gains			—				—				—				(30.2	)
Total pension / OPEB income		$	(0.6	)		$	(1.1	)		$	(1.8	)		$	(32.0	)

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

		Pension Benefits								Other Benefits
		Nine Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Service cost		$	1.8			$	1.8			$	0.4			$	1.0
Interest cost			8.8				10.8				1.9				3.1
Expected return on plan assets			(12.2	)			(17.0	)			—				(0.2	)
Amortization of prior service costs			—				(0.4	)			(7.4	)			(8.1	)
Amortization of net gain			—				—				(0.3	)			(1.4	)
Net periodic benefit income			(1.6	)		$	(4.8	)			(5.4	)		$	(5.6	)
Curtailment losses (gains), settlement charges (gains) and special termination charges (benefits)			0.5				(2.0	)			—				(60.9	)
Total pension / OPEB income		$	(1.1	)		$	(6.8	)		$	(5.4	)		$	(66.5	)

A summary of the curtailment losses (gains), settlement gains and special termination charges            under the various plans for the three and nine months ended September 30 is as follows:

		Pension Benefits								Other Benefits
		Three Months Ended								Three Months Ended}
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Recorded in discontinued operations:
Engine & Power train curtailment gain		$	—			$	—			$	—			$	(30.2	)
Total curtailment gains		$	—			$	—			$	—			$	(30.2	)

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

		Pension Benefits								Other Benefits
		Nine Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
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			0.5				1.0				—				—
Hourly plan OPEB curtailment gain			—				—				—				(19.1	)
Total continuing operations			0.5				1.0				—				(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	)
Total discontinued operations			—				(3.0	)			—				(41.8	)
Total curtailment losses (gains), settlement charges (gains) and special termination charges (benefits)		$	0.5			$	(2.0	)		$	—			$	(60.9	)

All of the curtailment losses (gains), settlement gains and special termination charges that are recorded as part of continuing operations are included in impairments, restructuring, and other items.

We use December 31 as the measurement date for determining pension and postemployment (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.

In the first quarter of 2008, we completed the reversion of our former salaried pension plan. This reversion 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.

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 are executing a reversion of our hourly pension plan. We expect that the reversion of this plan will make net cash available (after payment of excise taxes) 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, while it is still possible that it could be completed in the fourth quarter of 2009, the first quarter of 2010 currently appears more likely.

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

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

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, they are recorded as assets upon payment of the taxes. For recoverable non-income taxes recorded in India and Europe, the amounts are ordinarily recovered within a year of the initial payment.

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 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.

We have completed procedures requesting refunds for the remaining balances. We expect to recover at least $4.4 million of the outstanding refundable taxes in Brazil over the next twelve months, with the remainder, approximately $51.7 million, expected to be recovered before the end of 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 September 30, 2009 and December 31, 2008:

		September 30,				December 31,
(Dollars in millions)		2009				2008
Brazil		$	56.1			$	40.2
India			7.6				8.5
Europe			0.9				—
Total recoverable non-income taxes		$	64.6			$	48.7

At September 30, 2009, $12.9 million was included in current assets and $51.7 million was included in non-current assets.

8. Warranties

Reserves are recorded on the consolidated balance sheet to reflect our contractual liabilities relating to warranty commitments to customers. Historically, estimates of warranty commitments have not differed materially from actual results; however, unanticipated product quality issues could result in material changes to estimates in future periods. Changes in the carrying amount

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and accrued product warranty costs for the periods ended September 30, 2009 and 2008 are summarized as follows:

		Nine Months Ended				Nine Months Ended
(Dollars in millions)		September 30, 2009				September 30, 2008
Balance at January 1		$	6.6			$	9.7
Settlements made (in cash or in kind)			(4.1	)			(5.4	)
Current year accrual			3.6				5.1
Adjustments to preexisting warranties			(1.1	)			(0.2	)
Effect of foreign currency translation			0.3				(0.4	)
Sale of MP Pumps			—				(0.1	)
Balance at September 30		$	5.3			$	8.7

At September 30, 2009, $4.8 million was included in current liabilities and $0.5 million was included in non-current liabilities. At December 31, 2008, $5.9 million was included in current liabilities and $0.7 million was included in non-current liabilities.

9. Debt

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 is secured by accounts receivable and inventories in the U.S. and Canada, as well as certain fixed assets and 65% of the stock of our foreign subsidiaries. The original agreement provided us with a $50 million revolving line of credit (later amended to $30 million, as discussed below) expiring on March 20, 2013.

On March 18, 2009, we entered into an amendment to this credit agreement. As described above, this amendment reduced the bank’s commitment from $50 million to $30 million. Among other things, the amendment revised our fixed charge coverage ratio covenant. In the original agreement, the covenant became applicable if our availability under the facility was $20 million or less. The amendment deleted this single trigger and replaced it with a new fixed charge covenant with: i) an availability threshold of $10 million if borrowings are outstanding, or ii) a liquidity threshold of $40 million if the fixed charge covenant is tested prior to July 31, 2009, and $50 million if tested after that date. Because our liquidity exceeded $50 million at September 30, 2009, the fixed charge covenant did not apply (although we did not meet the fixed charge covenant at September 30, 2009).

On August 28, 2009, we announced that all four of the nominees put forth by the Herrick Foundation for election to our board of directors had been elected to the board. This change in the composition of our board of directors constituted a “change in control” under our credit agreement with JPMorgan Chase. The occurrence of a change in control was an event of default under the agreement .

On October 20, 2009, we entered into an amendment to our credit agreement with JPMorgan Chase. Under the terms of the amendment, among other things, JPMorgan Chase waived the event of default relating to the change in control and the maturity date of the credit agreement was

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shortened from March 2013 to January 31, 2011. In addition, interest rates on any borrowings under the agreement increase by 0.5% as compared to the agreement prior to the amendment.

As of September 30, 2009, we had no borrowings outstanding under this agreement, and capacity for borrowings in the U.S. under the borrowing base formula of $15.1 million. After giving effect to the amendment discussed above, we were in compliance with all the covenants of the agreement.

Our domestic credit agreement also authorizes us to obtain a maximum in additional financing of up to $135.6 million in foreign jurisdictions. Our borrowings under current credit facilities at foreign subsidiaries totaled $35.2 million at September 30, 2009, with availability to obtain additional borrowings of $31.1 million, for a total borrowing capacity of $66.3 million; accordingly, we were fully in compliance with this requirement of our U.S. credit agreement.

There are significant restrictions to our ability to pay cash dividends under our domestic credit agreement. Cash dividends may only be paid if 1) no event of default has occurred and is continuing or would result after giving effect to the dividend payment, 2) a minimum of $50 million in liquidity is maintained subsequent to the dividend payment, and 3) the fixed charge covenant ratio was met for the preceding four quarters. As discussed above, we would not currently be in compliance with this covenant if we intended to pay cash dividends. We have no current expectation to pay dividends.

Borrowing arrangements at our foreign subsidiaries consist of credit facilities to support working capital needs as well as government sponsored borrowings which provide advantageous lending rates. The borrowing arrangements in India are secured by the land, building and equipment for those locations; some of the Brazilian arrangements are secured by inventories or accounts receivable. There are no restrictive covenants on these credit facilities. Our borrowings under these arrangements totaled $35.2 million and $30.8 million at September 30, 2009 and December 31, 2008 respectively, and are mostly current in nature. Our weighted average interest rate for these borrowings was 9.4% and 10.4% at September 30, 2009 and December 31, 2008 respectively.

10. Accumulated Other Comprehensive Income (AOCI)

A summary of comprehensive income for the three and nine months ended September 30, 2009 and 2008 is as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Net (loss) income		$	(14.1	)		$	(13.2	)		$	(62.9	)		$	12.8
Other comprehensive income (loss):
Foreign currency translation adjustments			18.0				(64.0	)			53.3				(31.5	)
Gain (loss) on derivatives, net of tax			3.9				(26.2	)			31.1				(17.6	)
Total comprehensive income (loss)		$	7.8			$	(103.4	)		$	21.5			$	(36.3	)

The gains on derivatives in 2009 relate to the significant increase in the fair market value of copper and the pronounced weakening of the U.S. dollar against other key currencies, particularly the real,

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the rupee, and the euro. In contrast, in the third quarter of 2008, copper prices were declining, while the dollar strengthened.

Other changes to AOCI are recorded for losses related to liabilities for pension and OPEB. We recorded loss of $1.7 million and $4.7 million for the three and nine months ended September 30, 2009. For the three and nine months ended September 30, 2008, we recorded loss of $32.8 million and $27.9 million respectively.

11. 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 the value of our Class A shares; stock appreciation rights (“SARs”) and phantom stock units. Both types of awards are settled in cash.

A summary of activity under the plans for the nine months ended September 30, 2009 is as follows:

		Nonvested								Vested								Total
						Weighted average								Weighted average
		Number of				grant date value				Number of				grant date value
SARs:		awards				per share				awards				per share				Number of awards
Outstanding at December 31, 2008			327,599			$	15.16				108,334			$	15.16				435,933
Granted in 2009			305,939				6.19				—				—				305,939
Vested			(145,311	)			15.16				145,311				15.16				—
Forfeited			—				—				—				—				—
Outstanding at September 30, 2009			488,227			$	9.54				253,645			$	15.16				741,872

Phantom Stock Units:
Outstanding at December 31, 2008			362,719			$	16.72				—				—				362,719
Granted			191,857				9.86				—				—				191,857
Vested			(61,125	)			8.18				61,125			$	8.18				—
Forfeited			—				—				—				—				—
Outstanding at September 30, 2009			493,451			$	15.11				61,125			$	8.18				554,576

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A summary of activity under the plans for the nine months ended September 30, 2008 is as follows:

		Nonvested								Vested								Total
						Weighted								Weighted
						average grant								average grant
		Number of				date value per				Number of				date value per				Number of
SARs:		awards				share				awards				share				awards
Outstanding at December 31, 2007			—				—				—				—				—
Granted			435,933			$	15.16				—				—				435,933
Vested			(108,334	)			15.16				108,334			$	15.16				—
Forfeited			—				—				—				—				—
Outstanding at September 30, 2008			327,599			$	15.16				108,334			$	15.16				435,933
Phantom Stock Units:
Outstanding at December 31, 2007			—				—				—				—				—
Granted			148,030			$	28.82				—				—				148,030
Vested			—				—				—				—				—
Forfeited			—				—				—				—				—
Outstanding at September 30, 2008			148,030			$	28.82				—				—				148,030

On October 2, 2009, the employment of Edwin L. Buker, formerly our Chairman of the Board, President and Chief Executive Officer, was terminated. We entered into an agreement with Mr. Buker whereby he has received a cash payment of $2.59 million in the fourth quarter of 2009 in full settlement of all rights to compensation and benefits, including previously vested and yet-to-be-vested SARs as well as yet-to-be-vested phantom stock units. The forfeiture of Mr. Buker’s share-based compensation arrangements will be reflected in the fourth quarter of 2009, and is expected to result in a reduction of our liability of $1.4 million in that period.

With the exception of one-third of the 325,002 SARs awarded on March 4, 2008 to Mr. Buker, which vested on August 13, 2008, none of the awards vested or expired during 2008. 145,311 of the SARs and 61,125 of the phantom stock units vested in 2009, although 124,825 of those SARs (as well as the 108,334 SARs that vested in 2008) will be forfeited in the fourth quarter of 2009 in accordance with the settlement agreement described above.

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.

The initial value of the phantom stock units 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, are valued as of the grant date using a Black-Scholes model.

The assumptions used in the Black-Scholes model for the SARs awarded, as

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of the grant date, are as follows:

Award						Risk-free				Dividend				Expected								Initial value
Date		Strike price				interest rate				yield				life (years)				Volatility				per award
3/4/08		$	28.82				3.37	%			0.0	%			7				51.18	%		$	15.16
1/2/09			10.07				1.87	%			0.0	%			7				62.78	%			6.24
3/16/09			4.17				2.50	%			0.0	%			7				84.70	%			3.17
6/15/09			9.31				3.45	%			0.0	%			7				90.20	%			7.40

Our liability with regard to these awards is re-measured in each quarterly reporting period. The value of the phantom stock units 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 September 30, 2009 and December 31, 2008, the closing stock price on our Class A common stock was $11.33 and $9.58 respectively.

We measure the fair value of each SAR, also based on the closing stock price of Class A common stock on the last day of the period, using a Black-Scholes model. That result is then compared to the original calculated value. At September 30, 2009 this measurement yielded the following values for the SARs, by award date:

Award						Risk-free				Dividend				Remaining								value per
Date		Strike price				interest rate				yield				life (years)				Volatility				award
3/4/08		$	28.82				2.93	%			0.0	%			5.4				91.65	%		$	6.71
1/2/09			10.07				2.93	%			0.0	%			6.3				91.65	%			8.91
3/16/09			4.17				2.93	%			0.0	%			6.4				91.65	%			9.90
6/15/09			9.31				2.93	%			0.0	%			6.8				91.65	%			9.19

As both the SARs and the phantom stock units 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 vesting period of the awards. Total compensation (benefit) expense related to the plan for the three months ended September 30, 2009 and 2008 was $1.9 million and $0.4 million respectively, and total compensation expense related to the plan for the nine months ended September 30, 2009 and 2008 was $4.6 million and $1.9 million respectively. The balance of the fair value that has not yet been recorded as expense is considered an unrecognized liability. The unrecognized compensation liability as calculated at September 30, 2009 and December 31, 2008 was $6.1 million and $4.3 million respectively.

The SARs and phantom stock units 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.

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12. Impairments, Restructuring Charges, and Other Items

A summary of the charges (gains) recorded in impairments, restructuring charges and other for the three and nine months ended September 30, 2009 and 2008 is as follows:

		Three Months Ended								Nine Months Ended
(Dollars in millions, except per share data)		September 30,								September 30,
		2009				2008				2009				2008
Excise tax expense on proceeds from salaried retirement plan reversion		$	—			$	—			$	—			$	20.0
Curtailment and settlement (gains) / losses			—				—				—				(21.5	)
Environmental reserve on held-for-sale building			—				—				2.3				—
Severance, restructuring costs, and special termination benefits			1.1				1.0				5.5				6.9
Loss on transfer of surplus land			—				—				0.3				—
Impairments of buildings and machinery			—				15.2				—				15.2
Gain on sale of buildings and machinery			—				—				—				(0.6	)
Impairment of investment in subsidiary			1.0				—				1.0				—
Impairment of prepaid outside sales expense			1.5								1.5
Total impairments, restructuring charges, and other items		$	3.6			$	16.2			$	10.6			$	20.0

The amounts reported under “severance, restructuring costs, and special termination benefits” represent severance payments made to employees, payroll taxes, and other benefit-related costs for employees terminated during the period. For the quarter ended September 30, 2009, these costs included $1.0 million in Brazil and $0.1 million in North America.. For the nine months ended September 30, 2009, these costs included $3.7 million in Brazil, $1.2 million in North America and $0.6 million in India. For the quarter ended September 30, 2008, these costs included $0.9 million in Brazil and $0.1 million in North America. For the nine months ended September 30, 2009, these costs included $2.9 million in Brazil, $3.1 million in North America and $0.9 million in Europe. For the 2009 expenses and the majority of the 2008 expenses, cash outlays were incurred in the same period as the recorded expense. However, for the expenses of $3.1 million associated with the closure of our Tecumseh, Michigan facility in the second quarter of 2008, some of the cash outlays extended into the third quarter of that year.

The majority of the severance costs were included on our balance sheet as part of accrued payroll until paid in cash. The unpaid liabilities associated with the Tecumseh facility closure were included in our balance sheet under pension liabilities, as the payments were associated with post-employment benefits and covered under collective bargaining agreements requiring these payments to be made out of the pension plan. Cash outflows associated with the Tecumseh closure were complete as of September 30, 2008.

The environmental reserve of $2.3 million, which was established in the first quarter of 2009, represents estimated costs associated with remediation activities at some of our former facilities based on information derived from a Phase II environmental study. The timing and amount of cash expenditures related to this estimated liability cannot currently be determined.

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$1.5 million in expense in the third quarter of 2009 was the result of the write-off of pre-paid expenses for outside sales support, upon the determination that these services would not provide benefit to the Company over the upcoming year. We also recorded $1.0 million in the third quarter of 2009 to reflect the impairment of our investment in an unconsolidated subsidiary.

The $15.2 million recognized for impairments of buildings and machinery for the three and nine months ended September 30, 2008 was due to the decision made in the third quarter of 2008 to relocate and consolidate certain of our global manufacturing capabilities. The expense was recognized in Brazil ($11.0 million), North America ($3.6 million), and India ($0.6 million).

Other charges (gains) recognized in 2008 related to our pension and other postemployment benefit plans. Refer to Note 6 for further discussion of these charges (gains).

13. Income Taxes

We adjust our effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. We also record the tax impact of certain discrete items (unusual or infrequently occurring), including changes in judgment about valuation allowances and effects of changes in tax laws or rates in the interim period in which they occur.

In addition, income taxes are allocated between continuing operations, discontinued operations and other comprehensive income since all items, including discontinued operations, should be considered for purposes of determining the amount of tax benefit that results from a loss from continuing operations and that could be allocated to continuing operations. We apply this concept 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 discontinued operations or other comprehensive income, tax expense is first allocated to the other sources of income, with a related benefit recorded in continuing operations.

For the three and nine month periods ended September 30, 2009, we reported losses from continuing operations in U.S. jurisdictions, income from discontinued operations, and income in other comprehensive income (“OCI”). We allocated income taxes accordingly between continuing operations, discontinued operations and OCI. The consolidated condensed statement of operations reflects a $0.7 million income tax benefit from continuing operations for the three months ended September 30, 2009. This tax benefit is comprised of a tax expense of $7.0 million in foreign jurisdictions (including the establishment of a valuation allowance of $5.0 million, as discussed below) and benefit of $7.7 million in U.S. federal taxes. The $0.2 million tax benefit recorded against continuing operations for the third quarter of 2008 represented a tax benefit of $3.7 million for U.S. federal taxes, expense of $2.8 million for taxes in foreign jurisdictions, and tax expense of $0.7 million for state taxes.

For the nine months ended September 30, 2009, we recorded a tax benefit of $14.4 million. This tax benefit is comprised of $8.2 million in U.S. federal tax benefits, $4.7 million in tax benefits in foreign jurisdictions, and $1.5 million in state tax benefits. The state tax benefit is the result of a change in tax law. We recorded tax expense of $0.6 million for the nine months ended September 30, 2008; this represented tax benefit of $3.7 million for U.S. federal, expense of $1.2 million for state taxes and expense of $3.1 million for taxes in foreign jurisdictions.

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The receipt of $100 million in gross proceeds from the reversion of our salaried retirement plan in the first quarter of 2008 generated a tax gain that was fully offset for federal tax purposes by our NOL carryforwards.

In the third quarter of 2009, a valuation allowance of $5.0 million was recorded against our deferred tax assets in France. We recorded this allowance because an analysis of recent accumulated losses and expected future losses caused us to conclude that it is no longer more likely than not that those deferred tax assets will be realized.

At September 30, 2009 and December 31, 2008, full valuation allowances were also recorded against deferred tax assets for other tax jurisdictions, specifically the U.S., Brazil and India, in which we believe it is not more likely than not that the deferred taxes will be realized.

We have open tax years from 2004 to 2008, with various significant taxing jurisdictions including the U.S., Canada, France and Brazil. In the U.S., our federal income tax returns through 2004 have been examined by the Internal Revenue Service.

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. We received the $14.9 million refund, which represented $12.2 in refund of taxes paid and $2.7 million in interest, in July 2009. Amended returns were filed during the quarter relating to a similar issue for other years, resulting in the recognition of a net tax benefit of $1.9 million.

As of September 30, 2009, we do not anticipate any material change in the total amount of unrecognized tax benefits within the next twelve months.

14. Fair Value

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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     Cash and cash equivalents; restricted cash and cash equivalents

The carrying amount of cash, restricted cash and cash equivalents approximates fair value due to their liquidity and short-term maturities. We classify these assets 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 of September 30, 2009 and December 31, 2008, we held an Auction Rate Certificate (ARC) and an Auction Rate Securities Right (ARSR). Since the ARSR is non-transferable and not traded on any exchange, the Company has elected to measure it using the fair value option. The ARSR represents a guarantee of the par value of the ARC, and the Company has valued the ARSR using a present value model. In valuing the ARSR, the Company calculated the present value of the difference between the par value of the ARC and the current fair value of the ARC. These assets are included in Long-Term Investments on our consolidated condensed balance sheet and are classified as Level 3.

     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. These instruments are recorded on our consolidated balance sheet as part of current assets and liabilities under the heading “Fair Value of Hedge.”

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     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 September 30, 2009.

		Total Fair
(Dollars in millions)		Value				Level 1				Level 2				Level 3
Assets:
Cash and cash equivalents		$	84.9			$	84.9			$	—			$	—
Restricted cash and cash equivalents			11.4				11.4				—				—
Auction rate certificates			4.3				—				—				4.3
Auction rate securities rights			0.6				—				—				0.6
Commodity futures contracts			3.2				—				3.2				—
Foreign currency derivatives			7.3				—				7.3				—
Balance as of September 30, 2009		$	111.7			$	96.3			$	10.5			$	4.9
Liabilities:
Commodity futures contracts		$	3.5			$	—			$	3.5			$	—
Balance as of September 30, 2009		$	3.5			$	—			$	3.5			$	—

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(Unaudited)

15. Derivative Instruments

Derivative instruments recognized on our balance sheet consist of foreign currency forward exchange contracts and commodity futures contracts. These contracts are designated as cash flow hedges. The contracts are recognized at the estimated amount at which they could be settled based on market observable inputs, such as forward market exchange rates. The instruments are recorded on our consolidated balance sheet as part of current assets and / or liabilities under the heading “Fair Value of Hedge.”

For those derivative instruments that are designated and qualify as hedging instruments, we formally document all relationships between the hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. We also formally assess (both at the hedge’s inception and on a quarterly basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in the future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively.

The effective portion of the derivative’s gain or loss is initially reported as a component of Other Comprehensive Income (“OCI”) and is subsequently recognized in earnings when the hedged exposure affects earnings upon settlement of the contracts. If derivatives are deemed ineffective at any time, the ineffective portion of the gain or loss is recognized immediately in earnings. In either case, the derivatives affect cash flow at the time the contracts are settled.

All of our financial derivatives are over-the-counter agreements entered into with highly-rated financial institutions. We are exposed to credit-related losses in the event of non-performance by these counterparties; however, our exposure is generally limited to the unrealized gains in our contracts should any of the counterparties fail to perform as contracted.

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 contracts that are highly effective and qualify as a foreign currency cash flow hedge are recorded in other comprehensive income. Our Europe subsidiary had contracts for the sale of $3.2 million at September 30, 2009, and our India subsidiary had contracts for the sale of $14.0 million and $23.5 million at September 30, 2009 and December 31, 2008 respectively. Our Brazilian subsidiaries had contracts for the sale of $51.8 million and $100.0 million at September 30, 2009 and December 31, 2008 respectively.

We also utilize commodity futures contracts, with the intent of minimizing the impact of market fluctuations in commodity prices on our financial results. We manage our exposure to the volatility in the prices of commodities, particularly copper, through a combination of commodity forward contracts and commodity futures. Our policies permit entering into commodity futures contracts up to an eighteen month time horizon. The commodity futures contracts are designated as cash flow hedging instruments and qualify for hedge accounting treatment. The commodity forward contracts do not qualify for hedge accounting treatment, as they are essentially purchase contracts intended to fix the price of the commodity for which we will accept delivery at a later date. Gains

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

PART 1. FINANCIAL INFORMATION — ITEM 1 FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

and losses from changes in the value of commodity forward contracts are recognized in earnings at the time the finished product that incorporates the commodity is sold.

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 September 30, 2009 will mature within twelve months. All such instruments held at December 31, 2008 will mature in 2009.

Information related to the fair values of derivatives designated as hedging instruments in our consolidated balance sheets as of September 30, 2009 and December 31, 2008 is as follows:

		Asset (Liability) Derivatives
(Dollars in millions)		September 30, 2009								December 31, 2008
		Financial								Financial
		Position Location				Fair Value				Position Location				Fair Value
Derivatives designated as hedging instruments
Commodity futures contracts		Fair value of hedge (asset)				$	3.2			Fair value of hedge (asset)				$	—
Commodity futures contracts		Fair value of hedge (liability)					(3.5	)		Fair value of hedge (liability)					(13.2	)
Foreign currency derivatives		Fair value of hedge (asset)					7.3			Fair value of hedge (asset)					—
Foreign currency derivatives		Fair value of hedge (liability)					—			Fair value of hedge (liability)					(25.4	)
Total derivatives designated as hedging instruments						$	7.0							$	(38.6	)