UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

þ		ANNUAL 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 (State or other jurisdiction of incorporation or organization)		38-1093240 (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:

Title of Each Class		Name of Each Exchange on Which Registered
Class B Common Stock, $1.00 Par Value Class A Common Stock, $1.00 Par Value		The Nasdaq Stock Market LLC The Nasdaq Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act:
None

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 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 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 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

As of June 30, 2010, directors and executive officers of the Registrant and holders of more than 10% of our Class B Common Stock held an aggregate of 6,700 shares of the Registrant’s Class A Common Stock and 1,696,245 shares of its Class B Common Stock. The aggregate market value as of June 30, 2010 (based on the closing prices of $11.12 per Class A share and $11.03 per Class B share, as reported on the Nasdaq Stock Market on such date) of the 13,395,238 Class A shares and 3,381,501 Class B shares held by non-affiliates was $186,253,003.

Numbers of shares outstanding of each of the registrant’s classes of Common Stock at March 1, 2011:

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 2011 Annual Meeting of Shareholders scheduled to be held on April 27, 2011 has been incorporated herein by reference in Part III hereof.

 

 

TABLE OF CONTENTS

		Page
Part I
Item 1. Business			3
Item 1A. Risk Factors			7
Item 1B. Unresolved Staff Comments			11
Item 2. Properties			12
Item 3. Legal Proceedings			13
Item 4. Reserved			13
Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6. Selected Financial Data			16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			31
Item 8. Financial Statements and Supplementary Data			34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			70
Item 9A. Controls and Procedures			70
Item 9B. Other Information			72
Part III
Item 10. Directors, Executive Officers and Corporate Governance			72
Item 11. Executive Compensation			72
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			73
Item 13. Certain Relationships and Related Transactions, and Director Independence			73
Item 14. Principal Accountant Fees and Services			73
Part IV
Item 15. Exhibits and Financial Statement Schedules			74
Signatures			75

PART I

ITEM 1.		BUSINESS

General

Tecumseh Products Company (the “Company”) is a Michigan corporation organized in 1934. We are a global manufacturer of hermetically sealed compressors for residential and specialty air conditioning, household refrigerators and freezers and commercial refrigeration applications.

Our products include air conditioning and refrigeration compressors, as well as condensing units, heat pumps and complete refrigeration systems. Products range from fractional horsepower reciprocating compressors used in small refrigerators and dehumidifiers to large reciprocating, rotary and scroll compressors used in commercial air conditioning and refrigeration systems. We sell compressors for three primary applications: (i) commercial refrigeration, including walk-in coolers and freezers, ice makers, dehumidifiers, water coolers, food service equipment and refrigerated display cases and vending machines; (ii) household refrigerators and freezers; and (iii) residential and specialty air conditioning and heat pumps, including window air conditioners, packaged terminal air conditioners and recreational vehicle and mobile air conditioners. Tecumseh’s products are sold to original equipment manufacturers (“OEMs”) and authorized wholesale distributors.

Foreign Operations and Sales

We maintain manufacturing plants in the United States (“U.S.”), Brazil, France, and India as well as assembly plants in Canada, Mexico, Malaysia and a joint venture in China. In 2010, sales to customers outside the United States represented approximately 82% of total sales.

Our dependence on sales, assembly and manufacturing 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 exist in all of our foreign countries, but 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 sealed. Our current compressor line consists primarily of reciprocating, rotary, and scroll designs.

Our lines of compressors range in size from approximately 5,000 to 60,000 BTU/hour models used in stationary and mobile air conditioning applications; from 145 to 1,100 BTU/hour models used in household refrigerators and freezers; and 365 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 365 to 73,000 BTU/hour for residential and commercial refrigeration applications. We produce rotary compressors ranging from 2,200 to 35,000 BTU/hour for residential and mobile air conditioning applications, as well as certain commercial refrigeration applications. We produce scroll compressors ranging from 7,500 to 44,000 BTU/hour that are designed specifically for demanding commercial refrigeration applications. Rotary and scroll compressors generally provide increased operating efficiency, lower equipment space requirements, and reduced sound levels when compared to reciprocating piston models. We also produce variable speed compressors for a wide range of uses, including military, medical, telecommunications, aircraft, transportation and automotive applications. These compressors use a variety of refrigerants for different applications, including hydrocarbon refrigerants.

We also produce sub-assemblies and complete refrigeration systems that utilize our compressors as components. Such products include indoor and outdoor condensing units, 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 OEMs and authorized wholesale distributors.

Manufacturing and Assembly Operations

We manufacture our products from facilities located in the United States, Brazil, France and India. We also have assembly plants located in Canada, Mexico, Malaysia and a joint venture located in China. Our Brazilian compressor operations are the largest of our manufacturing sources. Brazilian operations include two manufacturing facilities producing our broadest product offerings, with an installed capacity of approximately 13.2 million compressors a year. Products produced in Brazil are sold throughout the world. The general strengthening of the Brazilian Real since 2003, continuing into 2010, has caused our compressor products to be more expensive, making us less competitive. Brazilian exports were approximately 35%, 36%, and 48% of Brazilian production in 2010, 2009 and 2008, respectively.

We produce compressor products in North America in our Mississippi manufacturing facility and assembly plants in Canada and Mexico. Over the past several years, we have reduced the number of facilities operated in North America and moved some of our production to other countries because (1) the products can be produced at lower cost in those countries, and (2) some of our customers have relocated their operations to these countries. Installed capacity in Mississippi is approximately 3.0 million compressors a year. We also manufacture electric motors, a component of finished compressors, at a facility in Tennessee. In 2010, approximately 21% of the compressor products produced in our North American operations were exported to foreign countries.

We operate three manufacturing facilities in France. As in North America, we have restructured these operations, through consolidation into fewer facilities and by moving production to lower cost countries. The facilities in France have aggregate capacity of 3.7 million units a year.

We operate two manufacturing facilities in India with a current total capacity of 5.0 million units a year.

We produce a significant portion of our component needs internally; however we also make concentrated purchases, particularly of raw materials, from a few suppliers. The principle raw materials used in our manufacturing processes are steel and copper. In recent years, the volatility of commodity prices and related components has impacted us and the industry in general. We potentially mitigate the impact of higher commodity prices through a combination of price increases, commodity hedging contracts, improved production efficiency and cost reduction initiatives. We also partially mitigate volatility in the prices of these commodities by entering into futures contracts and other types of derivative instruments as deemed necessary.

Our required raw materials and components are generally available in sufficient quantities from a variety of non-affiliated suppliers. To the extent possible, we concentrate purchases with one to two suppliers and develop long-term relationships with these vendors. By developing these relationships, we leverage our material needs to help in reducing costs.

Sales and Marketing

We market our compressor and condensing unit products under the following brand names; “Tecumseh,” “L’Unité Hermétique by Tecumseh,” “Masterflux by Tecumseh,” “Silensys by Tecumseh,” “Celseon” and “Vector.” We sell our products in over 105 countries primarily through our own sales staff as well as independent sales representative and authorized wholesale 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 include substantial sales to both OEM and distributor customers.

The breakdown of sales by class of similar products for 2010, 2009 and 2008 is set forth in the table below:

		% of Total Sales Volume
		2010				2009				2008
Commercial Refrigeration			49	%			55	%			52	%
Residential Refrigerator and Freezer			28	%			30	%			30	%
Residential and Specialty Air Conditioning			23	%			15	%			18	%
Total			100	%			100	%			100	%

We have over 1,500 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 2010, our largest customers, Whirlpool Corporation and Electrolux, both of whom were R&F customers, accounted for 10.1% and 9.0%, respectively of consolidated net sales. Loss of either of these customers could have a material adverse effect on our results. Generally, we do not enter into long-term contracts with our customers. However, we do pursue long-term agreements with selected major customers where a business relationship has existed for a substantial period of time.

Competition

All of the compressor and condensing unit markets in which we operate are highly competitive. We compete with other compressor producers, including manufacturers of end products and other manufacturers that have internal compressor manufacturing operations. Most of these competitors manufacture their products outside the United States in countries where customers are manufacturing products that use compressors and where manufacturing costs are lower, including Asia and Eastern Europe. Worldwide productive capacities exceed global demand, which has put downward pressure on prices.

Participants compete on the basis of delivery, efficiency, sound level, price, reliability, availability and service, as well as compliance with various global environmental and safety standards and regulations. Due to the robustness of our compressors for specialty air conditioning applications, they are particularly well suited for specialized, niche markets located in parts of the Middle East and Asia. For most applications there are numerous competitors, some of which have larger product lines and greater financial, technical, manufacturing, research and development and management resources than we do. The household refrigerator and freezer market is vertically integrated with many appliance producers manufacturing a substantial portion of their compressor needs. In the United States and Europe specialty air conditioning compressor markets, we compete primarily with two U.S. manufacturers, Copeland Corporation and Danfoss, Inc.

In Brazil, domestic compressor manufacturers have some protection from outside competition, including import duties for compressors delivering up to 18,000 BTU/hour of cooling capacity. This protection only pertains to components (e.g., compressors) and not equipment. We believe that we and Whirlpool, S.A (selling compressors under the brand name “Embraco”) account for a majority of the compressors sold in Latin America for refrigeration and freezer applications. However, our market share in Brazil is slowly being reduced, as the strength of the Brazilian currency in recent years has made foreign imports relatively cheap despite the presence of duties. As a result, Asian manufacturers are beginning to capture additional share, including small shares of the market for compressors for refrigeration and freezer applications, and importation of the end products containing compressors, particularly in the room air conditioning market. In addition, our Latin American sales are concentrated. In 2010, approximately 50% of the sales from our Brazilian facilities were made to its three largest customers, and the loss of any of these customers would have a significant impact on the results of operations of these facilities, and to a lesser extent, on our consolidated results as a whole.

In East Asia and the Middle East, domestic compressor manufacturers also have some protection from outside competition, including import duties. We have manufacturing facilities in India, where our sales in this region are concentrated. We compete in this market primarily for compressors used in air conditioning and household refrigerator applications. This region has not yet fully developed a cold chain with temperature-controlled storage and distribution facilities. Our Indian sales are concentrated because there are fewer end product manufacturers in India. Accordingly, in 2010, approximately 53% of the sales from our Indian facilities into East Asian and Middle Eastern markets were made to its three largest customers, and the loss of any of these customers would have a significant impact on the results of operations of our Indian 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 in some regions of the world. Under a 1992 international agreement, the use of virgin HCFCs in new pre-charged equipment was banned beginning January 1, 2010 in the United States. 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. HFCs are also currently under global scrutiny and subject to possible future restrictions. We believe we are positioned to react in a timely manner to expected changes in the regulatory landscape.

In the last few years, there has been an even greater political and consumer movement, toward the use of hydrocarbons (“HCs”) and 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 are not approved for use as acceptable refrigerants by the US Government. As part of the US Government’s Significant New Alternatives Policy (SNAP), HC refrigerants are being considered for approval in household refrigerator and freezers and, self-contained commercial refrigeration applications. The proposed SNAP rulemaking limits the charge size of Isobutene to a maximum of 57 grams (2 ounces) for household refrigerator and freezers applications; and not to exceed a charge of 150 grams (5.3 ounces) of Propane for self-contained commercial refrigeration applications. Tecumseh builds compressors in Europe, Brazil and India utilizing Isobutene for sale into European, Latin American and Indian markets. We are also supplying US customers for export market and some US trials of HC applications are currently underway. In February 2011, we launched a New AE2 compressor to target “best-in-class” HC performance. 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 earnings or 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 refrigerators/freezers. The European, Brazilian and Indian, as well as most of the world markets, 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, 2010, 2009, and 2008 appear under the caption “Business Segment Information” in Note 17 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 refrigeration 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 trademarks, the most familiar of which is the trademark consisting of the word “Tecumseh” in combination with a Native American silhouette.

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. In 2009, we began shifting our research personnel from high cost countries to low cost countries which has resulted in higher productivity of dollars spent. We spent approximately $18.6 million, $17.7 million, and $20.4 million during 2010, 2009, and 2008, respectively, on research activities relating to the development of new products and the development of improvements to existing products.

Employees

On February 25, 2011, we employed approximately 8,600 persons, 90% 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 the past few years, we have focused on reducing our global workforce as part of our overall efforts to restructure the business and improve our overall cost structure. 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 Securities Exchange Act of 1934. These documents may be accessed free of charge through our website at the following address: http://www.tecumseh.com/investor-relations. These documents are provided as soon as reasonably practicable after filing with, or furnishing to, the SEC, although not generally on the same day. These documents may also be found at the SEC website at http://www.sec.gov.

ITEM 1A.		RISK FACTORS

Set forth below and elsewhere in this Annual Report on Form 10-K are material 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, “Cautionary Statements Relating To Forward-Looking Statements,” should be considered in addition to the following statements.

Price volatility for commodities we purchase could have an adverse effect on our cash flow or results of operations.

One of the most significant cost and cash flow impacts on our business has been the price of raw materials, such as steel, copper and aluminum. The prices of these commodities have remained extremely volatile over the past few years and due to competitive markets, we are typically not able to quickly recover product cost increases through price increases or other cost savings. While we have been proactive in addressing volatility of these costs by using derivatives to hedge price risk associated with forecasted purchase of certain raw materials, our hedged price could result in our paying higher or lower prices for commodities as compared to the market prices for those commodities when purchased and will not protect us against longer term price increases. Decreases in spot prices below our hedged prices can put us at a competitive disadvantage compared to less hedged competitors and can also require us to post cash collateral with our hedge counterparties, which could impact our liquidity and cash flows. At December 31, 2010, we were required to post $0.6 million of cash collateral on our hedges. In addition, increases in steel prices have a particularly negative impact as there is currently no well-established global market for hedging against increases in the cost of steel. These actions might not be successful to manage our costs or increase our productivity. Continued volatility of commodities or failure of our initiatives to generate cost savings or improve productivity may negatively impact our results of operations. See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Commodities” and “—Outlook” and “Item 7A-Quantitative and Qualitative Disclosures about Market Risk-Commodity Price Risk” for a description raw material price volatility and description of our hedging activity.

Significant supply interruptions could have an adverse effect on our cash flow or results of operations.

We generally concentrate purchases for a given raw material or component with a small number of suppliers. Although we believe there are alternative suppliers for all of our key raw material and components needs, if a supplier is unable or unwilling to meet our supply requirements, we could experience supply interruptions or cost increases, either of which could have an adverse effect on our results of operations.

Our international operations subject us to risks associated with foreign currency fluctuations.

We are exposed to significant exchange rate risk because the majority of our revenues, expenses, assets and liabilities are derived from operations conducted outside the U.S. in local and other currencies and, for purposes of financial reporting, the results are translated into U.S. dollars based on currency exchange rates prevailing during or at the end of the reporting period. During times of a strengthening U.S. dollar, our reported net revenues and net income (loss) and assets are reduced because the local currency will translate into fewer U.S. dollars, and during times of a weakening U.S. dollar, our reported expenses and liabilities are increased because the local currency will translate into more U.S. dollars. During periods of local economic crises non-U.S. currencies may be devalued significantly against the U.S. dollar, thereby reducing our reported revenues, income (loss) and assets. Because of the geographic diversity of our operations, weaknesses in some currencies might be offset by strengths in others over time. However, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies could materially affect our financial results.

We are also exposed to significant exchange rate risk when an operation has sales or expense transactions in a currency that differs from its local, functional currency or when the sales and expenses are denominated in different currencies. Since our primary risk stems from sales transacted at foreign locations that have the resulting receivable denominated in U.S. dollars, this risk affects our business adversely when the Real, Euro or Rupee strengthens against the dollar, which has been the case for the last several years for the Real. In those cases, when the receivable is ultimately paid in less valuable dollars, the foreign location realizes less net revenue in its local currency, which can adversely impact its margins. We have developed strategies to mitigate or partially offset these impacts, primarily hedging against transactional exposure where the risk of loss is greatest. 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.

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. See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Currency Exchange” and “—Outlook” and “Item 7A-Quantitative and Qualitative Disclosures about Market Risk-Foreign Currency Exchange Risk” for a description foreign currency volatility and description of our hedging activity.

Our international operations subject us to risks associated changes in local government regulations.

Our international sales and operations, including our purchases of raw materials from international suppliers, are subject to risks associated with changes in local government laws, regulations and policies, including those related to tariffs and trade barriers, investments, taxation, exchange controls, employment regulations, 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. Our international sales and operations are also sensitive to changes in foreign national priorities, including government budgets, as well as to political and economic instability. International transactions may involve increased financial and legal risks due to differing legal systems and customs in foreign countries. The ability to manage these risks could be difficult and may limit our operations and make the manufacture and sale of our products internationally more difficult, which could negatively affect our business and results of operations. See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Liquidity” and “Liquidity Sources-Cash inflows related to taxes” for a description of our outstanding refundable non-income taxes in Brazil.

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.

We operate in highly competitive markets.

All of the compressor and condensing unit markets in which we operate are highly competitive. We compete on the basis of delivery, efficiency, sound level, price, reliability, availability and service, as well as compliance with various global environmental standards and regulations. For most applications there are numerous competitors, some of which have larger product lines and greater financial, technical, manufacturing, research and development and management resources than we do. 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. These and other factors might 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. These trends may put downward pressure on prices and reduce our margins. These trends may also result in the need for us to restructure our operations further 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 and expanded operations in low cost countries, will be successful in setting the stage for improvement in profitability in the future.

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

The global recession, precipitated by the financial crisis, had a detrimental effect on our sales volumes during 2009 and to a lesser extent in 2010. Given that the slowdown in economic activity, including housing starts, has affected all of the geographic regions where we sell our products with nearly equal severity, the impact on our financial results in these periods has been significant.

Beginning in the latter part of 2009, while our results began to benefit from improved economic activity, we continued to focus on overall cost containment as the depth and extent of the global economic conditions could not be forecasted with certainty and any further declines would have an adverse effect on our financial condition and results of operation.

We may not maintain our current level of liquidity.

With the proceeds of divestitures of our former engine and power train and electrical components business operations, we eliminated all our North American debt, and accumulated substantial net cash on our balance sheet. In addition, our pension plan reversion in 2010 was a significant source of cash to the company. This cash balance has become increasingly important in light of constrained capital markets and the current economic environment. However, we may not be able to maintain our current levels of liquidity. We have incurred significant net losses and operating losses in each of the last three years and used significant cash in operations in 2010. Challenges remain with respect to our ability to generate appropriate levels of liquidity solely from cash flows from operations, particularly challenges related to global economic conditions, currency exchange effects and commodity pricing. We may not be able to generate cash from operations unless further restructuring activities are implemented and/or economic conditions improve. While we believe that current cash balances combined with available borrowings will produce adequate liquidity to implement our business strategy over at least the next twelve months, there can be no assurance that such improvements will ultimately be adequate if economic conditions deteriorate. 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. See “Item 3 — Legal Proceedings — Platinum” for a description of a lawsuit by the buyer of our gas-powered engine subsidiary. Future events could result in the recognition of additional liabilities that could consume available liquidity and management attention.

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 prior sales of businesses, securities law 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.

Given the inherent uncertainty of litigation, we cannot be certain that existing litigation or any future adverse legal developments will not have a material adverse impact on our financial condition. See “Item 3-Legal Proceedings” for a description of our legal matters.

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

Our manufacturing 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 could still 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. See “Item 8 — Financial Statements and Supplemental Data — Note 16 of Notes to Consolidated Financial Statements” for a description of our environmental matters.

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 in the different geographic markets 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.

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, future warranty claims might not follow historical patterns or we might not 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.

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

As of December 31, 2010, we employed approximately 8,000 persons worldwide. The majority of people we employ in foreign locations, approximately 7,200, are represented by national trade unions. While we do not believe that we will be impacted by work stoppages and other labor matters, future issues with our labor unions might not be resolved favorably and we might 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 their plants where our products are installed. If one or more of our customers experience a material work stoppage, it could have a material adverse effect on our business, results of operations and financial condition.

ITEM 1B.		UNRESOLVED STAFF COMMENTS

None.

ITEM 2.		PROPERTIES

Our headquarters are located in the United States of America in Ann Arbor, Michigan, approximately 40 miles west of Detroit. At December 31, 2010 we had 24 properties in the United States, Canada, Mexico, France, Brazil, India, Malaysia and China occupying approximately 5.1 million square feet (0.5 million idled) with the majority, approximately 3.8 million square feet, devoted to manufacturing and assembly. Fourteen facilities with approximately 3.6 million square feet were located in seven countries outside the United States. Manufacturing and assembly facility utilization varies during the year depending on the production cycle. All owned and leased properties are adequate and suitable, well maintained and equipped for the purposes for which they are used. Management believes we have sufficient manufacturing capacity for fiscal 2011 and beyond. The schedule below outlines our significant facilities by location, ownership and function as of December 31, 2010.

		Square
Location		Feet				Ownership		Use
United States:
Verona, Mississippi (Tupelo Division)			530,000			Leased		Manufacturing
Verona, Mississippi (Tupelo Warehouse 1)			70,200			Leased		Distribution
Verona, Mississippi (Tupelo Warehouse 2)			100,000			Leased		Distribution
Paris, Tennessee			190,000			Owned		Manufacturing
Emerson Building, Tecumseh, MI			26,343			Owned		Storage
Grafton, Wisconsin			343,484			Owned		Idle
Toledo, Ohio (Acklin Building)			150,000			Owned		Idle
Ann Arbor, MI Corporate Office			32,400			Leased		Office
Ann Arbor, MI Building			49,500			Owned		Technical Center
Brazil:
Sao Carlos, Brazil Plant 1			431,905			Owned		Manufacturing
Sao Carlos, Brazil Plant 2			1,001,249			Owned		Manufacturing
France:
Cessieu, France			316,925			Owned		Manufacturing
Barentin, France			312,363			Owned		Manufacturing
La Mure, France			114,379			Owned		Manufacturing
La Verpilliere, France			341,415			Owned		Technical Center
Vaulx Milieu, France			167,766			Leased		Office and Distribution
Canada:
London, Ontario, Canada			8,282			Leased		Office
Aylmer, Ontario, Canada			77,700			Owned		Assembly
India:
Hyderabad, India			374,802			Owned		Manufacturing
Ballabgarh, India			310,000			Owned		Manufacturing
Mexico:
Monterrey, Mexico			50,000			Leased		Assembly
China:
Song Jiang Joint Venture			72,000			Leased		Assembly
Shanghai			2,793			Leased		Office
Malaysia:
Port Klang, Malaysia			53,792			Leased		Assembly

ITEM 3.		LEGAL PROCEEDINGS

See Note 16 — Commitments and Contingencies — Litigation of the Notes to Financial Statements (Part II, Item 8 of this Form 10-K) for information regarding legal proceedings in which we are involved, which is incorporated into this Item 3 by reference.

ITEM 4.		[RESERVED]

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 trade on The Nasdaq Stock Market LLC under the symbols TECUA and TECUB, respectively. Total shareholders of record as of March 1, 2011 were approximately 250 for Class A Common Stock and 256 for Class B common stock. As of March 1, 2011, the closing price per share of our Class A Common Stock was $11.63 and the closing price per share of our Class B Common Stock was $11.72. 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 the fourth quarter of 2010.

Market Price and Dividend Information

Range of Common Stock Prices and Dividends for 2010

		Sales Price																Cash
		Class A								Class B								Dividends
Quarter Ended		High				Low				High				Low				Declared
March 31		$	14.00			$	10.43			$	13.16			$	10.31			$	—
June 30			15.55				10.88				14.30				10.82				—
September 30			14.21				10.47				13.05				10.10				—
December 31			14.06				11.26				14.20				11.10				—

Range of Common Stock Prices and Dividends for 2009

		Sales Price																Cash
		Class A								Class B								Dividends
Quarter Ended		High				Low				High				Low				Declared
March 31		$	11.39			$	3.00			$	13.60			$	3.70			$	—
June 30			12.74				4.25				13.87				4.82				—
September 30			13.68				7.85				13.45				8.71				—
December 31			13.32				9.94				13.10				10.06				—

Stock Performance Graph

The following graph and table depict the cumulative total shareholder return (assuming reinvestment of dividends) on $100 invested in each of Tecumseh common stock, S&P 500 Index, and the S&P Composite Industry Index for the five year period from December 31, 2005 through December 31, 2010.

		Base				INDEXED RETURNS
		Period				Years Ending
Company / Index		2005				2006				2007				2008				2009				2010
Tecumseh Products Company			100				83.21				98.75				47.87				58.15				65.41
S&P 500 Index			100				115.79				122.16				76.96				97.33				111.99
S&P Composite Industry Index			100				110.24				121.70				76.22				111.88				145.84

ITEM 6.		SELECTED FINANCIAL DATA

The following is a summary of certain of our financial information. Prior year results from 2006 through 2008 related to the Consolidated Statements of Operations have been restated to reflect the reclassification of the Electrical Components Group (with the exception of the Paris, Tennessee operations), the Engine & Power Train Group, MP Pumps, and Manufacturing Data Systems, Inc. as discontinued operations.

		Years Ended December 31,
(In millions, except share and per share data)		2010				2009				2008(a)				2007(a)				2006(a)
Net sales		$	933.8			$	735.9			$	996.4			$	1,136.1			$	1,024.5
Cost of sales and operating expenses			835.2				680.2				891.3				994.0				925.4
Gross Profit			98.6				55.7				105.1				142.1				99.1
Selling and administrative expenses			114.1				125.2				129.6				131.8				125.1
Impairments, restructuring charges, and other items			50.3				24.4				43.8				7.4				2.4
Operating (loss) income			(65.8	)			(93.9	)			(68.3	)			2.9				(28.4	)
Interest expense			(10.6	)			(10.8	)			(24.4	)			(22.3	)			(19.4	)
Interest income and other, net			1.2				2.3				9.7				6.2				10.9
Loss from continuing operations before taxes			(75.2	)			(102.4	)			(83.0	)			(13.2	)			(36.9	)
Tax (benefit) provision			(16.6	)			(10.6	)			(5.0	)			(8.2	)			12.3
Net loss from continuing operations			(58.6	)			(91.8	)			(78.0	)			(5.0	)			(49.2	)
Income (loss) from discontinued operations, net of tax			1.8				(1.6	)			27.5				(173.1	)			(31.1	)
Net loss		$	(56.8	)		$	(93.4	)		$	(50.5	)		$	(178.1	)		$	(80.3	)
Basic and diluted income (loss) per share (b):
Loss from continuing operations		$	(3.17	)		$	(4.97	)		$	(4.22	)		$	(0.27	)		$	(2.66	)
Income (loss) from discontinued operations, net of tax			0.10				(0.09	)			1.49				(9.37	)			(1.68	)
Net loss per share		$	(3.07	)		$	(5.06	)		$	(2.73	)		$	(9.64	)		$	(4.35	)
Cash dividends declared per share			—				—				—				—				—
Weighted average shares, basic and diluted (in thousands)			18,480				18,480				18,480				18,480				18,480
Cash and cash equivalents		$	65.9			$	90.7			$	113.1			$	77.0			$	82.0
Working capital			185.2				149.8				164.0				145.1				241.4
Net property, plant and equipment			234.9				259.7				253.7				362.6				562.9
Total assets			761.8				767.1				798.5				1,193.3				1,811.6
Long-term debt			13.2				8.0				0.4				3.3				217.3
Stockholders’ equity			434.9				463.4				477.4				742.6				794.6
Capital expenditures			9.2				7.9				8.0				4.2				62.7
Depreciation and amortization			40.4				45.2				42.5				55.5				81.8

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 report 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.” Our forward-looking statements generally relate to our future performance, including our anticipated operating results and liquidity sources and requirements, our business strategies and goals, and the effect of laws, rules, regulations, and new accounting pronouncements and outstanding litigation, on our business, operating results, and financial condition.

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) availability and volatility in the cost of materials, particularly commodities, including steel and copper, whose cost can be subject to significant variation; ii) financial market changes, including fluctuations in foreign currency exchange rates and interest rates; iii) local governmental, environmental and energy regulations; iv) actions of competitors in highly competitive markets with intense competition; v) current and future global economic conditions, including housing starts, and the condition of credit markets, which may magnify other risk factors; vi) potential political and economic adversities that could adversely affect anticipated sales and production in Brazil; vii) potential political and economic adversities that could adversely affect anticipated sales and production in India, including potential military conflict with neighboring countries; viii) our ability to maintain adequate liquidity in total and within each foreign operation; ix) the ultimate cost of defending and resolving legal and environmental 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) increased or unexpected warranty claims; xi) the extent of any business disruption caused by work stoppages initiated by organized labor unions; 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 success of our ongoing effort to bring costs in line with projected production levels and product mix; xv) weather conditions affecting demand for replacement products; xvi) the effect of terrorist activity and armed conflict. See “Risk Factors” in Item 1A of this report. 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 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 and compressor-related condensing unit business.

In addition to the relative competitiveness of our products, 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; the drivers of product cost, especially the price of copper and steel; and the relative value against the U.S. dollar of those foreign currencies of countries where we operate.

Economy

With respect to global economic activity, the recent global recession precipitated by the financial crisis had a detrimental effect on our sales in 2009. Sales increased in 2010 due to stronger economic conditions and higher availability of credit. Exclusive of the effects of currency translation, overall, sales in 2010 were approximately 22.5% higher than 2009. While the recent increases in order activity suggest that sales have improved compared to 2010, we cannot currently project whether market conditions will improve or decline on a sustained or significant basis.

Commodities

Due to the high 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 in 2010 and the fourth quarter of 2010 continued the upward trend on steel prices.

From January 1 to December 31, 2010, market copper prices increased by 31%. The average market cost of copper in 2010 was 46% higher than the average market cost in 2009, including a higher increase in the fourth quarter of 2010 compared to the previous nine months of 2010. After consideration of our hedge position, our average cost of copper was 4% lower in our 2010 results of operations when compared to 2009, primarily due to high cost hedges in 2009. 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 futures contracts.

Our average price in 2010 for the types of steel utilized in our products was 14% higher than the average cost in 2009, however in the fourth quarter of 2010 we continued to see an upward trend on pricing with our average steel prices 18% higher than for the nine months ending September 30, 2010.

The rapid increase of steel prices has a particularly negative impact, as there is currently no well-established global market for hedging against increases in the price of steel. Although we have been successful at securing a few contracts to help mitigate the risk of the rising steel market, this market is not very liquid and only available against our U.S. purchases of steel.

Based upon the introduction of redesigned products, we expect to use more aluminum in our motors in 2011 and have proactively addressed the volatility by executing future contracts to help mitigate the risk of rising aluminum prices.

Due to competitive markets for our finished products, we are typically not able to quickly recover product cost increases through price increases or other cost savings. We have been proactive in addressing the volatility of these costs, including executing futures contracts as of December 31, 2010 that cover approximately 32% of our anticipated copper, 3% of our anticipated steel in the U.S. and 17% of our anticipated aluminum usage in 2011. However, renewed rapid escalation of these costs would nonetheless have an adverse affect on our results of operations both in the near and long term as our anticipated needs are not 100% hedged.

While the use of futures can mitigate the risks of price increases associated with these commodities by “locking in” prices at a specific level, they also reduce the benefits of price decreases associated with these commodities. In addition, 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.

We expect to continue our approach of mitigating the effect of short term swings through the appropriate use of hedging instruments, price increases and modified pricing structures with our customers, where available, to allow us to recover our costs in the event that the prices of commodities escalate in a manner similar to what we experienced in 2010 For a discussion of the risks to our business associated with commodity price risk fluctuations, refer to “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of this report.

Currency Exchange

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. Most of our manufacturing presence is in international locations. During 2010 and 2009, approximately 82% and 77%, respectively, of our compressor sales activity took place outside the United States, primarily in Brazil, Europe, and India. As a result, our consolidated financial results are sensitive to changes in foreign currency exchange rates, including the Brazilian Real, the Euro and the Indian Rupee. 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 of 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 Brazilian manufacturing and sales presence are significant and changes in the Brazilian Real have been especially adverse to our results of operations when compared to prior periods. In 2010, the Brazilian Real strengthened against the dollar by 4.3% compared to 2009. For a discussion of the risks to our business associated with currency fluctuations, refer to “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of this report.

Liquidity

We have received cash inflows from non-operating activities and expect to receive further cash inflows from taxes through the end of 2011. We received approximately $43.6 million, net of excise tax, from the reversion of our over-funded hourly pension plan and $1.7 million in U.S. tax refunds in 2010. In addition, we expect to receive refunds of outstanding refundable Brazilian non-income taxes. 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. As of December 31, 2010, $40.4 million of the outstanding refundable Brazilian non-income tax was included in current assets and $44.3 million was included in non-current assets. We expected to receive approximately $25.4 million of the current amount by December 31, 2010, however, in connection with an unrelated social security tax matter, the Brazilian government filed a motion to require a cash deposit be posted with the court of approximately $15.0 million to replace letters of credit that were previously in place and did not pay any tax refunds to us in the fourth quarter of 2010, contrary to historical payment patters and indications of the Brazilian tax authorities. We disagreed with their motion and requested a hearing in 2011.

Subsequent to December 31, 2010, the Brazilian government was successful in obtaining a court order to require $15.0 million of our tax refund be held in a court appointed cash account until resolution of the social security tax matter. The timing of resolution of this tax dispute is uncertain and might take several years. We will reclassify the $15.0 million of refundable non-income taxes from current to long term in the first quarter of 2011.

Based on historical payment patterns and indication of the Brazilian tax authorities and the cash deposit described above, and based on the U.S. dollar to Real exchange rate as of December 31, 2010, we expect to recover approximately $40.4 million of the $84.7 million outstanding refundable taxes in Brazil in 2011. We received $8.0 in January 2011 and expect to receive an additional $6.0 million in the first quarter of 2011. The Brazilian tax authorities will not commit to an actual date of payment and the timing of receipt may be different than planned if the Brazilian authorities change their pattern of payment or past practices.

Challenges remain with respect to our ability to generate appropriate levels of liquidity solely from cash flows from operations, particularly uncertainties related to global economic conditions, currency exchange rates and commodity pricing as discussed above. In 2010, we used $46.0 million of cash in operations, which included the net inflow after payment of the excise tax of $43.6 million related to the reversion of the hourly pension plan and significant increases in inventories and receivables. While we expect continued improvement as our restructuring activities take effect, we still may not generate cash from normal operations unless further restructuring activities are implemented and/or economic conditions improve.

We terminated our U.S. credit facility in 2010, although we continue to maintain various credit facilities in most other jurisdictions in which we operate, and we are currently in the process of exploring a new credit facility to provide additional liquidity in 2011. While we believe that current cash balances and the cash to be generated by the Brazilian tax refund will produce adequate liquidity to implement our business strategy over the foreseeable future, there can be no assurance that such amounts will ultimately be adequate if economic conditions deteriorate. We anticipate that we will restrict non-essential uses of our cash balances until 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 properly accounted 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.

RESULTS OF OPERATIONS

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

Year Ended December 31, 2010 vs. Year Ended December 31, 2009

Year Ended December 31,
(in millions)		2010				%				2009				%
Net sales		$	933.8				100.0	%		$	735.9				100.0	%
Cost of sales and operating expenses			835.2				89.4	%			680.2				92.4	%
Gross Profit			98.6				10.6	%			55.7				7.6	%
Selling and administrative expenses			114.1				12.2	%			125.2				17.0	%
Impairments, restructuring charges, and other items			50.3				5.4	%			24.4				3.3	%
Operating loss			(65.8	)			(7.0	%)			(93.9	)			(12.7	%)
Interest expense			(10.6	)			(1.1	%)			(10.8	)			(1.5	%)
Interest income and other, net			1.2				0.1	%			2.3				0.3	%
Loss from continuing operations before taxes			(75.2	)			(8.0	%)			(102.4	)			(13.9	%)
Tax benefit			(16.6	)			(1.8	%)			(10.6	)			(1.4	%)
Net loss from continuing operations		$	(58.6	)			(6.2	%)		$	(91.8	)			(12.5	%)

Net sales in the year ended December 31, 2010 increased $197.9 million, or 26.9%, versus the same period of 2009. Excluding the increase in sales due to the effect of changes in foreign currency translation of $32.5 million, net sales increased by 22.5% from 2009. Sales of compressors used in commercial refrigeration and aftermarket applications increased by $93.9 million, or 26.2%, when compared to 2009. For the commercial refrigeration and aftermarket business, sales increases were primarily driven by volume increases due to stronger economic conditions as well as higher shipments to customers as they increased inventory balances to better reflect current sales levels. The increase in sales of compressors used in household refrigeration and freezer (“R&F”) applications was $25.1 million, or 10.5%, versus the same period of 2009, primarily due to higher units sold. Sales for R&F product were also substantially affected by the stronger global economic conditions, as credit became available compared to 2009. Sales of compressors for air conditioning applications and all other applications also increased by $78.9 million, or 56.7%, primarily due to volume increases caused by unusually hotter and more humid weather in our Brazilian market along with customers beginning to increase their inventory levels based upon their current forecasted demands.

Gross profit increased by $42.9 million from $55.7 million, or 7.6%, in 2009 to $98.6 million, or 10.6%, in 2010. The increase in gross profit in 2010 included the effect of volume and sales mix increases of $36.7 million and $22.2 million, respectively, as compared to the same period of 2009, including the effect of higher sales on fixed costs. Changes in productivity of $2.5 million and other raw material purchases of $7.9 million had favorable impacts on gross profit as compared to the same period of 2009. In contrast, changes in commodity costs of $11.4 million and currency of $2.1 million had unfavorable impacts on gross profit as compared to the same period of 2009. In addition, $8.2 million of net favorable items in 2009 results did not recur in 2010. These include a favorable legal opinion that resulted in $8.4 million of additional recoverable income tax refunds from our Brazilian operation, change in estimate for warranty claims of $2.3 million and a favorable litigation settlement of $1.0 million. These favorable items were offset by the one time cumulative catch up depreciation expense adjustment of $3.5 million recorded in 2009 as a result of reclassification of our Paris, Tennessee facility from a discontinued operation to continuing operation. We also recorded $8.1 million lower pension and OPEB credits in the current year. The effect of all other income and expense items included in gross profit was favorable to 2010 results by $3.4 million.

Selling and administrative (“S&A”) expenses decreased by $11.1 million from $125.2 million in 2009 to $114.1 million in 2010. As a percentage of net sales, S&A expenses were 12.2% in 2010 compared to 17.0% in 2009. Professional fees decreased by $8.5 million, of which $6.6 million was mainly due to a reduction in professional fees incurred in 2009 outside the ordinary course of business. Payroll, benefits and other related employee expenses decreased by $4.9 million as a result of our continued restructuring efforts and termination of our previous CEO. All other selling and administrative expenses increased in the aggregate by $2.3 million.

We recorded expense of $50.3 million in impairments, restructuring charges, and other items in 2010 compared to $24.4 million in 2009. In 2010, these expenses included $40.3 million in expenses related to the reversion of our hourly pension plan, primarily settlement losses, increased benefits costs and excise tax on the proceeds from the reversion, $7.3 million in expenses related to settlement of a portion of our anti-trust litigation, $1.2 million for additional estimated environmental costs associated with remediation activities at our former Tecumseh, Michigan facility, $2.5 million related to severance associated with the reduction in force at our Brazilian ($0.7 million), Indian ($0.1 million) and Corporate ($1.7 million) locations, and a $0.4 million impairment of an investment, partially offset by a $1.0 million gain from our previous salaried pension plan that was terminated in 2008 and a $0.4 million curtailment gain. For a more detailed discussion of these charges, refer to Notes 12 and 16 of the Notes to the Consolidated Financial Statements in Item 8 of this report.

Interest expense was $10.6 million in 2010 compared to $10.8 million in 2009. The weighted average interest rate on discounted accounts receivable decreased from 11.6% in 2009 to 8.7% in 2010, on lower balances being discounted. This decrease in factoring was offset by an increase in other foreign debt borrowings. The weighted average interest rate on debt at December 31, 2010 was 7.4% compared to 8.9% at December 31, 2009. The decrease in debt interest rate is the result of new loans that were put in place in Brazil at an interest rate of 4.5%. In addition, amortization of $0.6 million deferred financing costs originally incurred in connection with our credit agreement were expensed upon termination of our credit agreement in the second quarter of 2010.

Interest income and other income, net was $1.2 million in 2010 compared to $2.3 million in 2009, primarily reflecting lower interest rates, and lower average levels of cash and short-term investments held in 2010.

For 2010, we recorded a tax benefit of $16.6 million from continuing operations. This tax benefit is comprised of $0.4 million in foreign tax benefit, a tax benefit of $16.3 million in U.S. federal tax and a tax expense of $0.1 million for U.S. state taxes. The $10.6 million in tax benefit recorded against continuing operations for 2009 represented a tax benefit of $2.6 million for U.S. federal taxes, a tax benefit of $6.2 million for foreign taxes, and a tax benefit of $1.8 million for U.S. state taxes.

Net loss from continuing operations for the year ended December 31, 2010 was $58.6 million, or $3.17 per share, as compared to $91.8 million, or $4.97 per share, for the year ended December 31, 2009. The change was primarily the result of factors discussed above.

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

Year Ended December 31, 2009 vs. Year Ended December 31, 2008

Year Ended December 31,
(in millions)		2009				%				2008*				%
Net sales		$	735.9				100.0	%		$	996.4				100.0	%
Cost of sales and operating expenses			680.2				92.4	%			891.3				89.5	%
Selling and administrative expenses			125.2				17.0	%			129.6				13.0	%
Impairments, restructuring charges, and other items			24.4				3.3	%			43.8				4.4	%
Operating loss			(93.9	)			(12.7	%)			(68.3	)			(6.9	%)
Interest expense			(10.8	)			(1.5	%)			(24.4	)			(2.4	%)
Interest income and other, net			2.3				0.3	%			9.7				1.0	%
Loss from continuing operations before taxes			(102.4	)			(13.9	%)			(83.0	)			(8.3	%)
Tax benefit			10.6				1.4	%			5.0				0.5	%
Net loss from continuing operations		$	(91.8	)			(12.5	%)		$	(78.0	)			(7.8	%)

Net sales in the year ended December 31, 2009 decreased $260.5 million, or 26.1%, versus the same period of 2008. Excluding the decrease in sales due to the effect of changes in foreign currency translation of $44.4 million, net sales decreased 21.7% from the prior year. Sales of compressors used in commercial refrigeration and aftermarket applications decreased by $114.8 million, or 22.1%. For the commercial refrigeration and aftermarket business, volume declines were driven by softer economic conditions as well as lower shipments to customers as they too reduced inventory balances to better reflect current sales levels. The dollar volume decline in sales of compressors used in R&F applications was $74.1 million, or 25.1%, primarily due to lower units sold. Volumes for R&F product were also substantially affected by the global economic contraction, as consumer credit became more constrained than in 2008 and the rate of housing starts declined. The downturn in market volumes for R&F applications was the end result of the effect of these economic conditions; a decreased demand by consumers, combined with lower demand from our R&F customers as they brought their own inventories in line with lower volumes. Sales of compressors for air conditioning applications and all other applications also declined by $71.6 million, or 39.4%, primarily due to customers having large on-hand inventory of air conditioners resulting in lower demand for compressors compounded by unusually cool weather in many of the geographic locations served.

Cost of sales and operating expenses were $680.2 million in the year ended December 31, 2009, as compared to $891.3 million in the fiscal year ended December 31, 2008. Expressed as a percentage of sales, these costs increased to 92.4% in 2009 compared to 89.5% in 2008. Gross profit (defined as net sales less cost of sales and operating expenses) in 2009 declined by $49.4 million from $105.1 million, or 10.5%, in 2008 to $55.7 million, or 7.6% in 2009. The current year decline is mostly attributable to the materially lower levels of sales volume in 2009, which resulted in lower absorption of fixed costs, although reductions in our fixed cost structure during 2009 helped to mitigate this effect.

Volume declines reduced 2009 gross profit (including the effect of lower sales on fixed costs) by $60.4 million as compared to 2008. Current year margin was also unfavorably impacted by changes in sales mix of $34.1 million. Other raw material variances were also unfavorable by $0.6 million. An unfavorable one-time cumulative catch up depreciation expense of $3.5 million was recorded in the fourth quarter of 2009 as a result of a reclassification of our Paris, Tennessee facility from a discontinued operation held for sale to a continuing operation. In addition, items that were favorable to 2008 results did not recur in 2009. These amounts included a gain on the sale of an airplane and our former airport facility of $4.2 million and favorable litigation settlement costs of $2.2 million. We also recorded $6.1 million less in pension and OPEB credits in the current year. In contrast, productivity improvements of $30.5 million, favorable currency effects of $24.2 million and lower commodity costs of $11.3 million improved 2009 gross profit when compared to the same period in 2008. The effect of all other income and expense items included in cost of sales was unfavorable to 2009 results by $4.3 million.

Selling and administrative expenses were $125.2 million in the year ended December 31, 2009, as compared to $129.6 million in the fiscal year ended December 31, 2008. Expressed as a percentage of sales, these selling and administrative expenses were 17.0% in 2009 compared to 13.0% in 2008. We incurred approximately $8.6 million in 2009 for professional fees outside the ordinary course of business representing a decrease of $2.3 million when compared to the $10.9 million incurred in 2008. Payroll, benefits and other related employee expenses decreased by $8.3 million as a result of our continued restructuring efforts and termination of our previous CEO. Recurring professional fees were reduced by $2.2 million mainly related to accounting fees. In contrast, reversal of an accrual for environmental expenses of $1.7 million and a favorable change in estimate of $1.9 million recorded in 2008 were not repeated in 2009. All other selling and administrative expenses increased in the aggregate by $4.8 million.

We recorded expense of $24.4 million in impairments, restructuring charges, and other items in 2009 compared to $43.8 million in 2008. For a more detailed discussion of these charges, refer to Note 12 of the Notes to the Consolidated Financial Statements in Item 8 of this report and “Outlook” below.

Interest expense from continuing operations was $10.8 million in the fiscal year ended December 31, 2009 compared to $24.4 million in 2008. The decrease is primarily attributable to reduced borrowings, particularly in Brazil, including both debt balances and accounts receivable factoring, as well as slightly lower interest rates charged on our borrowings. 2008 also included $1.4 million related to a write-off of previously capitalized debt issuance costs for our previous credit facility.

Interest income and other income, net were $2.3 million in the fiscal year ended December 31, 2009 compared to $9.7 million in 2008, primarily reflecting the lower levels of cash and short-term investments held in 2009 and lower interest rates.

We recorded a $10.6 million income tax benefit from continuing operations for the fiscal year ended December 31, 2009. This benefit includes a $10.3 million deferred tax benefit ($6.8 million foreign tax credit, $1.8 million U.S. federal, and $1.7 million state and local) and a $0.3 million current tax credit.

The consolidated statement of operations reflects a $5.0 million income tax benefit for the fiscal year ended December 31, 2008. This benefit reflected a $7.6 million deferred tax benefit (consisting of a $8.0 million U.S. federal benefit and a foreign provision of $0.4 million), partially offset by a $2.6 current tax provision ($0.8 million U.S. federal, $0.1 million state and local credit and $1.9 million foreign).

At December 31, 2009 and 2008, full valuation allowances are recorded for net operating loss carryovers and other deferred tax assets for those tax jurisdictions in which it is more likely than not that these deferred tax assets would not be recoverable.

The effective tax rate in future periods may vary from the 35% United States statutory rate 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, 2009 was $91.8 million, or $4.97 per share, as compared to a net loss of $78.0 million, or $4.22 per share, in the fiscal year ended December 31, 2008. The change was primarily the result of volume declines in the current year and other factors as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, service indebtedness, support working capital requirements, and, when needed, fund operating losses. In general, our principal sources of liquidity are cash and cash equivalents on hand, cash flows from operating activities, when available, borrowings under available foreign credit facilities and cash inflows related to taxes. In addition, we believe that factoring our receivables is an alternative way of freeing up working capital and providing sufficient cash to pay off debt that may mature within a year.

A substantial portion of our operating income is 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. While there are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions, we are focusing on our global treasury strategy to allow us to transfer cash around the world in a cost efficient manner. We have implemented a portion of our strategy in 2010 and will continue to review and implement it in 2011.

Cash Flow

2010 vs. 2009

Cash used in operations amounted to $46.0 million in 2010, as compared to $1.6 million of cash provided by operations in 2009. A significant element of the change in cash in 2010 was the net proceeds of $43.6 million (after payment of excise tax) realized from the reversion of our hourly pension plan, offset by a significant use of cash for increased working capital. Another use of cash was our net loss of $56.8 million less the non-cash impacts of the settlement charges of the hourly pension plan reversion of $29.4 million, and depreciation of $39.3 million. Other non-cash items included a write off of debt issuance costs of $1.1 million, investment impairment of $0.4 million, loss on disposal of property and equipment of $0.6 million and share-based compensation of $1.5 million, plus a deferred tax benefit of $15.8 million, and the curtailment of our post retirement benefits of $7.0 million.

With respect to working capital, inventory levels were higher using $41.1 million of cash primarily due to increased sales, building of inventory to support higher levels of anticipated sales, and our increased in-transit inventory into North America from our foreign subsidiaries (which require longer lead times) as a result of our continued implementation of our best cost strategy. Inventory days on hand increased fourteen days to seventy-one days at December 31, 2010.

Increased accounts receivable required a use of cash of $47.8 million during the year primarily as a result of an increase in sales in the fourth quarter of 2010 compared to the fourth quarter of 2009. In addition, the increase is due in part to our cash management strategy of reducing our accounts receivable discounting programs in our Brazilian operations (thereby increasing the amount of accounts receivable reported on our consolidated balance sheet) and instead using government sponsored credit lines, which have a lower interest rate. This shift from discounting to short term debt increased our days sales outstanding by twelve days to sixty-one days at December 31, 2010.

Payables and accrued expenses increased by $22.9 million mainly as a result of increased purchases of inventories. In addition, payable days outstanding increased eight days to seventy-four days at December 31, 2010.

Recoverable non-income taxes were a net use of cash of $22.7 million primarily for additional receivables recorded for non-income taxes in foreign jurisdictions.

Employee retirement benefits were a use of cash of $4.8 million for year to date contributions and activity relating to our retiree medical plans.

Cash used by investing activities was $9.0 million in 2010 as compared to cash used in investing activities of $18.3 million in 2009. The 2010 use of cash in investing activities is primarily related to $9.2 million of capital expenditures, and an increase in restricted cash funds of $6.4 million to secure obligations as a result of terminating our U.S. line of credit, partially offset by $2.3 million of formerly restricted cash that became available to fund our 401(k) matching contributions. We also received $4.1 million upon maturity of a long term investment and $0.2 million of proceeds from the sale of assets. Cash used in investing activities in 2009 was primarily due to the payment of $13.1 million relating to a working capital settlement with the purchaser of our former Engine & Powertrain business and $7.9 million of capital expenditures, partially offset by $0.6 million change in long term investments, and $2.1 million of formerly restricted cash that became available to fund our 401(k) matching contributions.

Cash provided by financing activities was $31.5 million in 2010 compared to $7.8 million used in financing activities in 2009. The increase in borrowings in 2010 compared to the 2009 is mainly due to our cash management strategy of reducing our accounts receivable discounting programs and instead using government sponsored credit lines, which have a lower interest rate, to finance our increased working capital requirements to support higher levels of anticipated sales.

2009 vs. 2008

Cash provided by operations amounted to $1.6 million in 2009, as compared to cash provided by operations of $70.6 million in 2008. The most significant use of cash during 2009 was our net loss of $93.4 million less the non-cash impacts of depreciation and amortization of $45.2 million; impairment of long-lived assets of $1.2 million, and loss on disposal of property and equipment of $1.8 million. Non cash items included in the caption “impairments, restructuring charges, and other items” include an impairment of an asset for pre-paid outside sales service of $1.5 million and $1.0 million impairment of our investment in an unconsolidated subsidiary (included in other assets). Elimination of certain benefits from our retirement plans resulted in a non cash increase in our income, and a negative effect on our cash flows from operations, of approximately $9.5 million (included in employee retirement benefits).

Deferred and recoverable taxes were a net use of cash of $6.3 million, reflecting the receipt of $12.2 million in U.S. Federal tax refunds, more than offset by additional receivables recorded for non-income taxes in foreign jurisdictions.

With respect to working capital, our continued efforts to reduce inventory balances, combined with lower inventory requirements reflective of reduced sales volumes, yielded cash of $34.4 million during the year ended December 31, 2009. The lower levels of inventory also reflect a decrease in days inventory on hand of thirty-four days compared to December 31, 2008. Decreased accounts receivable provided cash of $21.3 million during the year. An effort to decrease the use of discounting receivables (thereby increasing the amount of account receivable reported on our consolidated balance sheet) at our foreign locations resulted in a use of cash of $18.1 million. However, this was offset by more aggressive collection efforts and lower sales volumes, resulting in an improvement in days sales outstanding of sixteen days as of the end of 2009 compared to the end of 2008. Payables and accrued expenses increased by $6.4 million primarily related to accruals for severance and special termination benefits of $10.0 million, a $6.2 million accrual for potential settlement of the Horsepower litigation, a net increase of $1.8 million in the reserve for environmental expenses an increase in payable days outstanding of five days partially offset by reduced purchases as a result of lower inventory levels.

Other changes provided $2.9 million of cash, primarily due to the receipt in 2009 of $2.7 million of accrued interest on our U.S. Federal income tax refund.

Cash used by investing activities was $18.3 million in 2009 compared to cash provided by investing activities of $9.7 million in 2008. Cash used in 2009 is primarily due to the payment of $13.1 million relating to a working capital settlement with the purchaser of our former Engine and Powertrain business and capital expenditures of $7.9 million, partially offset by $2.1 million of formerly restricted cash that became available to fund our 401(k) matching contributions in 2009. In 2008, cash provided by investing activities was primarily related to the net proceeds from the sale of assets of $23.2 million, partially offset by capital expenditures of $8.0 million and an increase in restricted cash of $5.7 million from cash received on the Salary Pension reversion plan.

Cash used by financing activities was $7.8 million in 2009 as compared to a use of cash of $23.4 million in 2008. The cash used in 2009 was due to reductions in borrowing at foreign facilities, while in 2008 we continued to reduce our debt levels in response to higher interest rates.

Liquidity Sources

Credit Facilities and Cash on Hand

In addition to cash on hand, cash provided by operating activities and cash inflows related to non-operating activities, when available, we also use foreign bank debt and other foreign credit facilities such as accounts receivable discounting programs to fund our working capital requirements. We also use these cash resources to fund capital expenditures, and when necessary, to address operating losses. For the year ended December 31, 2010 and 2009, our average outstanding debt balance was $50.0 million and $34.8 million respectively. The weighted average interest rate was 7.4% and 8.9% for the year ended December 31, 2010 and 2009, respectively.

As of December 31, 2010, our cash and cash equivalents on hand was $65.9 million. Our borrowings under current credit facilities at foreign subsidiaries totaled $65.4 million at December 31, 2010, with an uncommitted additional borrowing capacity of $6.5 million. For a more detailed discussion of our foreign credit facilities, refer to Notes 8 of the Notes to Consolidated Financial Statements in Item 8 of this report. 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 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.

Cash inflows related to taxes

We expect to receive refunds of outstanding refundable Brazilian non-income taxes. 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. As of December 31, 2010, $40.4 million of the outstanding refundable Brazilian non-income tax was included in current assets and $44.3 million was included in non-current assets. We expected to receive approximately $25.4 million of the current amount by December 31, 2010, however, in connection with an unrelated social security tax matter, the Brazilian government filed a motion to require a cash deposit be posted with the court of approximately $15.0 million to replace letters of credit that were previously in place and did not pay any tax refunds to us in the fourth quarter of 2010, contrary to historical payment patters and indications of the Brazilian tax authorities. We disagreed with their motion and requested a hearing in 2011.

Subsequent to December 31, 2010, the Brazilian government was successful in obtaining a court order to require $15.0 million of our tax refund be held in a court appointed cash account until resolution of the social security tax matter. The timing of resolution of this tax dispute is uncertain and might take several years. As a result, we will reclassify the $15.0 million of refundable non-income taxes from current to long term in the first quarter of 2011.

Based on historical payment patterns and indication of the Brazilian tax authorities and the cash deposit described above, and based on the U.S. dollar to Real exchange rate as of December 31, 2010, we expect to recover approximately $40.4 million of the $84.7 million outstanding refundable taxes in Brazil in 2011. We received $8.0 in January 2011 and expect to receive an additional $6.0 million in the first quarter of 2011. The Brazilian tax authorities will not commit to an actual date of payment and the timing of receipt may be different than planned if the Brazilian authorities change their pattern of payment or past practices.

Potential cash inflows related to outstanding Warrant

In 2007, the Company issued a warrant to purchase 1,390,944 shares of Class A Common Stock at $6.05 per share to a former creditor. The warrant expires in April of 2012. The former creditor’s exercise of the warrant could raise approximately $8.4 million in gross proceeds for us; however the warrant contains a provision for a cashless exercises, which would require us to issue shares of Class A common stock to the former creditor with a value equal to the difference in the market price of the underlying shares at the exercise date less the $6.05 per share exercise price.

Accounts Receivable Sales

Our Brazilian 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, including both with limited and without recourse amounts, was $34.8 million and $43.3 million at December 31, 2010 and 2009, respectively. The amount of factored receivables sold with limited recourse, which results in a contingent liability to us, was $19.4 million and $21.2 million as of December 31, 2010 and 2009, respectively. In addition to the credit facilities described above, our Brazilian subsidiary also has an additional $60.0 million uncommitted, discretionary factoring credit facility with respect to its local (without recourse) and foreign (with recourse) accounts receivable, subject to the availability of its accounts receivable balances eligible for sale under the facility. These facilities might not be available or used in the future.

Adequacy of Liquidity Sources

In the near term, and in particular over the next twelve months, we expect that our liquidity sources described above will be sufficient to meet our liquidity requirements, including debt service, capital expenditure and working capital requirements, and, when needed, cash to fund operating losses. However, in the same period, we anticipate challenges with respect to our ability to generate positive cash flows from operations, most significantly due to challenges driven by possible volume declines, as well as currency exchange and commodity pricing factors discussed above.

In addition, our business exposes us to potential litigation, such as product liability suits or other suits related to anti-competitive practices, past business sales, securities law 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.

As of December 31, 2010, we had $65.9 million of cash and cash equivalents, and $65.4 million in debt, of which $13.2 million was long-term in nature. The short-term debt primarily consists of uncommitted revolving lines of credit, which we intend to maintain for the foreseeable future. Accordingly, we believe our cash on hand is sufficient to meet our debt service requirements. We do not expect any material differences between cash availability and cash outflows.

We made substantially lower levels of capital expenditures in 2010 and 2009 as compared to historical levels. In the future, we expect capital expenditures will average $20.0 to $25.0 million annually, although the timing of expenditures may result in higher investment in some years and lower amounts in others. For 2011, we plan to invest approximately $10.0 million in machinery and equipment as we re-engineer our products to be more efficient, and we plan to invest an additional $10.0 million to catch up on deferred spending from previous years. These 2011 expenditures are projected to be incurred toward the end of 2011 and may be adjusted based upon achieving expected results described in the “Outlook” section.

We announced in 2009 restructuring initiatives related to reductions in force at our European facilities, which were completed in 2010. Based on the value of the dollar versus the Euro as of December 31, 2009, we expected that restructuring to have a favorable impact of $2.8 million on our earnings and cash flows on an annualized basis, beginning in 2010, and the annualized impact on our earnings and cash flows in 2010 from this reduction in force was $3.0 million based on the value of the dollar versus the Euro as of December 31, 2010.

Any additional restructuring actions taken in 2011 will be based upon our assessment of ongoing economic activity at that time and any such additional actions, if warranted, 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, future operating results and cash flows.

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. However, a portion of accounts receivable at our Brazilian and Indian subsidiaries are sold with limited recourse at a discount, which creates a contingent liability for the business. Our Brazilian subsidiary also sells portions of its accounts receivable without recourse. Discounted receivables sold with limited recourse were $19.4 million and $21.2 million at December 31, 2010 and 2009, respectively. We maintain a reserve for anticipated losses against these sold receivables, and losses have not historically resulted in the recording of a liability greater than the reserved amount.

Contractual Obligations

Our payments by period as of December 31, 2010 for our long-term contractual obligations are as follows:

Payments due by Period

(in millions)		Total				2011				2012/2013				2014/2015				After 2015
Debt Obligations		$	65.4			$	52.2			$	13.2			$	—			$	—
Purchase Obligations		$	12.1			$	12.1				—				—				—
Operating leases (1)		$	13.4			$	2.2			$	4.0			$	3.6			$	3.6
Other Long-Term Liabilities (2)		$	51.2				—				—				—				—

As of December 31, 2010, we also had $6.4 million in outstanding letters of credit issued in the normal course of business, as required by some vendor contracts. In addition to the above contractual obligations, we have unrecognized tax benefits for uncertain tax positions reported on returns that are currently being examined by the tax authorities. We expect that the tax authorities will complete their review of these positions during calendar year 2011, therefore; the amount of the unrecognized tax benefit could be reduced by $5.5 million within the next 12 months.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements in accordance with generally accepted accounting principles and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates.

We believe that the assumptions, judgments and estimates involved in the accounting for Share-based Compensation, Income Taxes, Impairment of Long-Lived Assets, Accrued and Contingent Liabilities, and Employee Related Benefits have the greatest potential impact on our consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

Share-based Compensation

The Company records share-based payment awards exchanged for employee services at fair value on the date of grant, that are re-measured quarterly, and expenses the awards in the consolidated statement of operations over the requisite employee service period which is generally the vesting period. Our plan authorizes two types of incentive awards, both of which are based upon the value of our class A shares; stock appreciation rights and phantom stock units. Both types of awards are settled in cash. Stock-based compensation expense includes an estimate for forfeitures and is generally recognized over the expected term of the award on a straight-line basis. 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 11, “Share-Based Compensation Arrangements,” of the Notes to the Consolidated Financial Statements in Item 8 of this report.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset.

Our assumptions, judgments and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws, the resolution of the current and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.

Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

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. At December 31, 2010 and 2009, other than those assets for which impairment charges had been taken, we do not believe there was a material amount of assets that had associated undiscounted projected cash flows that were materially less than their carrying values. If there are in the future, we will disclose the fact and the carrying amount of the assets at risk of impairment. Additional restructuring actions taken will be based upon our assessment of ongoing economic activity and any such additional actions, if warranted, 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. 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 products.

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, and 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.

Accrued and Contingent Liabilities

We have established reserves for environmental, warranty and legal contingencies in accordance with generally accepted accounting principles. We also have liabilities with regard to certain indemnification claims and litigation 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. Historically, reserves for accrued and contingent liabilities typically have not differed materially from actual results; however, unanticipated events such as the discovery of new facts could result in material changes to our reserves in future periods.

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 a 0.5% decrease in the rate of return on plan assets would increase 2010 expense by $0.2 million and $0.7 million, respectively.

See Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this report for more information regarding costs and assumptions for post-employment benefits.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June, 2009, The FASB adopted new rules to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The new principle is effective for the first annual reporting period beginning after November 15, 2009 and for the interim periods within that year. The adoption of this principle did not affect 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.

Sales improved in 2010 due to stronger global economic conditions compared to 2009. For 2011, we currently expect net sales could increase in the range of approximately 5 percent to 10 percent from 2010 levels. The potential improvement is based on 2010 sales, our existing pipeline of orders, our internal projections about the market and related economic conditions, price increases to our customers, as well as our continued efforts in sales, marketing and the re-engineering of our products. We cannot currently project whether market conditions will improve on a sustained or significant basis and if the economic improvement in our key markets does not occur as expected, this could have an adverse impact on our current outlook.

The prices of key commodities, including copper and steel, increased significantly during 2010, especially in the fourth quarter, and copper has continued to increase at historically unfavorable levels in the first quarter of 2011; see “Executive Summary — Commodities”. We expect the full year average cost of our purchased materials in 2011, including the impact of our hedging activities, to exceed that of 2010, depending on commodity cost levels and the level of our hedging over the course of the year. We expect to continue our approach of mitigating the effect of short term swings through the appropriate use of hedging instruments, price increases, and modified pricing structures.

The Brazilian Real, the Euro and the Indian Rupee continue to be volatile against the U.S. dollar. We have considerable forward purchase contracts to cover a portion of our exposure to additional fluctuations in value during 2011. See “Executive Summary-Currency”. 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 remeasurement, to have an unfavorable impact totaling approximately $2.0 million to $3.0 million in 2011 when compared to 2010.

After giving recognition to the factors discussed above, we expect that the full year 2011 operating profit could improve from 2010 if we are successful at offsetting the expected increase in commodity costs. Our primary offsets are expected to include lower expected impairments, restructuring charges and other items in 2011, re-engineering of our product line to reduce our costs, price increases and continued focus on cost reductions.

We also expect that our operating cash flow could be sufficient to maintain current cash balances and fund ongoing business requirements if we are successful at achieving the improved margins discussed above.

Based upon our assessment of ongoing economic activity, our plans for 2011 may include additional cost reduction activities including further employee headcount reductions and rationalization of product platforms. Additional restructuring actions could result in further restructuring and/or asset impairment charges, and, accordingly, could have a significant effect on our consolidated financial position, operating profit, cash flows and future operating results.

Expected results remain subject to many of the same variables that we have experienced in recent years, and which can have significant impacts. The condition of the global economy, commodity costs, and key currency rates are all important to future performance, as is our ability to match hedge activity to actual levels of transactions. We can give no guarantees regarding what impact future exchange rates, commodity price and other economic changes will have on our 2011 results. For a discussion of the sensitivity analysis associated with our key commodities and currency hedges see “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A.

As we look to the first quarter of 2011, we expect sales to show a slight improvement over the first quarter of 2010. Operating losses in the first quarter of 2010 had significant non-recurring expenses of $40.1 million, primarily related to the reversion of our hourly pension plan, that are not expected to recur in the first quarter of 2011. In addition, favorable sales volume, mix and price increases, offset by unfavorable commodity costs, coupled with the non-recurring expenses, could improve our operating results by $32.0 million to $35.0 million compared to the first quarter of 2010.

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 cash investments and 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 and options, and commodity futures contracts. 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, both restricted and unrestricted, and accounts receivable. 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 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.

We utilize 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 and Indian subsidiaries are sold with limited 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 $34.8 million and $43.3 million, at December 31, 2010 and 2009, respectively, and the weighted average discount rate was 8.7% in 2010 and 11.6% in 2009. Discounted receivables sold with limited recourse comprised $19.4 million and $21.2 million of this amount at December 31, 2010 and December 31, 2009, respectively. 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 and our investments of excess cash. Our current borrowings by our foreign subsidiaries consist of variable and fixed rates that are based on either the London Interbank Offered Rate, European Offered Interbank Rate or the BNDES TJLP fixed rate. 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 or cash investments, they do affect future earnings and cash flows. Based on our debt and invested cash balances at December 31, 2010, a 1% increase in interest rates would increase interest expense for the year by approximately $0.7 million and a 1% decrease in interest rates would have an immaterial effect on investments. Based on our debt and invested cash balances at December 31, 2009, a 1% increase in interest rates would increase interest expense for the year by approximately $0.3 million (due to lower debt balances) and a 1% decrease in interest rates would decrease interest income for the year by approximately $0.9 million.

Commodity Price Risk — Our exposure to commodity cost risk is related primarily to the price of copper and steel and to a lesser degree aluminum, as these are major components of our product cost.

We use commodity futures contracts to provide us with greater flexibility in managing the substantial volatility in copper pricing. Company policy allows management to contract commodity futures for a limited percentage of projected raw materials requirements up to 18 months in advance. At December 31, 2010 and 2009, we held a total notional value of $34.7 million and $11.8 million, respectively, in commodity futures contracts. These futures are designated as cash flow hedges against the price of copper, steel, and aluminum, and are accounted for as hedges on our balance sheet.

As of December 31, 2010, we have been proactive in addressing the volatility of copper prices, including executing futures contracts to cover approximately 32% of our anticipated copper requirements for 2011. While the use of futures can mitigate the risks of short-term price increases associated with these commodities by “locking in” prices 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 of commodity futures contracts, a 10% increase in the price of copper used in production of our products from prices at December 31, 2010 would adversely affect our annual operating profit by $10.2 million. Conversely, based on our current level of commodity futures contracts, a decrease in the price of copper used in production of our products of 10% would result in losses under these contracts that would adversely impact our operating results by $2.9 million. Based on our then current level of activity, and before consideration of commodity forward contracts and commodity futures contracts, a 10% increase in the price of copper used in production of our products from prices at December 31, 2009 would have adversely affected our annual operating profit by $6.2 million, primarily due to lower prices and lower expected copper needs. Conversely, based on our then current level of commodity forward purchase contracts and commodity futures contracts, a decrease in the price of copper used in production of our products of 10% would have resulted in losses under these contracts that would adversely impact our operating results by $3.1 million.

The rapid increase of steel prices has a particularly negative impact, as there is currently no well-established global market for hedging against increases in the cost of steel; however we have been successful at securing a few steel futures contracts in the U.S. to help mitigate this risk. These futures are designed as cash flow hedges against the price of steel, and are accounted for as hedges on our balance sheet. These futures contacts cover approximately 3% of our anticipated steel requirements in the U.S. for 2011; however the steel market is not considered a liquid market and is not available outside the U.S. These futures contracts have similar benefits and risks to us as the copper futures described above. Based on our current level of activity, and before consideration of commodity futures contracts, a 10% increase in the price of steel used in production of our products from prices at December 31, 2010 would adversely affect our annual operating profit by $10.6 million. Conversely, based on our current level of commodity futures contracts, a decrease in the price of steel used in production of our products of 10%, would result in losses under these contracts that would adversely impact our operating results by $0.3 million. Based on our then current level of activity, and before consideration of commodity futures contracts, a 10% increase in the price of steel used in production of our products from prices at December 31, 2009 would have adversely affected our annual operating profit by $9.1 million, primarily due to lower prices. We did not have any steel futures contracts at December 31, 2009.

Based upon the introduction of redesigned products, we expect to use more aluminum in our motors in 2011. Similar to copper and steel, but to a much lesser degree, our results of operations are sensitive to the price of aluminum and we have proactively addressed the volatility by executing future contracts that cover 17% of our projected usage in 2011. These futures are designed as cash flow hedges against the price of aluminum, and are accounted for as hedges on our balance sheet. These futures contracts have similar benefits and risks to us as the copper futures described above. Based on our current level of activity, and before consideration of commodity futures contracts, a 10% increase in the price of aluminum used in production of our products from prices at December 31, 2010 would adversely affect our annual operating profit by $0.6 million. Conversely, based on our current level of commodity futures contracts, a decrease in the price of aluminum used in production of our products of 10% would result in losses under these contracts that would adversely impact our operating results by $0.1 million. Based on our then current level of activity, and before consideration of commodity futures contracts, a 10% increase in the price of aluminum used in production of our products from prices at December 31, 2009 would have adversely affected our annual operating profit by an immaterial amount. We did not have any aluminum futures contracts at December 31, 2009.

Foreign Currency Exchange Risk — We are exposed to significant exchange rate risk since the majority of all our revenues, expenses, assets and liabilities are derived from operations conducted outside the U.S. in local and other currencies and, for purposes of financial reporting, the results are translated into U.S. dollars based on currency exchange rates prevailing during or at the end of the reporting period. We are also exposed to significant exchange rate risk when an operation has sales or expense transactions in a currency that differs from its local, functional currency or when the sales and expenses are denominated in different currencies. This risk applies to all our foreign locations since a large percentage of their receivables and payables are transacted in a currency other than their local currency, mainly U.S. dollars. In those cases, when the receivable is ultimately paid in less valuable dollars, the foreign location realizes less net revenue in its local currency, which can adversely impact its margins. The periodic re-measurement of these receivables and payables are recognized in the consolidated statements of operations. As the U.S. dollar strengthens, our reported net revenues, operating profit (loss) and assets are reduced because the local currency will translate into fewer U.S. dollars, and during times of a weakening U.S. dollar, our reported expenses and liabilities are increased because the local currency will translate into more U.S. dollars. Translation of our Statement of Operations into U.S. dollars affects the comparability of revenue, expenses, operating income (loss), and earnings (loss) per share between years. Because of the geographic diversity of our operations, weaknesses in some currencies might be offset by strengths in others over time. However, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies could materially affect our financial results.

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 U.S. dollars at specified rates based on estimated currency cash flows. In particular, we have entered into foreign currency forward purchases to hedge the Brazilian, European and Indian export sales, some of which are denominated in U.S. dollars. However, these hedging programs only reduce exposure to currency movements over the limited time frame of three to eighteen months. 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. Additionally, if the currencies weaken against the dollar, any hedge contracts that have been entered into at higher rates result in losses to our consolidated statements of operations when they are settled. From January 1 to December 31, 2010, the Real strengthened against the dollar by 4.3%, the Rupee strengthened by 3.7%, and the Euro weakened by 7.1%.

At December 31, 2010 and 2009, we held foreign currency forward contracts with a total notional value of $109.6 million and $59.9 million, respectively. Based on our current level of activity, and including any mitigation as the result of hedging activities, we believe that a 10% strengthening of the Real, Euro, or the Rupee against the U.S. dollar would negatively impact our operating profit on an annual basis for 2010 and 2009 as indicated in the table below:

		10% Strengthening against U.S. $
(in millions)		2010				2009
Real		$	2.6			$	1.4
Euro			1.5				3.9
Rupee			0.6				2.9
Total		$	4.7			$	8.2

However, based on our current foreign currency forward contracts, a 10% weakening in the value of the Real, Euro or the Rupee would result in losses under such foreign currency forward contracts that would adversely impact our operating results in 2010 and 2009 as indicated in the table below:

		10% Weakening against U.S. $
(in millions)		2010				2009
Real		$	2.0			$	4.5
Euro			2.8				0.1
Rupee			2.1				1.3
Total		$	6.9			$	5.9

ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			35
Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008			36
Consolidated Balance Sheets at December 31, 2010 and 2009			37
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008			38
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, 2009 and 2008			39
Notes to Consolidated Financial Statements			40

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Tecumseh Products Company

We have audited the accompanying consolidated balance sheets of Tecumseh Products Company (a Michigan Corporation) and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. 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, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tecumseh Product Company and subsidiaries’ internal control over financial reporting as of December 31, 2010, 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 14, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ GRANT THORNTON LLP

Southfield, Michigan
March 14, 2011

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

		For the Years Ended December 31,
(in millions, except share and per share data)		2010				2009				2008
Net sales		$	933.8			$	735.9			$	996.4
Cost of sales and operating expenses			835.2				680.2				891.3
Gross Profit			98.6				55.7				105.1
Selling and administrative expenses			114.1				125.2				129.6
Impairments, restructuring charges, and other items			50.3				24.4				43.8
Operating loss			(65.8	)			(93.9	)			(68.3	)
Interest expense			(10.6	)			(10.8	)			(24.4	)
Interest income and other, net			1.2				2.3				9.7
Loss from continuing operations before taxes			(75.2	)			(102.4	)			(83.0	)
Tax benefit			(16.6	)			(10.6	)			(5.0	)
Loss from continuing operations			(58.6	)		$	(91.8	)		$	(78.0	)
Income (loss) from discontinued operations, net of tax			1.8				(1.6	)			27.5
Net loss		$	(56.8	)		$	(93.4	)		$	(50.5	)
Basic and diluted loss per share(a):
Loss from continuing operations		$	(3.17	)		$	(4.97	)		$	(4.22	)
Income (loss) from discontinued operations, net of tax			0.10				(0.09	)			1.49
Net loss per share		$	(3.07	)		$	(5.06	)		$	(2.73	)
Weighted average shares, basic and diluted (in thousands)			18,480				18,480				18,480
Cash dividends declared per share		$	0.00			$	0.00			$	0.00

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

		December 31,
(in millions, except share data)		2010				2009
ASSETS
Current Assets:
Cash and cash equivalents		$	65.9			$	90.7
Restricted cash and cash equivalents			14.6				10.5
Accounts receivable, trade, less allowance for doubtful accounts of $1.2 million in 2010 and 2009			127.8				79.4
Inventories			151.5				109.6
Deferred and recoverable income taxes			1.7				7.4
Recoverable non-income taxes			60.0				38.5
Fair value of hedge			12.5				11.2
Other current assets			13.7				13.4
Total current assets			447.7				360.7
Property, Plant, and Equipment, net			234.9				259.7
Long-term investments			—				4.1
Prepaid pension expense			9.5				80.3
Deferred income taxes			3.5				—
Recoverable non-income taxes			47.4				38.5
Other assets			18.8				23.8
Total assets		$	761.8			$	767.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	143.7			$	117.4
Short-term borrowings			52.2				23.0
Accrued liabilities:
Employee compensation			30.7				29.0
Product warranty and self-insured risks			12.0				10.6
Payroll taxes			11.3				11.1
Fair value of hedge			—				0.6
Other			12.6				19.2
Total current liabilities			262.5				210.9
Long-term debt			13.2				8.0
Deferred income taxes			3.7				7.2
Other postretirement benefit liabilities			11.0				41.1
Product warranty and self-insured risks			3.8				4.8
Pension liabilities			25.9				25.2
Other			6.8				6.5
Total liabilities			326.9				303.7
Stockholders’ Equity
Class A common stock, $1 par value; authorized 75,000,000 shares; issued and outstanding 13,401,938 shares in 2010 and 2009			13.4				13.4
Class B common stock, $1 par value; authorized 25,000,000 shares; issued and outstanding 5,077,746 shares in 2010 and 2009			5.1				5.1
Paid in capital			11.0				11.0
Retained earnings			354.2				411.0
Accumulated other comprehensive income			51.2				22.9
Total stockholders’ equity			434.9				463.4
Total liabilities and stockholders’ equity		$	761.8			$	767.1

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

		For the Years Ended December 31,
(in millions)		2010				2009				2008
Cash Flows from Operating Activities:
Net loss		$	(56.8	)		$	(93.4	)		$	(50.5	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			39.3				44.8				42.4
Amortization of debt-issuance costs			1.1				0.4				0.1
Impairment of long-lived assets and goodwill			—				1.2				32.4
Gain on sale of discontinued operations			—				—				(7.9	)
Loss (gain) on disposal of property and equipment			0.6				1.8				(4.6	)
Non-cash settlement of hourly pension plan reversion			29.4				—				—
Non-cash curtailment of post-retirement benefits			(7.0	)			—				—
Deferred income taxes			(15.8	)			(1.4	)			5.8
Share based compensation			1.5				0.8				1.4
Investment impairment			0.4				—				—
Changes in operating assets and liabilities:
Accounts receivable			(47.8	)			21.3				(10.9	)
Inventories			(41.1	)			34.4				8.3
Payables and accrued expenses			22.9				6.4				(28.4	)
Employee retirement benefits			(4.8	)			(12.7	)			29.5
Hourly pension plan reversion			54.5				—				—
Recoverable non income tax			(22.7	)			(4.9	)			55.2
Other			0.3				2.9				(2.2	)
Cash provided by (used in) operating activities			(46.0	)			1.6				70.6
Cash Flows from Investing Activities:
Capital expenditures			(9.2	)			(7.9	)			(8.0	)
Short and long term investments			4.1				0.6				0.2
Change in restricted cash and cash equivalents			(4.1	)			2.1				(5.7	)
Proceeds (payments made) from sale of assets			0.2				(13.1	)			23.2
Cash provided by (used in) investing activities			(9.0	)			(18.3	)			9.7
Cash Flows from Financing Activities:
Debt issuance / amendment costs			—				—				(1.6	)
Proceeds from long-term debt			14.7				—				—
Other borrowings (repayments), net			16.8				(7.8	)			(21.8	)
Cash provided by (used in) financing activities			31.5				(7.8	)			(23.4	)
Effect of Exchange Rate Changes on Cash			(1.3	)			2.1				(20.6	)
Increase (decrease) in cash and cash equivalents			(24.8	)			(22.4	)			36.3
Cash and Cash Equivalents:
Beginning of Period			90.7				113.1				76.8
End of Period		$	65.9			$	90.7			$	113.1
Supplemental Schedule of Noncash Investing and Financing Activities:
Cash paid for interest		$	8.7			$	11.9			$	21.0
Cash paid (refunds received) for taxes		$	0.2			$	(13.9	)		$	6.8

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

TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

(in millions)

																		Accumulated
		Class A				Class B												Other				Total
		$1 Par				$1 Par				Paid in				Retained				Comprehensive				Stockholders’
		Value				Value				Capital				Earnings				Income/(Loss)				Equity
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																							(177.6	)
Change in pension measurement date															7.0								7.0
Postretirement and postemployment benefits (net of tax of $0.6)(see Note 5)																			(97.9	)			(97.9	)
Balance, December 31, 2008		$	13.4			$	5.1			$	11.0			$	504.4			$	(56.5	)		$	477.4
Net loss															(93.4	)							(93.4	)
Gain on derivatives (net of tax of $14.6)																			35.7				35.7
Translation adjustments (net of tax of $1.0)																			63.1				63.1
Total Comprehensive Income																							5.4
Postretirement and postemployment benefits (net of tax of $0.0)(see Note 5)																			(19.4	)			(19.4	)
Balance, December 31, 2009		$	13.4			$	5.1			$	11.0			$	411.0			$	22.9			$	463.4
Net loss															(56.8	)							(56.8	)
Loss on derivatives (net of tax of $0.9)																			(0.2	)			(0.2	)
Translation adjustments (net of tax of $1.5)																			8.0				8.0
Total Comprehensive Loss																							(49.0	)
Postretirement and postemployment benefits (net of tax of $12.2)(see Note 5)																			20.5				20.5
Balance, December 31, 2010		$	13.4			$	5.1			$	11.0			$	354.2			$	51.2			$	434.9

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

NOTE 1. Accounting Policies

Business Description — Tecumseh Products Company (the “Company”) is a global manufacturer of hermetically sealed compressors for (i) commercial refrigeration applications, including walk-in coolers and freezers, ice makers, dehumidifiers, water coolers, food service equipment and refrigerated display cases and vending machines; (ii) household refrigerator and freezer applications; and (iii) residential and specialty air conditioning and heat pump applications, including window air conditioners, packaged terminal air conditioners and recreational vehicle and mobile air conditioners.

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. 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 Europe S.A., and Tecumseh Products India Private Ltd. All significant intercompany transactions and balances have been eliminated.

Foreign Currency Translation and Transaction Gains and Losses — The financial position and operating results of substantially all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses are included as a component of accumulated other comprehensive income, a separate component of stockholders’ equity. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in the consolidated statement of operations.

Cash and Cash Equivalents and Restricted Cash and Cash Equivalents — 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.

We also had restricted cash of $14.6 million at December 31, 2010 and $10.5 million at December 31, 2009. At December 31, 2010, approximately $6.4 million of these funds are restricted to secure letters of credit, guarantee availability of funds for ACH transactions and derivative obligations. The remaining balance of $8.2 million will be used to fund both our defined benefit and defined contribution retirement plans for approximately the next four to six years.

Cash and cash equivalents outside of North America locations amounted to $27.0 million and $49.3 million at December 31, 2010 and 2009, respectively.

We maintain cash balances at various high credit quality financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to certain limits. The company’s balances exceeded these limits. The Company does not consider this a material risk.

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 consolidated balance sheets 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 (loss) as a separate component of stockholders’ equity until realized or until a decline in fair value is determined to be other than temporary.

Accounts Receivable — Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company determines its allowance by 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.

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.

Property, Plant and Equipment — Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance and any gains or losses on disposition are included in operations. Depreciation is recorded on a straight-line basis to allocate the cost of depreciable assets and leasehold improvements over their estimated service lives, which generally range from 15 to 40 years for buildings and from 2 to 12 years for machinery, equipment and tooling.

Impairment of Long-Lived Assets — We review our long-lived assets for possible impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. 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.

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, coincides 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 sales.

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 — In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in foreign exchange rates and commodity prices using financial instruments deemed appropriate by management. As part of its risk management strategy, the Company may use derivative instruments, including currency forward exchange contracts and options, and commodity futures contracts to hedge certain foreign exchange exposures and commodity prices. The Company’s objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, respectively, thereby reducing volatility of earnings and protecting fair values of assets and liabilities. Derivative positions are used only to manage underlying exposures of the Company. The Company does not use derivative financial instruments for speculative purposes. The Company formally designates and documents all of its hedging relationships as either fair value hedges or cash flow hedges, as applicable, although all of our current commodity futures contracts are cash flow hedges, and documents the strategy for undertaking the hedge transactions and its method of assessing ongoing effectiveness. The Company applies hedge accounting based upon the criteria established by United States generally accepted accounting principles and records all derivative instruments at fair value. Changes in the fair value (i.e., gains or losses) of the derivatives are recorded each period in the consolidated statements of operations or other comprehensive income (loss). For a derivative designated as a cash flow hedge, the gain or loss on the derivative is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into the statement of operations when the hedged transaction affects earnings. For a derivative designated as a fair value hedge, the gain or loss on the derivative in the period of change and the offsetting loss or gain of the hedged item attributed to the hedged risk are recognized in the statement of operations. See Note 15 for a description of derivative instruments.

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 twelve months to three years from date of manufacture.

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 generally accepted accounting principles. Liabilities are not discounted or reduced for possible recoveries from insurance carriers.

Earnings (Loss) Per Share — Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if warrants to issue common stock were exercised. Due to net losses recorded from continuing operations, an outstanding warrant issued to a former lender is not included in diluted loss per share for the years ended December 31, 2010, 2009, and 2008 as the effect would be antidilutive.

Research, Development and Testing Expenses — Company sponsored research, development and testing expenses related to present and future products are expensed as incurred and were $18.6 million, $17.7 million, and $20.4 million in 2010, 2009 and 2008, respectively. Such expenses consist primarily of salary and material costs and are included in selling and administrative expenses.

Share-Based Compensation — The Company accounts for share-based compensation using fair value for awards issued (See Note 11).

Reclassification — In the fourth quarter of 2009, the Company changed its plans and decided not to sell its Paris, Tennessee facility, which was previously classified as held for sale. As a result of the Company’s decision, the asset has been reclassified as held and used at its carrying value, adjusted for depreciation expense as if the asset has been continuously classified as held and used, which approximates fair value. Results of operations for the prior periods have been restated to report the Paris, Tennessee facility as a continuing operation (See Note 2).

Estimates — Management is required to make certain estimates and assumptions in preparing the consolidated financial statements in accordance with U.S. GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings or losses during any period. Actual results could differ from those estimates. Significant estimates and assumptions used in the preparation of the accompanying consolidated financial statements include those related to: accruals for product warranty, deferred tax assets, self-insured risks, pension and postretirement benefit obligations and environmental matters, as well as the evaluation of long-lived asset impairments and determination of stock based compensation.

NOTE 2. Discontinued Operations

In 2007 and 2008, we completed the sale of the majority of our noncore businesses in our Electrical Components (Residential & Commercial, Asia Pacific and Automotive & Specialty), Engine and Power Train and Other (MP Pumps and Manufacturing Data Systems) operating segments. In addition, in June 2009, we completed the liquidation of a small division previously classified as held for sale for $0.6 million in gross proceeds. As described in Note 1, results of operations for prior periods have been restated to report the Paris, Tennessee operation, previously reported in discontinued operations as a continuing operation.

The Company continues to incur legal fees, settlements and other expenses (recorded in the table below in impairments, restructuring charges, and other items) as purchasers of these businesses continue to seek adjustments to purchase price through provisions in the agreements, as well as post-retirement benefit curtailments and settlements as the Company continues to review its post-retirement obligations.

The net revenues and net losses for the aforementioned discontinued operations for the applicable periods are as follows:

		Years Ended December 31,
(in millions)		2010				2009				2008
Net sales		$	—			$	0.8			$	11.5
Cost of sales			—				0.6				8.9
Selling and administrative expenses			—				0.5				1.0
Impairments, restructuring charges, and other items			(3.4	)			1.3				(34.2	)
Income (loss) from discontinued operations before income taxes			3.4				(1.6	)			35.8
Income taxes on discontinued operations			1.6				—				8.3
Income (loss) from discontinued operations after income taxes		$	1.8			$	(1.6	)		$	27.5

For the year ended December 31, 2010, impairments, restructuring charges and other items in the table above were ($3.4) million, which primarily relates to a non-cash curtailment gain of $6.6 million as a result of terminating post retirement benefits for a sold business, partially offset by $1.4 million related to our Grafton and New Holstein facilities (formerly of the Engine and Power Train Group) for environmental accruals ($1.0 million) and operating costs ($0.4 million) and $1.8 million for legal fees and settlements for other sold businesses.

For the year ended December 31, 2009, impairments, restructuring charges and other items in the table above were $1.3 million. We received $5.9 million of amounts previously held in escrow related to the sale of the Residential & Commercial portion of the Electrical Component business and a reversal of accrued costs that are no longer expected to be incurred for the TMT Motoco plant of $1.7 million. These gains were offset by various items which included settlement for the horsepower lawsuit of $6.2 million, product liability and workers’ compensation expense of $1.0 million and legal fees and other of $1.7 million.

For the year ended December 31, 2008, impairments, restructuring charges and other items in the table above included curtailment gains on our salaried retirement other postretirement benefit plans of $44.7 million and a gain of $7.9 million related to the sale of MP Pumps. These gains were offset in part by a $13.1 million working capital adjustment to settle a dispute with the purchaser of one of the Engine Power Train businesses, as well as other expenses incurred post-closing including legal fees, adjustments to the workers’ compensation obligation, and other miscellaneous expenses totaling $5.3 million.

Our Grafton facility, an asset held from our former Engine and Power Train Group, is classified as held for sale on our consolidated balance sheet under the caption “other current assets” in the amount of $0.5 million.

NOTE 3. Inventories

The components of inventories at December 31 were:

(in millions)		2010				2009
Raw materials, net of reserves		$	79.0			$	54.9
Work in progress			1.0				4.3
Finished goods, net of reserves			71.5				50.4
		$	151.5			$	109.6

Raw materials are net of a $3.5 million and $3.4 million reserve for obsolete and slow moving inventory at December 31, 2010 and December 31, 2009, respectively. Finished goods are net of a $2.2 million and $1.8 million reserve for obsolete and slow moving inventory and lower of cost or market at December 31, 2010 and December 31, 2009, respectively.

NOTE 4. Property, Plant and Equipment, net

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

		December 31,
(in millions)		2010				2009
Land and land improvements		$	16.3			$	16.5
Buildings			97.4				107.5
Machinery and equipment			892.0				892.1
			1,005.8				1,016.1
Less accumulated depreciation			776.0				759.4
			229.8				256.7
Construction in process			5.1				3.0
Property, plant and equipment, net		$	234.9			$	259.7

Depreciation expense associated with property, plant and equipment was $39.3 million, $44.8 million and $42.4 million for the years ended December 31, 2010, 2009, and 2008, respectively.

NOTE 5. 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 used to sponsor retiree health care benefits 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. The retiree health care plans are contributory, with 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 other post-retirement benefits. Information regarding the funded status and net periodic benefit costs was reconciled to or stated as of the year end of December 31.

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

		Pension Benefit								Other Benefit
(in millions)		2010				2009				2010				2009
Noncurrent pension assets		$	9.5			$	80.3			$	—			$	—
Liability — current			—				—				(1.3	)			(3.7	)
Liability — long term			(25.9	)			(25.2	)			(11.0	)			(41.1	)
Accumulated other comprehensive income:
Prior service credit		$	0.2			$	(3.1	)		$	(48.3	)		$	(20.0	)
Net actuarial loss (gain)			28.6				43.4				(25.7	)			(32.8	)
Total postretirement and postemployment benefits		$	28.8			$	40.3			$	(74.0	)		$	(52.8	)