<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT of 1934
      For the quarterly period ended June 30, 2006

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT of 1934
      For the transition period from ______to ______

                          COMMISSION FILE NUMBER: 0-452

                              TECUMSEH PRODUCTS COMPANY
                (Exact name of registrant as specified in its charter)

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

         100 EAST PATTERSON STREET
            TECUMSEH, MICHIGAN                              49286
 (Address of Principal Executive Offices)                (Zip Code)

               Registrant's telephone number, including area code:
                                 (517) 423-8411

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 [X]   No [ ]

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

  Large accelerated filer [ ]  Accelerated filer [X]  Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

  Yes [ ]   No [X]

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

                 Class of Stock               Outstanding at July 31, 2006
      -------------------------------------   ----------------------------
      Class B Common Stock, $1.00 par value              5,077,746
      Class A Common Stock, $1.00 par value             13,401,938

                                                                          Page 1
<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
 Part I.  Financial Information
     Item 1. Financial Statements
         Consolidated Condensed Balance Sheets........................    3
         Consolidated Condensed Statements of Operations..............    4
         Consolidated Condensed Statements of Cash Flows..............    5
         Notes to Consolidated Condensed Financial Statements.........    6
     Item 2.Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................    19
     Item 3.Quantitative and Qualitative Disclosures About Market Risk    35
     Item 4.Controls and Procedures...................................    37
 Part II.  Other Information..........................................    39
 Signatures ..........................................................    40
 Certification of CEO Pursuant to Section 302.........................    Exh 31.1
 Certification of CFO Pursuant to Section 302.........................    Exh 31.2
 Certification of CEO Pursuant to Section 906.........................    Exh 32.1
 Certification of CFO Pursuant to Section 906.........................    Exh 32.2
</TABLE>


                                                                          Page 2

<PAGE>


                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART I. FINANCIAL INFORMATION - ITEM 1
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                             JUNE 30,      December 31,
(Dollars in millions, except share data)                      2006             2005
                                                              ----             ----

<S>                                                          <C>           <C>
ASSETS
Current Assets:
  Cash and cash equivalents                                    $104.5          $116.6
  Accounts receivable, less allowance for doubtful
   accounts of $11.9 in 2006 and $11.3 in 2005                  254.4           211.1
  Inventories                                                   349.6           346.8
  Deferred and recoverable income taxes                          34.4            43.4
  Other current assets                                           61.8            89.2
                                                             --------        --------
      Total current assets                                      804.7           807.1

Property, plant, and equipment, net                             584.7           578.6
Goodwill                                                        125.5           130.9
Other intangibles                                                54.9            54.8
Prepaid pension expense                                         192.1           185.3
Other assets                                                    102.0            43.8
                                                             --------        --------
      Total assets                                           $1,863.9        $1,800.5
                                                             ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable, trade                                      $209.3          $187.3
  Short-term borrowings                                         135.8            82.5
  Accrued liabilities                                           140.6           135.3
                                                             --------        --------
      Total current liabilities                                 485.7           405.1

Long-term debt                                                  221.4           283.0
Deferred income taxes                                            20.8            25.0
Other postretirement benefit liabilities                        210.0           210.9
Product warranty and self-insured risks                          12.0            14.5
Pension liabilities                                              16.0            15.2
Other non-current liabilities                                    37.1            32.4
                                                             --------        --------
      Total liabilities                                       1,003.0           986.1
                                                             --------        --------
Commitments and contingencies
Stockholders' Equity
  Class A common stock, $1 par value; authorized
   75,000,000 shares; issued and outstanding
   13,401,938 shares in 2006 and 2005                            13.4            13.4
  Class B common stock, $1 par value; authorized
   25,000,000 shares; issued and outstanding
   5,077,746 shares in 2006 and 2005                              5.1             5.1
  Retained earnings                                             830.7           806.6
  Accumulated other comprehensive income (loss)                  11.7           (10.7)
                                                             --------        --------
      Total stockholders' equity                                860.9           814.4
                                                             --------        --------
      Total liabilities and stockholders' equity             $1,863.9        $1,800.5
                                                             ========        ========
</TABLE>


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


                                                                          Page 3

<PAGE>


                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART I. FINANCIAL INFORMATION - ITEM 1
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED      SIX MONTHS ENDED
                                                    JUNE 30,               JUNE 30,
(Dollars in millions, except per share data)    2006       2005        2006       2005
                                                ----       ----        ----       ----
<S>                                            <C>        <C>         <C>       <C>
Net sales                                      $456.3     $432.8     $902.4     $873.0
  Cost of sales                                 432.3      402.2      843.9      815.1
  Selling and administrative expenses            44.3       40.9       89.5       84.2
  Impairments, restructuring charges, and
  other items                                     5.0      109.8        5.6      109.9
                                               ------    -------     ------    -------
Operating loss                                  (25.3)    (120.1)     (36.6)    (136.2)
  Interest expense                              (11.0)      (5.5)     (19.4)     (11.6)
  Interest income and other, net                  2.9        1.7        7.9        5.0
                                               ------    -------     ------    -------
Loss from continuing operations before          (33.4)    (123.9)     (48.1)    (142.8)
 taxes
  Tax provision (benefit)                        (4.3)       0.4       (9.9)      (6.1)
                                               ------    -------     ------    -------
  Loss from continuing operations               (29.1)    (124.3)     (38.2)    (136.7)
  Income from discontinued operations, net
  of tax                                         62.8        1.8       62.3        1.9
                                               ------    -------     ------    -------
Net income (loss)                               $33.7    ($122.5)     $24.1    ($134.8)
                                               ======    =======     ======    =======

Basic and diluted earnings (loss) per share
  Loss from continuing operations              ($1.58)    ($6.73)    ($2.07)    ($7.40)
  Income from discontinued operations, net
  of tax                                        $3.40      $0.10      $3.37      $0.10
                                               ------    -------     ------    -------
Net income (loss) per share                     $1.82     ($6.63)     $1.30     ($7.30)
                                               ======    =======     ======    =======

Weighted average shares (in thousands)         18,480     18,480     18,480     18,480
                                               ======    =======     ======    =======

Cash dividends declared per share               $0.00      $0.32      $0.00      $0.64
                                               ======    =======     ======    =======
</TABLE>


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

                                                                          Page 4
<PAGE>


                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART I. FINANCIAL INFORMATION - ITEM 1
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
(Dollars in millions)                                              JUNE 30,
                                                             -------------------
                                                              2006         2005
                                                              ----         ----

<S>                                                          <C>          <C>
Cash Flows from Operating Activities:
   Cash used by operating activities                         ($93.8)      ($55.5)

Cash Flows from Investing Activities:
  Proceeds from sale of assets                                130.9          1.1
  Capital expenditures                                        (32.8)       (60.5)
  Business acquisition                                         (2.0)          --
                                                             ------        -----
   Cash provided by (used in) investing activities             96.1        (59.4)
                                                             ------        -----
Cash Flows from Financing Activities:
  Dividends paid                                                 --        (11.8)
  Repayment of Senior Guaranteed Notes                       (250.0)       (50.0)
  Repayment of Industrial Development Revenue Bonds           (10.5)          --
  Proceeds from First Lien Credit Agreement, net              133.1           --
  Proceeds from Second Lien Credit Agreement                  100.0           --
  Repayments of Second Lien Credit Agreement                  (45.1)          --
  Other borrowings, net                                        57.2         35.8
                                                             ------        -----
   Cash used in financing activities                          (15.3)       (26.0)
                                                             ------        -----

Effect of exchange rate changes on cash                         0.9        (12.0)
                                                             ------        -----

  Decrease in cash and cash equivalents                       (12.1)      (152.9)

Cash and Cash Equivalents:
   Beginning of period                                        116.6        227.9
                                                             ------        -----
   End of period                                             $104.5        $75.0
                                                             ======        =====
</TABLE>


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


                                                                          Page 5

<PAGE>


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

1.    The consolidated condensed financial statements of Tecumseh Products
      Company and Subsidiaries (the "Company") are unaudited and reflect all
      adjustments (including normal recurring adjustments) which are, in the
      opinion of management, necessary for a fair statement of the financial
      position and operating results for the interim periods. The December 31,
      2005 consolidated condensed balance sheet data was derived from audited
      financial statements, but does not include all disclosures required by
      generally accepted accounting principles in the United States ("U.S.
      GAAP"). The consolidated condensed financial statements should be read in
      conjunction with the consolidated financial statements and notes thereto
      contained in the Company's Annual Report for the fiscal year ended
      December 31, 2005. Due to the seasonal nature of the Company's business,
      the results of operations for the interim period are not necessarily
      indicative of the results for the entire fiscal year.

2.    Comprehensive Income

<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED     SIX MONTHS ENDED
                                              JUNE 30,              JUNE 30,
(Dollars in millions)                      2006      2005        2006      2005
                                           ----      ----        ----      ----
<S>                                      <C>       <C>          <C>      <C>
Net income (loss)                          $33.7   ($122.5)      $24.1   ($134.8)
Other comprehensive income (loss):
  Foreign currency translation
  adjustments                                5.7      22.1        28.8      15.6
  Gain (Loss) on derivatives                (1.7)     13.2        (2.6)     17.0
  Unrealized gain (loss) on investment
  holdings                                    --        --        (0.2)      3.8
  Less:  Reclassification adjustment
  for gains realized
  in net income                              --         --        (3.6)      --
                                           =====   =======       =====   =======
Total comprehensive income (loss)          $37.7    ($87.2)      $46.5    ($98.4)
                                           =====   =======       =====   =======
</TABLE>

3.    Inventories

<TABLE>
<CAPTION>
                                                       JUNE 30,     DECEMBER 31,
(Dollars in millions)                                   2006           2005
                                                        ----           ----
<S>                                                    <C>          <C>
Raw material                                           $143.5          $128.5
Work in progress                                         74.7            73.3
Finished goods                                          124.1           136.7
Supplies                                                  7.3             8.3
                                                       ------          ------
Total inventories                                      $349.6          $346.8
                                                       ======          ======
</TABLE>


                                                                          Page 6

<PAGE>

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

4.    Business Segments

      The Company has three reportable segments based on the criteria set forth
      in SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
      Information": Compressor Products, Electrical Component Products, and
      Engine & Power Train Products. Previously, the Company also reported a
      Pump Products business segment; however, as a result of the decision,
      during the first quarter of 2006, to sell 100% of its ownership in Little
      Giant Pump Company, such operations are no longer reported in loss from
      continuing operations before tax. Little Giant operations represented
      approximately 90% of that previously reported segment. Since the Company's
      remaining pump business does not meet the definition of a reporting
      segment as defined by SFAS No. 131, "Segment Reporting," the Company will
      no longer report a Pump Products segment, and operating results of the
      remaining pump business are included in Other for segment reporting
      purposes. Revenues and operating income by segment for the periods
      indicated are as follows:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED   SIX MONTHS ENDED
BUSINESS SEGMENT DATA                                  JUNE 30,             JUNE 30,
(Dollars in millions)                               2006     2005       2006      2005
                                                    ----     ----       ----      ----
<S>                                               <C>      <C>        <C>       <C>
Net sales:
   Compressor Products                             $273.3   $247.6     $524.8    $488.6
   Electrical Component Products                    106.9    102.4      216.0     202.6
   Engine & Power Train Products                     71.5     78.7      152.4     173.6
   Other (a)                                          4.6      4.1        9.2       8.2
                                                   ------  -------     ------   -------
     Total Net Sales                               $456.3   $432.8     $902.4    $873.0
                                                   ======  =======     ======   =======
Operating income (loss):
   Compressor Products                              ($3.8)    $7.4       $2.8     $16.0
   Electrical Component Products                     (1.7)     0.2        3.2      (0.8)
   Engine & Power Train Products                    (11.2)   (15.5)     (29.7)    (36.4)
   Other (a)                                          0.4      0.2        0.7        --
   Corporate expenses                                (4.0)    (2.6)      (8.0)     (5.1)
   Impairments, restructuring charges,
    and other items                                  (5.0)  (109.8)      (5.6)   (109.9)
                                                   ------  -------     ------   -------
     Total operating loss from
       continuing operations                        (25.3)  (120.1)     (36.6)   (136.2)
   Interest expense                                 (11.0)    (5.5)     (19.4)    (11.6)
   Interest income and other, net                     2.9      1.7        7.9       5.0
                                                   ------  -------     ------   -------
   Loss from continuing operations before taxes    ($33.4) ($123.9)    ($48.1)  ($142.8)
                                                   ======  =======     ======   =======
</TABLE>


(a)   "Other" consists of non-reportable business segments.

      The Electrical Component Products segment had inter-segment sales of $13.2
      million and $13.7 million in the second quarter of 2006 and 2005,
      respectively.


                                                                          Page 7

<PAGE>

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

5.    Goodwill and Other Intangible Assets

      At June 30, 2006, goodwill by segment consisted of the following:

<TABLE>
<CAPTION>
                                          ELECTRICAL
                            COMPRESSOR    COMPONENTS       PUMPS        TOTAL
                            ----------    ----------       -----        -----
<S>                         <C>           <C>              <C>          <C>
Balance at 1/1/2006            $16.9        $108.9         $5.1         $130.9
  Sale of Little Giant
  Pump Company                    --            --         (5.1)          (5.1)
  Foreign Currency
  Translation                    0.7          (1.0)          --           (0.3)
                               -----        ------         ----         ------
Balance at 6/30/2006           $17.6        $107.9           --         $125.5
                               =====        ======         ====         ======
</TABLE>

      At June 30, 2005, goodwill by segment consisted of the following:

<TABLE>
<CAPTION>
                                        ELECTRICAL    ENGINE &
                            COMPRESSOR  COMPONENTS  POWER TRAIN   PUMPS     TOTAL
                            ----------  ----------  -----------   -----     -----

<S>                         <C>         <C>         <C>           <C>      <C>
Balance at 1/1/2005           18.6        216.9          2.9       5.1      243.5
  Impairment                    --       (108.0)          --        --     (108.0)
  Foreign Currency
  Translation                 (1.3)          --         (0.3)       --       (1.6)
                              ----        -----          ---       ---      -----
Balance at 6/30/2005          17.3        108.9          2.6       5.1      133.9

</TABLE>


      Second quarter 2005 results include an impairment charge of $108.0 million
      related to the goodwill associated with the 2002 acquisition of FASCO
      (which is included in the Electrical Components segment). As previously
      disclosed, the failure to achieve the business plan, coupled with expected
      future market conditions, caused the Company to revisit the assumptions
      utilized to determine FASCO's estimated fair value in the impairment
      assessment performed at December 31, 2004. The deterioration of sales
      volumes and the Company's inability to recover higher commodity and
      transportation costs through price increases resulted in revised expected
      cash flows for FASCO.

      The Company estimated the fair value of the reporting unit as compared to
      its recorded book value. Since the estimated fair value was less than the
      book value, an impairment was deemed to have occurred. In estimating the
      fair value of the reporting units, management used forecasted discounted
      cash flows. The Company measured the amount of goodwill impairment by
      allocating the estimated fair value to the tangible and intangible assets
      within this reporting unit. Based on this allocation, $108.0 million of
      the recorded goodwill in the FASCO reporting unit was impaired and charged
      to continuing operations. Prior to performing the impairment analysis,
      management assessed long lived assets for impairment and concluded these
      assets were not impaired.


                                                                          Page 8


<PAGE>

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

Other intangible assets consisted of the following:

<TABLE>
<CAPTION>                                         GROSS
                                                CARRYING    ACCUMULATED            AMORTIZABLE
                                                 AMOUNT    AMORTIZATION     NET       LIFE
                                                 ------    ------------     ---       ----
<S>                                             <C>        <C>             <C>     <C>
Intangible assets subject to amortization:
  Customer relationships and contracts             $39.3       $9.4        $29.9     6-15 years
  Technology                                        12.0        3.9          8.1     5-10 years
                                                   -----      -----        -----
    Total                                           51.3       13.3         38.0
Intangible assets not subject to amortization:
  Trade name                                        16.9         --         16.9
                                                   -----      -----        -----
Total intangible assets                            $68.2      $13.3        $54.9
                                                   =====      =====        =====
</TABLE>

      The estimated amortization expense over the next five years is $4.2
      million for 2006 through 2008 and approximately $3.9 million annually for
      2009 through 2010. Amortization expense for the three months ended June 30
      was $1.0 million and $1.3 million for 2006 and 2005, respectively.
      Amortization expense for the six months ended June 30 was $1.9 million and
      $2.6 million for 2006 and 2005, respectively.

      As a result of the acquisition of In Motion Technologies Pty. Ltd. (IMT),
      in the first quarter 2006, the Company recorded an additional technology
      intangible asset of $2.0 million.


                                                                          Page 9
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

6.    Pension and Other Postretirement Benefit Plans

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

<TABLE>
<CAPTION>
                                              PENSION BENEFITS      OTHER BENEFITS
                                              ----------------      --------------
                                             THREE MONTHS ENDED   THREE MONTHS ENDED
                                                 JUNE 30,              JUNE 30,
                                               2006      2005       2006      2005
                                              ----------------      --------------
<S>                                           <C>      <C>          <C>       <C>
      Service Cost                             $2.4       $2.3      $0.8      $1.3
      Interest Cost                             5.3        5.4       2.4       2.8
      Expected return on plan assets          (11.1)     (10.5)       --        --
      Amortization of prior service costs       0.1        0.1      (1.2)     (0.3)
      Amortization of net gain                   --       (0.6)       --      (0.8)
                                              -----    -------      ----      ----
      Net periodic benefit (income) cost      ($3.3)     ($3.3)     $2.0      $3.0
                                              =====    =======      ====      ====
</TABLE>

<TABLE>
<CAPTION>
                                              PENSION BENEFITS      OTHER BENEFITS
                                              ----------------      --------------
                                              SIX MONTHS ENDED     SIX MONTHS ENDED
                                                 JUNE 30,              JUNE 30,
                                               2006      2005       2006      2005
                                              ----------------      --------------
<S>                                           <C>      <C>          <C>       <C>
      Service Cost                             $4.8     $4.6        $1.6      $2.6
      Interest Cost                            10.6     10.8         4.8       5.6
      Expected return on plan assets          (22.2)   (21.0)         --        --
      Amortization of prior service costs       0.2      0.2        (2.4)     (0.6)
      Amortization of net gain                   --     (1.2)         --      (1.6)
                                              -----    -------      ----      ----
      Net periodic benefit (income) cost      ($6.6)   ($6.6)       $4.0      $6.0
                                              =====    =======      ====      ====
</TABLE>

      During the second quarter of 2005, the Company announced some changes to
      certain of its retiree medical benefits. Included among these changes were
      plans to phase in retiree contributions and raise plan deductibles (both
      as of January 1, 2006). The Company also implemented plans to eliminate
      Post-65 prescription drug benefits starting January 1, 2008 and
      discontinue all retiree medical benefits for anyone hired after January 1,
      2006.

      As the result of the sale of Little Giant Pump Company and an associated
      curtailment of pension and retiree benefits of its employees, the Company
      will recognize a gain of $8.5 million in the third quarter 2006. In
      addition, future pension and retiree health care expense will decrease by
      $0.3 million per quarter.

      The Company does not expect to contribute to its pension plans in 2006.

                                                                         Page 10
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

7.    Guarantees and Warranties

      A portion of accounts receivable at the Company's Brazilian subsidiary are
      sold with recourse. Brazilian receivables sold at June 30, 2006 and
      December 31, 2005 were $48.2 million and $32.1 million, respectively. The
      Company estimates the fair value of the contingent liability related to
      these receivables to be $0.5 million, which is included in operating
      income and allowance for doubtful accounts.

      Reserves are recorded on the Consolidated Balance Sheet to reflect the
      Company's contractual liabilities relating to warranty commitments to
      customers. Warranty coverage is provided for a period of twenty months to
      two years from date of manufacture for compressors; ninety days to three
      years from date of purchase for electrical components; one year from date
      of delivery for engines and one year from date of sale for pumps. An
      estimate for warranty expense is recorded at the time of sale, based on
      historical warranty return rates and repair costs.

      Changes in the carrying amount and accrued product warranty costs for the
      six months ended June 30, 2006 are summarized as follows:

<TABLE>
<CAPTION>
                                                     Six Months      Six Months
      (Dollars in millions)                            Ended           Ended
                                                   June 30, 2006   June 30, 2005
                                                   -------------   -------------
<S>                                                <C>             <C>
      Balance at January 1                                 $29.4           $38.1
        Settlements made (in cash or in kind)               (7.6)          (12.1)
        Current year accrual                                 5.4             6.7
        Adjustments to preexisting warranties                2.8            (1.4)
        Effect of foreign currency translation               0.2            (0.4)
        Sale of Little Giant Pump Company                   (2.7)             --
                                                   -------------   -------------
      Balance at June 30                                   $27.5           $30.9
                                                   =============   =============
</TABLE>

      At June 30, 2006, $23.1 million was included in current liabilities and
      $4.4 million was included in noncurrent liabilities.

8.    Debt

      During the first quarter of 2006, the Company's Senior Guaranteed Notes
      and Revolving Credit Facility outstanding at December 31, 2005 were
      replaced by a new financing package that included a $275 million First
      Lien Credit Agreement and a $100 million Second Lien Credit Agreement. The
      agreements provide for security interests in substantially all of the
      Company's assets and specific quarterly financial covenants related to
      EBITDA (as defined under the agreement which provides adjustments for
      certain items and hereafter referred to as "Adjusted EBITDA"), capital
      expenditures, and fixed charge coverage. The Adjusted EBITDA covenant is
      applicable through September 30, 2007 and thereafter the fixed charge
      coverage covenant applies. The Company was required to have Adjusted
      EBITDA of at least $27.0 million and capital expenditures not to exceed
      $125.0 million for the twelve months ended June 30, 2006. The Company is
      currently in compliance with the covenants of the debt agreement,
      including the minimum Adjusted EBITDA and capital expenditure limits. The
      Adjusted EBITDA was calculated to be $27.2 million and capital
      expenditures were $86.9 million for the twelve months ended June 30, 2006.
      The Company expects that if GAAP permits it to reverse an accrual for
      Brazilian non-income taxes deemed unconstitutional by the Brazilian
      Supreme Court of $7.0 million during the third quarter, it will comply
      with its Adjusted EBITDA requirement at September 30, 2006 but that if it
      cannot reduce the accrual during this quarter, it will not be in
      compliance at September 30 unless its lenders agree to amend the credit
      agreements. It expects that its lenders would agree to such an amendment
      if requested, but there can be no assurance that this would in fact prove
      to be the case. The Company's Brazilian engine manufacturing subsidiary
      has its own financing arrangements with Brazilian banks under which it is
      required to pay principal installments of various amounts throughout the
      remainder of 2006 through 2009. Historically, the subsidiary has
      experienced negative cash flows from operations indicating that it may not
      have sufficient liquidity on its own to make all required debt repayments
      as currently scheduled. In combination with a potential new credit
      facility at one of the subsidiary's banks, the potential extension of
      maturity dates at other of the subsidiary's banks and expected future
      positive cash flows of the Engine and Transmissions Group, the Company
      expects that the subsidiary will meet its obligations in the ordinary
      course of business. However, there can be no assurance that the Company
      will be successful in achieving any or all of these goals. If the
      Brazilian engine subsidiary were to default in making any of the required
      payments, the cross-default provisions in its First and Second Lien Credit
      Agreements would be triggered, which could result in the Company no longer
      having the ability to borrow under the First Lien Credit Agreement to meet
      its ongoing operating needs, as well as acceleration of its indebtedness
      under the First and Second Lien Credit Agreements.


      Additionally, under the terms of the agreements, no dividends can be paid
      prior to December 31, 2006 and minimum amounts of credit availability are
      required before dividends can be paid thereafter. The new arrangements
      bore a weighted average annual interest rate of 9.0% based upon
      outstanding balances at closing versus the rate of 6.6% applicable to the
      $250 million Senior Guaranteed Notes.

                                                                         Page 11
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      The repayment of the Senior Guaranteed Notes, Revolving Credit Facility
      and Industrial Revenue Bonds was accounted for as an extinguishment of
      debt and $0.9 million of unamortized debt issuance costs net of
      unamortized gains from related swap agreements were written off to
      interest expense. Costs of $7.0 million associated with the origination of
      the Company's new lending arrangements were capitalized and will be
      amortized as interest expense over the terms of the agreements.

      At June 30, 2006, the Company had outstanding letters of credit of $5.5
      million. At June 30, 2006, the Company had total borrowing availability of
      $40.9 million under its $275 million First Lien Credit Agreement.

      As more fully described in Note 12, on April 21, 2006, the Company sold
      Little Giant Pump Company and proceeds from the sale were used to repay
      portions of the new debt arrangements. Approximately 63% of the proceeds
      were applied against the First Lien borrowing and 37% against the Second
      Lien borrowing. After giving affect to the repayments, the weighted
      average annual interest rate of these remaining borrowings was 8.8%.

      In addition, the Company has various borrowing arrangements at its foreign
      subsidiaries to support working capital needs and government sponsored
      lendings that provide advantageous lending rates. During the quarter, the
      Company had net proceeds from these arrangements totaling $57.2 million.

      During the second quarter, the Company entered into interest rate swap
      agreements, effectively converting $90 million (or 48% of the outstanding
      borrowings under the First and Second Lien Credit Agreements) of variable
      rate debt to fixed rate debt. Including the effect of these swap
      agreements, the effective weighted average interest rate of these
      borrowings was 8.8% at June 30, 2006.

9.    Environmental Matters

      The Company has been named by the U.S. Environmental Protection Agency
      ("EPA") as a potentially responsible party ("PRP") in connection with the
      Sheboygan River and Harbor Superfund Site in Wisconsin. The EPA has
      indicated its intent to address the site in two phases, with the Company's
      Sheboygan Falls plant site and the upper river constituting the first
      phase ("Phase I") and the middle and lower river and harbor being the
      second phase ("Phase II"). In May 2003, the Company concluded a Consent
      Decree with the EPA concerning the performance of remedial design and
      remedial action for Phase I, deferring for an unspecified period any
      action regarding Phase II.

      In March 2003, with the cooperation of the EPA, the Company and Pollution
      Risk Services, LLC ("PRS") entered into a Liability Transfer and
      Assumption Agreement (the "Liability Transfer Agreement"). Under the terms
      of the Liability Transfer Agreement, PRS assumed all of the Company's
      responsibilities, obligations and liabilities for remediation of the
      entire Site and the associated costs, except for certain specifically
      enumerated liabilities. Also, as required by the Liability Transfer
      Agreement, the Company has purchased Remediation Cost Cap insurance, with
      a 30-year term, in the amount of $100.0 million and Environmental Site
      Liability insurance in the amount of $20.0 million. The Company believes
      such insurance coverage will provide sufficient assurance for completion
      of the responsibilities, obligations and liabilities assumed by PRS under
      the Liability Transfer Agreement. On October 10, 2003, in conjunction with
      the Liability Transfer

                                                                         Page 12
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      Agreement, the Company completed the transfer of title to the Sheboygan
      Falls, Wisconsin property to PRS.

      The total cost of the Liability Transfer Agreement to the Company,
      including the cost of the insurance policies, was $39.2 million. The
      Company recognized a charge of $13.6 million ($8.7 million net of tax) in
      the first quarter of 2003. The charge consisted of the difference between
      the cost of the Liability Transfer Agreement and amounts previously
      accrued for the cleanup. The Company continues to maintain an additional
      reserve of $0.5 million to reflect its potential environmental liability
      arising from operations at the Site, including potential residual
      liabilities not assumed by PRS pursuant to the Liability Transfer
      Agreement.

      As the Liability Transfer Agreement was executed prior to the signing of
      the original Consent Decree for the Phase I work, the original Consent
      Decree was amended in the fourth quarter of 2005 to include PRS as a
      signing party. This assigns PRS full responsibility for complying with the
      terms of the Consent Decree and allows the EPA to enforce the Consent
      Decree directly with PRS. Prior to the execution of this amendment, U.S.
      GAAP required that the Company continue to record the full amount of the
      estimated remediation liability of $39.7 million and a corresponding asset
      of $39.2 million included in Other Assets in the balance sheet. With the
      subsequent amendment, the Company has removed the asset and $39.2 million
      of the liability from the balance sheet. While the Company believes the
      arrangements with PRS are sufficient to satisfy substantially all of the
      Company's environmental responsibilities with respect to the Site, these
      arrangements do not constitute a legal discharge or release of the
      Company's liabilities with respect to the Site. The actual cost of this
      obligation will be governed by numerous factors, including, without
      limitation, the requirements of the WDNR, and may be greater or lower than
      the amount accrued.

      With respect to other environmental matters, the Company has been
      voluntarily participating in a cooperative effort to investigate and
      cleanup PCB contamination in the watershed of the south branch of the
      Manitowoc River, at and downstream from the Company's New Holstein,
      Wisconsin facility. On December 29, 2004, the Company and TRC Companies
      and TRC Environmental Corporation (collectively, "TRC") entered into a
      Consent Order with the Wisconsin Department of Natural Resources (the
      "WDNR") relating to this effort known as the Hayton Area Remediation
      Project ("HARP"). The Consent Order provides a framework for the
      completion of the remediation and regulatory closure at HARP.

      Concurrently, on December 29, 2004, the Company and two of its
      subsidiaries and TRC entered into an Exit Strategy Agreement (the
      "Agreement"), whereby the Company transferred to TRC substantially all of
      its obligations to complete the HARP remediation pursuant to the Consent
      Order and in accordance with applicable environmental laws and
      regulations. TRC's obligations under the Agreement include any ongoing
      monitoring or maintenance requirements and certain off-site mitigation or
      remediation, if required. TRC will also manage any third-party remediation
      claims that might arise or otherwise be filed against the Company.

      As required by the Agreement, the Company also purchased a Pollution Legal
      Liability Select Cleanup Cost Cap Policy (the "Policy") from American
      International Specialty Lines Company. The term of the Policy is 20 years
      with an aggregate combined policy limit of $41 million. The policy lists
      the Company and TRC as named insureds and includes a number of first and
      third party coverages for remediation costs and bodily injury and property
      damage claims associated with the HARP remediation and contamination. The
      Company believes that the Policy provides additional

                                                                         Page 13
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      assurance that the responsibilities, obligations, and liabilities
      transferred and assigned by the Company and assumed by TRC under the
      Agreement will be completed. Although the arrangements with TRC and the
      WDNR do not constitute a legal discharge or release of the Company's
      liabilities, the Company believes that the specific work substitution
      provisions of the Consent Order and the broad coverage terms of the
      Policy, collectively, are sufficient to satisfy substantially all of the
      Company's environmental obligations with respect to the HARP remediation.
      The total cost of the exit strategy insured remediation arrangement to
      Tecumseh was $16.4 million. This amount included $350,000 that was paid to
      the WDNR pursuant to the Consent Order to settle any alleged liabilities
      associated with natural resource damages. The charge represented the cost
      of the agreements less what was previously provided for cleanup costs to
      which the Company had voluntarily agreed.

      The Company, in cooperation with the WDNR, also conducted an investigation
      of soil and groundwater contamination at the Company's Grafton, Wisconsin
      plant. It was determined that contamination from petroleum and degreasing
      products used at the plant were contributing to an off-site groundwater
      plume. The Company began remediation of soils in 2001 on the east side of
      the facility. Additional remediation of soils began in the fall of 2002 in
      two other areas on the plant site. At June 30, 2006, the Company had
      accrued $2.3 million for the total estimated cost associated with the
      investigation and remediation of the on-site contamination. Investigation
      efforts related to the potential off-site groundwater contamination have
      to date been limited in their nature and scope. The extent, timing and
      cost of off-site remediation requirements, if any, are not presently
      determinable.

      In addition to the above-mentioned sites, the Company is also currently
      participating with the EPA and various state agencies at certain other
      sites to determine the nature and extent of any remedial action that may
      be necessary with regard to such other sites. At June 30, 2006 and
      December 31, 2005, the Company had accrued $3.4 million and $3.5 million,
      respectively, for environmental remediation. As these matters continue
      toward final resolution, amounts in excess of those already provided may
      be necessary to discharge the Company from its obligations for these
      sites. Such amounts, depending on their amount and timing, could be
      material to reported net income in the particular quarter or period that
      they are recorded. In addition, the ultimate resolution of these matters,
      either individually or in the aggregate, could be material to the
      consolidated financial statements.

10.   Income Taxes

      The Company's provision for income taxes for the period ended June 30,
      2006 and 2005 is computed by applying an estimated annual tax rate against
      income (loss) from continuing operations for the period and is applied by
      tax jurisdiction. Under Accounting Principle Board Opinion No. 28,
      "Interim Financial Reporting", the Company is required to adjust its
      effective tax rate each three-month period to be consistent with the
      estimated annual effective tax rate. The Company is also required to
      record the tax impact of certain unusual or infrequently occurring items,
      including changes in judgment about valuation allowances and effects of
      changes in tax laws or rates, in the interim period in which they occur.

      The Company previously reported a full valuation against its net deferred
      tax assets in the U.S., which was established in the third quarter 2005.
      The full valuation allowance established against the U.S. net deferred tax
      assets was based upon the Company's cumulative history of losses from U.S.
      operations and the lack of positive evidence about future events that
      would produce sufficient

                                                                         Page 14
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      U.S. source income to allow for their recovery. For the three and six
      month periods ended June 30, 2006, the Company continued to report losses
      in the U.S. from continuing operations; therefore, income taxes for the
      same period included the impact of maintaining a full valuation allowance
      against the Company's net deferred tax assets in the U.S. For the same
      three and six month periods ended June 30, 2006, the Company also
      recognized other U.S. income in the form of other comprehensive income and
      income from discontinued operations that are related to the U.S.
      jurisdiction for which the recording of tax effects is required and
      provides for the realization of the tax benefit of its projected U.S.
      losses reported in the current year from continuing operations. Consistent
      with these facts, for the three and six month periods ended June 30, 2006,
      the Company has reported a tax benefit for its current year losses
      attributable to U.S. continuing operations, but this benefit is not equal
      to the tax expense reflected in discontinued operations and other
      comprehensive income reported in the same period(s).

      For the three and six month periods ended June 30, 2006 and 2005, income
      taxes also reflected the impact of foreign operations in those
      jurisdictions whose results continue to be tax effected because they are
      profitable or because they are not yet in a cumulative three year loss
      position. The Company recorded a tax benefit of $4.3 million and $9.9
      million for the three and six month periods ended June 30, 2006,
      respectively, and a tax provision of $0.4 million and a benefit of $6.1
      million for the three and six month periods ended June 30, 2005,
      respectively.

      The need to maintain valuation allowances against deferred tax assets in
      the U.S. and other foreign countries, and the existence of other
      comprehensive income and income from discontinued operations in the U.S.,
      could cause variability in the Company's quarterly and annual effective
      tax rates. Full valuation allowances will be maintained against deferred
      tax assets in the U.S. and other foreign countries until sufficient
      positive evidence exists to reduce or eliminate them. Valuation allowances
      may be established against remaining foreign deferred tax assets in Brazil
      (aggregating approximately $5.1 million) if negative evidence results in a
      determination that it is no longer more likely than not that the assets
      will be realized.

      The Company's effective income tax rate was (0.2%) for the second quarter
      and 4.4% for the first half of 2005. The Company's effective tax rate for
      the second quarter and the first half of fiscal 2005 are primarily due to
      non-deductibility of the goodwill impairment recognized in the second
      quarter of 2005.

11.   Commitments and Contingencies

      A lawsuit filed against the Company and other defendants alleges that the
      horsepower labels on the products the plaintiffs purchased were
      inaccurate. The plaintiffs seek certification of a class of all persons in
      the United States who, beginning January 1, 1995 through the present,
      purchased a lawnmower containing a two stroke or four stroke gas
      combustible engine up to 20 horsepower that was manufactured by
      defendants. The complaint seeks an injunction, compensatory and punitive
      damages, and attorneys' fees. No orders have been entered in the case, and
      there has been limited discovery. While the Company believes it has
      meritorious defenses and intends to assert them vigorously, there can be
      no assurance that the Company will prevail. The Company also may pursue
      settlement discussions. It is not possible to reasonably estimate the
      amount of the Company's ultimate liability, if any, or the amount of any
      future settlement, but the amount could be material to the Company's
      financial position, consolidated results of operations and cash flows.

      The Company is also the subject of, or a party to, a number of other
      pending or threatened legal actions involving a variety of matters,
      including class actions and asbestos-related claims, incidental to its
      business. Although their ultimate outcome cannot be predicted with
      certainty, and some may be disposed of unfavorably to the Company,
      management does not believe that the

                                                                         Page 15
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      disposition of these other matters will have a material adverse effect on
      the consolidated financial position or results of operations of the
      Company.

12.   Discontinued Operations

      On April 21, 2006, the Company completed the sale of its 100% ownership
      interest in Little Giant Pump Company for $120.7 million. Its results for
      the six months ended June 30, 2006 and 2005 are included in income (loss)
      from discontinued operations. Interest expense of $2.9 million and $2.7
      million was allocated to discontinued operations for all the periods
      presented because the Company's new financing package required that the
      proceeds from the sale be utilized to repay portions of the Company's
      debt. The Company's remaining pump business does not meet the definition
      of an operating segment as defined by SFAS No. 131, "Segment Reporting."
      Accordingly, its operating results are included in Other within the
      Results by Segment table.

                                                                         Page 16
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

      Following is a summary of income (loss) from discontinued operations for
      twenty-one days ended April 21, 2006 and the three months ended June 30,
      2005:

<TABLE>
<CAPTION>
                                                Twenty-one Days   Three Months
(Dollars in millions)                                Ended            Ended
                                                 April 21, 2006   June 30, 2005
                                                ---------------   -------------
<S>                                             <C>               <C>
Net sales                                                  $6.1           $29.1
Costs of sales                                              4.7            20.5
Selling and administrative expenses                         1.3             5.6
                                                ---------------   -------------
Operating income                                            0.1             3.0
Interest expense allocated                                  0.6             1.3
                                                ---------------   -------------
Income (Loss) from discontinued operations
before income taxes                                        (0.5)            1.7
Tax provision (benefit)                                      --            (0.1)
                                                ---------------   -------------
Income (Loss) from discontinued
operations, net of tax                                    ($0.5)           $1.8
                                                ---------------   -------------
Gain on disposal                                           69.5              --
Tax provision on gain                                       6.2              --
                                                ---------------   -------------
Gain on disposal, net                                      63.3              --
                                                ---------------   -------------
Income from discontinued operations                        62.8             1.8
                                                ===============   =============
</TABLE>

Following is a summary of income (loss) from discontinued operations for
the six months ended June 30, 2006 and 2005:

<TABLE>
<CAPTION>
                                                   Six Months      Six Months
(Dollars in millions)                                 Ended         Ended
                                                  June 30, 2006   June 30, 2005
                                                  -------------   -------------
<S>                                               <C>             <C>
Net sales                                                 $32.9           $53.3
Costs of sales                                             23.9            38.4
Selling and administrative expenses                         6.9            10.3
                                                  -------------   -------------
Operating income                                            2.1             4.6
Interest expense allocated                                  2.9             2.7
                                                  -------------   -------------
Income (Loss) from discontinued operations
before income taxes                                        (0.8)            1.9
Tax provision                                               0.2              --
                                                  -------------   -------------
Income (Loss) from discontinued operations,
net of tax                                                ($1.0)           $1.9
Gain on disposal                                           69.5              --
Tax provision on gain                                       6.2              --
                                                  -------------   -------------
Gain on disposal, net                                      63.3              --
                                                  -------------   -------------
Income from discontinued operations                        62.3             1.9
                                                  =============   =============
</TABLE>

                                                                         Page 17

<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 1
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

13.   Recently Issued Accounting Pronouncements

      Accounting for Uncertainty in Income Taxes

      In June 2006, the FASB issued Financial Interpretation No. 48 ("FIN 48"),
      "Accounting for Uncertainty in Income Taxes" an interpretation of FASB
      Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
      "Accounting for Income Taxes." This interpretation clarifies the
      accounting for income taxes recognized in accordance with SFAS 109 with
      respect to recognition and measurement for tax positions that are taken or
      expected to be taken in a tax return. FIN 48 is effective on January 1,
      2007 and the Company is currently evaluating the impact of this
      pronouncement on its consolidated financial statements.

                                                                         Page 18
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

We are one of the largest independent producers of hermetically sealed
compressors in the world, one of the world's leading manufacturers of small
gasoline engines and power train products used in lawn and garden applications,
and one of the leading manufacturers of fractional horsepower motors for the
United States market. Our net sales have grown by approximately $450 million
from the year ended December 31, 2001 to the year ended December 31, 2005. The
primary source of sales growth was our 2002 acquisition of FASCO Motors, now the
key component of our presence in the U.S. fractional horsepower motor market. In
addition, sales have grown by 4% in our Compressor segment, partially offset by
a 16% decline in our Engine & Power Train segment. Our products are sold in
countries all over the world.

In evaluating our financial condition and operating performance, we focus
primarily on profitable sales growth and cash flows, as well as return on
invested capital on a consolidated basis. In addition to maintaining and
expanding our business with our existing customers in our more established
markets, we rely on developing new products and improving our ability to
penetrate new markets through enhancements to the functionality, performance and
quality of our existing products. For instance, our Compressor Group has
introduced a scroll-style compressor to serve commercial refrigeration and air
conditioning markets throughout the globe, and it will begin producing a new
expanded range rotary compressor in India for global applications, while our
Electrical Components Group has expanded its range of Brushless DC ("BLDC")
variable speed motor products. To continue to grow sales and improve cash flows,
we must successfully bring these products to market in a timely manner and win
customer acceptance.

International sales are important to our business as a whole with sales to
customers outside the United States representing approximately 50% of total
consolidated net sales in 2005. The Company's dependence on sales in foreign
countries entails certain commercial and political risks, including currency
fluctuations, unstable economic or political conditions in some areas and the
possibility of various government interventions into trade policy. We have
experienced some of these factors and continue to carefully pursue these
markets.

Our operating results are indicative of the environment that manufacturers face
in today's global economy. The addition of new productive capacities in low-cost
locations, like China, has resulted in deflationary pricing in many of the
market segments in which we operate. Like many of our customers and competitors,
we have restructured older operations to remain cost competitive, including the
movement of productive capacities to low-cost locations or nearer to customer
facilities. These restructurings involve significant costs, in both financial
and human terms. In addition, many of our markets are subject to macroeconomics
trends, which expand and contract, and many overall trends, which affect demand,
such as weather.

The foreign manufacturing operations we have developed are subject to many
risks, including governmental expropriation, governmental regulations that may
be disadvantageous to businesses owned by foreign nationals, and instabilities
in the workforce due to changing political and social conditions. These
considerations are especially significant in the context of our Brazilian
operations. The Brazilian compressor operations provided a significant portion
of total Compressor Products

                                                                         Page 19
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

segment production during 2005, and our Curitiba, Brazil facility is the key
future manufacturing site to supply worldwide demand for lawn and garden
engines.

As a global manufacturer with production in 11 countries and sales in over 110
countries throughout the world, results are sensitive to changes in foreign
currency exchange rates. In total, those movements have not been favorable to us
during 2005 and the first six months of 2006 and have had significant adverse
effect on our results over these periods. We have developed strategies to
mitigate or partially offset the impact, primarily hedging where the risk of
loss is greatest. In particular, we have entered into foreign currency forward
purchases to hedge the Brazilian export sales denominated in both U.S. Dollars
and Euros.

Lastly, commodity prices increased very rapidly during 2004, 2005 and into 2006.
Due to competitive markets, we were not able to fully recover these cost
increases through price increases and other cost savings. Increases in certain
commodity costs have had a material adverse impact on our operating results
during these periods. For example, from January 1, 2005 through July 29, 2006,
the prices of copper and aluminum have increased approximately 133% and 18%,
respectively. We have developed strategies to mitigate or partially offset the
impact, which include aggressive cost reduction actions, cost optimization
engineering strategies, selective in-sourcing of components where we have
available capacity, continued consolidation of our supply base, and acceleration
of low-cost country sourcing. In addition, the sharing of increased raw material
costs has been, and will continue to be, the subject of negotiations with our
customers. While we believe that our mitigation strategies eventually will
offset a substantial portion of the financial impact of these increased costs,
no assurances can be given that the magnitude and duration of these increased
costs will not have a continued material adverse impact on our operating
results. We are very focused on efforts to help us maintain our ability to
compete on cost.

Our success in generating cash flow will depend, in part, on our ability to
efficiently manage working capital. In this regard, changes in inventory
management practices and customer and vendor payment terms had a positive impact
on our cash flows; however, seasonal patterns and the need to build inventories
to manage production transfers during restructuring programs can cause higher
working capital needs. Current projections are highly sensitive to the price of
copper and other commodities and the Company's ability to recover higher
commodity costs. As we cannot predict the movement of commodity prices, which
have been substantial in recent history, we cannot predict with certainty that
we can remain in compliance with EBITDA covenants included in our financing
arrangements. See Adequacy of Liquidity for further discussion. In addition, our
cash flow is also dependent on our ability to efficiently manage our capital
spending. We use cash return on invested capital as a measure of the efficiency
with which assets are deployed to increase earnings. Improvements in our return
on invested capital will depend on our ability to maintain an appropriate asset
base for our business and to increase productivity and operating efficiency.

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" below.

                                                                         Page 20
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
(dollars in millions)                                  2006       %         2005       %
<S>                                                   <C>       <C>       <C>        <C>
Net sales                                             $456.3    100.0%     $432.8    100.0%
Cost of sales                                          432.3     94.7%      402.2     92.9%
Selling and administrative expenses                     44.3      9.7%       40.9      9.5%
Impairments, restructuring charges, and other items      5.0      1.1%      109.8     25.4%
                                                      ------              -------
Operating loss                                         (25.3)    (5.5%)    (120.1)   (27.7%)
Interest expense                                       (11.0)     2.4%       (5.5)     1.3%
Interest income and other, net                           2.9      0.6%        1.7      0.4%
                                                      ------              -------
Loss from continuing operations before taxes           (33.4)     7.3%     (123.9)   (28.6%)
Tax provision (benefit)                                 (4.3)    (0.9%)       0.4      0.1%
                                                      ------              -------
Loss from continuing operations                       ($29.1)     6.4%    ($124.3)   (28.7%)
                                                      ======              =======
</TABLE>

Three Months Ended June 30, 2006 vs. Three Months Ended June 30, 2005

Consolidated net sales from continuing operations in the second quarter of 2006
increased to $456.3 million from $432.8 million in 2005. Excluding the increase
in sales due to the effects of currency translation of $10.9 million, 2006
second quarter sales increased by $12.6 million or 2.9%. The sales increases
were attributable to the Compressor and Electrical Components segments partially
offset by a decline in sales in the Engine & Power Train segment.

Cost of sales was $432.3 million in the three months ended June 30, 2006, as
compared to $402.2 million in the three months ended June 30, 2005. As a
percentage of net sales, cost of sales and operating expenses were 94.7% and
92.9% in the second quarters of 2006 and 2005, respectively. The decline was
primarily due to lower product margins created by lower net overall pricing,
unfavorable foreign currency exchange rates and higher commodity costs,
partially offset by efficiency improvements and overhead reductions.

Selling, general and administrative expenses were $44.3 million in the three
months ended June 30, 2006, as compared to $40.9 million in the three months
ended June 30, 2005. As a percentage of net sales, selling, general and
administrative expenses were 9.7% and 9.5% in the second quarters of 2006 and
2005, respectively. The increase was primarily related to AlixPartners' fees of
$4.1 million.

Impairments, restructuring charges and other items were $5.0 million ($0.27 per
share) in the three months ended June 30, 2006, compared to $109.8 million
($109.6 million after tax or $5.93 per share) in the three months ended June 30,
2005. As a percentage of net sales, impairments, restructuring charges and other
items were 1.1% and 25.4% respectively in the second quarter of 2006 and 2005
respectively. During the second quarter 2006, we incurred asset impairment and
other charges of $2.4 million ($0.13 per share) related to the Electrical
Components business for the relocation of certain electric motor production from
Australia to Thailand and $2.6 million ($0.14 per share) in asset

                                                                         Page 21
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

impairment and other charges related to the Engine & Power Train business for
the consolidation of transmission production into a single U.S. facility.

During the second quarter 2005, we recognized a goodwill impairment charge of
$108.0 million ($5.84 per share) related to the Electrical Components business
and restructuring and asset impairment charges of $1.8 million ($1.6 million net
of tax or $0.09 per share) related to the Engine & Power Train ($1.1 million),
Compressor ($0.2 million) and Electrical Components ($0.5 million) segments.

Included in Selling, General and Administrative expenses are corporate expenses
of $4.0 million for the second quarter 2006. These expenses have increased from
$2.6 million in the prior year as a result of additional staffs and information
technology costs associated with the Company's globalization of certain
purchasing and information technology functions.

Interest expense amounted to $11.0 million in the second quarter of 2006
compared to $5.5 million in the second quarter of 2005. The increase was
primarily related to the higher average interest rates associated with the
Company's current borrowing arrangements.

Interest income and other, net was $2.9 million in the second quarter of 2006
compared to $1.7 million in the second quarter of 2005. Higher interest income
is attributable to higher average cash balances in Brazil during the respective
periods.

The consolidated condensed statement of operations reflects a $4.3 million
income tax benefit for the second quarter 2006 and a $0.4 million income tax
provision for the second quarter 2005. Income taxes are recorded pursuant to
SFAS No. 109, "Accounting for Income Taxes," which specifies the allocation
method of income taxes between categories of income defined by that statement as
those that are included in net income (continuing operations and discontinued
operations) and those included in comprehensive income but excluded from net
income.

SFAS 109 is applied by tax jurisdiction, and in periods in which there is a
pre-tax loss from continuing operations and pre-tax income in another category
(such as other comprehensive income or discontinued operations), tax expense is
first allocated to the other sources of income with a related benefit recorded
in continuing operations. The second quarter of 2006 reflects a tax benefit in
the statement of operations and tax expense in other comprehensive income and
discontinued operations. At June 30, 2006 and December 31, 2005, full valuation
allowances are recorded for net operating loss carryovers for those tax
jurisdictions in which the Company is in a cumulative three year loss position.
The Company's effective income tax rate was (0.2%) for the second quarter of
2005. This rate was primarily due to non-deductibility of the goodwill
impairment recognized in the period.

Net loss from continuing operations in the second quarter of 2006 was $29.1
million ($1.58 per share) as compared to net loss of $124.3 million ($6.73 per
share) in the second quarter of 2005. The improvement was primarily the result
of the factors described above.

Reportable Operating Segments

The financial information presented below is for our three reportable operating
segments for the periods presented: Compressor, Electrical Components, and
Engine & Power Train. Financial measures regarding each segment's income (loss)
before interest, other expense, income taxes, and impairments, restructuring
charges, and other items ("operating income") and income (loss) before interest,
other expense and income taxes and impairments, restructuring charges, and other
items divided by net sales ("operating margin") are not measures of performance
under accounting principles generally accepted in the United States (GAAP). Such
measures are presented because we evaluate

                                                                         Page 22
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the performance of our reportable operating segments, in part, based on income
(loss) before interest, other expense, income taxes, and impairments,
restructuring charges, and other items. These measures should not be considered
in isolation or as a substitute for net income, net cash provided by operating
activities or other income statement or cash flow statement data prepared in
accordance with GAAP or as measures of profitability or liquidity. In addition,
these measures, as we determine them, may not be comparable to related or
similarly titled measures reported by other companies. For a reconciliation of
consolidated income (loss) before interest, other expense and income taxes,
impairments, restructuring charges, and other items to income before provision
for income taxes, see Note 4, Segment Reporting.

      Compressor Products

Second quarter 2006 sales in the Compressor business increased to $273.3 million
from $247.6 million in the prior year. Excluding the increase in sales due to
the effects of foreign currency translation of $10.3 million, sales increased by
6.2% in the second quarter. The balance of the increase was primarily
attributable to higher unit volumes in aftermarket and commercial distribution
markets in the U.S. and Europe as a result of favorable weather conditions over
the current quarter.

Compressor business operating results for the second quarter of 2006 was a loss
of $3.8 million compared to income of $7.4 million in the second quarter of
2005. The lower operating income was attributable to lower average selling
prices, unfavorable foreign currency rates and higher material and other input
costs partially offset by better volumes, headcount reductions, and productivity
improvements. For the second quarter, the Brazilian Real was on average 12%
stronger against the U.S. Dollar in 2006 versus 2005, and the results of hedging
activities were less favorable year over year in the second quarter than
compared to the first quarter. Including the effects of hedging activities, the
Company estimates that changes in foreign exchange rates decreased operating
income by approximately $10.3 million compared to the second quarter 2005.
Copper was also a significant factor as spot copper prices were on average 122%
higher during the second quarter 2006 versus 2005.

      Electrical Component Products

Electrical Components business sales were $106.9 million for the second quarter
of 2006, an increase of 4.4% over sales of $102.4 million in the same quarter
last year. Second quarter trends were consistent with those of the first quarter
of 2006 with higher sales in the residential and commercial markets (up 13.3%
year-to-date) due to strong HVAC related sales being partially offset by lower
sales (down 9% year-to-date) in the automotive motor market as a result of lower
build schedules and market share losses by the Company's customers at their
respective OEM customers.

Electrical Components operating results for the second quarter of 2006 was a
loss of $1.7 million compared to income of $0.2 million in the second quarter of
2005. The decline during the second quarter was primarily due to higher
commodity costs, production inefficiencies associated with a facility in Mexico
and costs associated with a product warranty issue partially offset by customer
price increases and the positive effects of previous restructuring activities.
Like the Compressor business, copper is a significant input into the cost of an
electric motor. The cost of copper acquisitions were estimated to be
approximately $3.7 million higher in the second quarter 2006 when compared to
prices available at the beginning of the year.

                                                                         Page 23
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      Engine & Power Train Products

Engine & Power Train business sales were $71.5 million in the second quarter of
2006 compared to $78.7 million for the same period a year ago. The decline in
sales for the second quarter was primarily due to the loss of sales of $4.9
million into the European market from the Company's former Italian subsidiary
and lower sales of transmissions products. As previously disclosed on December
28, 2005, the Company closed the engine manufacturing operations of its wholly
owned subsidiary, Tecumseh Europa S.p.A., located in Turin, Italy. The shutdown
was accomplished through an Italian form of court-supervised liquidation. The
effects of the liquidation were reflected in the Company's 2005 results. The
Italian subsidiary was the primary, but not sole, source of engines for sales in
the European market. This decline in unit volumes sold into Europe was partially
offset by an increase in engine volumes sold into the United States that were
primarily attributable to the placement of the Company's engines on additional
product applications at existing customers. North American engine unit
deliveries for the second quarter were approximately 11% greater than those of
the prior year.

Engine & Power Train business operating loss for the second quarter of 2006 was
$11.2 million compared to a loss of $15.5 million during the same period a year
ago. Included in the 2006 loss were AlixPartners' fees of $4.1 million in the
second quarter. Exclusive of AlixPartners' fees, operating results improved by
approximately 56% in the second quarter versus the comparable prior year period.
The improvement in the second quarter reflected lower fixed costs associated
with plant closures, higher productivity levels in Brazil, and higher U.S.
volumes, partially offset by higher commodity and transportation costs and a
less favorable value of the Brazilian Real.

Six Months Ended June 30, 2006 vs. Six Months Ended June 30, 2005

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(dollars in millions)                                  2006       %         2005       %
<S>                                                   <C>       <C>       <C>        <C>
Net sales                                             $902.4    100.0%     $873.0    100.0%
Cost of sales                                          843.9     93.5%      815.1     93.4%
Selling and administrative expenses                     89.5      9.9%       84.2      9.6%
Impairments, restructuring charges, and other items      5.6      0.6%      109.9     12.6%
                                                      ------              -------
Operating loss                                         (36.6)    (4.1%)    (136.2)   (15.6%)
Interest expense                                       (19.4)     2.1%      (11.6)     1.3%
Interest income and other, net                           7.9      0.9%        5.0      0.6%
                                                      ------              -------
Loss from continuing operations before taxes           (48.1)    (5.3%)    (142.8)   (16.4%)
Tax provision (benefit)                                 (9.9)    (1.1%)      (6.1)    (0.7%)
                                                      ------              -------
Loss from continuing operations                       ($38.2)    (4.2%)   ($136.7)   (15.7%)
                                                      ======              =======
</TABLE>

Consolidated net sales from continuing operations in the first six months of
2006 increased to $902.4 million from $873.0 million in 2005. Excluding the
increase in sales due to the effects of currency fluctuation of $20.0 million,
2006 first half sales increased by $9.4 million or 1.1%. The sales increases was
attributable to the Compressor and Electrical Components segments, partially
offset by a decline in sales in the Engine & Power Train segment.

Cost of sales was $843.9 million in the six months ended June 30, 2006, as
compared to $815.1 million in the six months ended June 30, 2005. As a
percentage of net sales, cost of sales was 93.5% and

                                                                         Page 24
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

93.4% in the first six months of 2006 and 2005, respectively. The slight change
was primarily due to improved operational efficiencies, lower fixed costs
associated with plant closures and a $3.5 million ($2.5 million net of tax or
$0.13 per share) gain from the sale of the Douglas, Georgia engine facility in
the first quarter, offset by lower product margins in the second quarter due to
lower net overall pricing, unfavorable foreign currency rates and higher
commodity costs. Higher overall pricing in the Engine & Power Train and
Electrical Components groups were more than offset by lower prices in the
Compressor Group over the first six months, prior to the implementation of price
increases that began to take effect on June 1, 2006.

Selling, general and administrative expenses were $89.5 million in the six
months ended June 30, 2006, as compared to $84.2 million in the six months ended
June 30, 2005. As a percentage of net sales, selling, general and administrative
expenses were 9.9% and 9.6% in the first six months of 2006 and 2005,
respectively. The increase was primarily related to AlixPartners' fees of $13.1
million offset by global headcount reductions.

Impairments, restructuring charges and other items were $5.6 million ($5.5
million net of tax or $0.30 per share) in the six months ended June 30, 2006,
compared to $109.9 million ($109.6 net of tax or $5.93 per share) in the three
months ended June 30, 2005. As a percentage of net sales, impairments,
restructuring charges and other items were 0.6% and 12.6% respectively in the
second quarter of 2006 and 2005. During the second quarter 2006, we incurred
asset impairment and restructuring charges of $2.4 million ($0.13 per share)
related to the Electrical Components business for the relocation of certain
electric motor production from Australia to Thailand and $2.6 million ($0.14 per
share) in asset impairment and restructuring charges related to the Engine &
Power Train business for the consolidation of transmission production into a
single U.S. facility. First quarter 2006 charges amounted to $0.6 million ($0.03
per share) and were the result of the continuation of previously announced
programs.

During the first six months of 2005, we recognized a goodwill impairment charge
related to the Electrical Components business of $108.0 million ($5.84 per
share) and restructuring and asset impairment charges of $1.9 million ($1.6
million net of tax or $0.09 per share) related to the Engine & Power Train ($1.1
million), Compressor ($0.3 million) and Electrical Components ($0.5 million)
segments.

Included in Selling, General and Administrative expenses are corporate expenses
of $8.0 million for the first six months of 2006. These expenses have increased
from $5.1 million in the prior year as a result of additional staffs and
information technology costs associated with the Company's globalization of
certain purchasing and information technology functions.

Interest expense amounted to $19.4 million in the first six months of 2006
compared to $11.6 million in the first six months of 2005. The increase was
primarily related to the higher average interest rates associated with the
Company's current borrowing arrangements.

Interest income and other, net was $7.9 million in the first six months of 2006
compared to $5.0 million in the first six months of 2005. The impact of lower
interest income due to lower cash balances was more than offset by a gain of
$3.6 million ($2.2 million net of tax or $0.12 per share) on the sale of the
Company's interest in Kulthorn Kirby Public Company Limited, a manufacturer of
compressors based in Thailand during the first quarter. The sale of the stock
was completed in conjunction with the end of a licensing agreement between the
Company's Compressor operations and Kulthorn Kirby.

                                                                         Page 25
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The consolidated statement of operations reflects a $9.9 million income tax
benefit for the first six months of 2006 and a $6.1 million income tax benefit
for the first six months 2005. Income taxes are recorded pursuant to SFAS No.
109, "Accounting for Income Taxes," which specifies the allocation method of
income taxes between categories of income defined by that statement as those
that are included in net income (continuing operations and discontinued
operations) and those included in comprehensive income but excluded from net
income.

SFAS 109 is applied by tax jurisdiction, and in periods in which there is a
pre-tax loss from continuing operations and pre-tax income in another category
(such as other comprehensive income or discontinued operations), tax expense is
first allocated to the other sources of income with a related benefit recorded
in continuing operations. The first six months of 2006 reflects a tax benefit in
the statement of operations and tax expense in other comprehensive income and
discontinued operations. At June 30, 2006 and December 31, 2005, full valuation
allowances are recorded for net operating loss carryovers for those tax
jurisdictions in which the Company is in a cumulative three year loss position.
The Company's effective income tax rate was 4.4% for the first half of 2005.
This rate was primarily due to non-deductibility of the goodwill impairment
recognized in the second quarter of 2005.

Net loss from continuing operations in the first six months of 2006 was $38.2
million ($2.07 per share) as compared to net loss of $136.7 million ($7.40 per
share) in the second quarter of 2005. The improvement was primarily the result
of the factors described above.

Reportable Operating Segments

The financial information presented below is for our three reportable operating
segments for the periods presented: Compressor, Electrical Components, and
Engine & Power Train. Financial measures regarding each segment's income (loss)
before interest, other expense, income taxes, and impairments, restructuring
charges, and other items ("operating income") and income (loss) before interest,
other expense and income taxes and impairments, restructuring charges, and other
items divided by net sales ("operating margin") are not measures of performance
under accounting principles generally accepted in the United States (GAAP). Such
measures are presented because we evaluate the performance of our reportable
operating segments, in part, based on income (loss) before interest, other
expense, income taxes, and impairments, restructuring charges, and other items.
These measures should not be considered in isolation or as a substitute for net
income, net cash provided by operating activities or other income statement or
cash flow statement data prepared in accordance with GAAP or as measures of
profitability or liquidity. In addition, these measures, as we determine them,
may not be comparable to related or similarly titled measures reported by other
companies. For a reconciliation of consolidated income (loss) before interest,
other expense and income taxes, impairments, restructuring charges, and other
items to income before provision for income taxes, see Note 8, Segment
Reporting.

      Compressor Products

Compressor business sales in the first six months of 2006 increased to $524.8
million from $488.6 million in the first six months of 2005. Excluding the
increase in sales due to the effects of foreign currency translation of $19.6
million, sales increased by 3.4% in the first six months respectively. The
balance of the increases were primarily attributable to higher unit volumes in
aftermarket and commercial distribution markets in the U.S. and Europe as a
result of favorable weather conditions that occurred during the second quarter.

Operating income for the six months ended June 30, 2006 amounted to $2.8 million
compared to $16.0 million for the first six months of 2005. The lower operating
income was attributable to lower average

                                                                         Page 26
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

selling prices, unfavorable foreign currency rates and higher material and other
input costs partially offset by better volumes, headcount reductions, and
productivity improvements. For the first six months, the Brazilian Real was on
average 15% stronger against the U.S. Dollar in 2006 versus 2005, and the
results of hedging activities were less favorable year over year in the second
quarter than compared to the first quarter.

      Electrical Component Products

Electrical Components business sales were $216.0 million for the first six
months of 2006, an increase of 6.6% over sales of $202.6 million in the same
period last year. Second quarter trends were consistent with those of the first
quarter of 2006 with higher sales in the residential and commercial markets (up
13.3% year-to-date) due to strong HVAC related sales being partially offset by
lower sales (down 9% year-to-date) in the automotive motor market as a result of
lower build schedules and above losses by the Company's customers at their
respective OEM's.

Electrical Components operating results for the first six months of 2006 was
income of $3.2 million compared to a loss of $0.8 million in the first six
months of 2005. The improvement was attributable to the results of the first
quarter when results improved by $6.0 million over the prior year's first
quarter, due to the higher sales volumes, improved operational efficiencies and
pricing actions taken in 2005. The gains in the first quarter were partially
offset by the weaker results in the second quarter due to higher commodity
costs, production inefficiencies associated with a facility in Mexico and costs
associated with a product warranty issue.

      Engine & Power Train Products

First half 2006 sales amounted to $152.4 million compared to $173.6 million in
the first half of 2005. The decline in sales for the first half of the year was
primarily due to the loss of sales of $21.9 million into the European market
from the Company's former Italian subsidiary that was shutdown at the end of
2005. The Italian subsidiary was the primary, but not sole, source of engines
for sales in the European market. This decline in unit volumes sold into Europe
was partially offset by an increase in volumes sold into the United States that
were primarily attributable to the placement of the Company's engines on
additional product applications at existing customers. North American
year-to-date engine unit deliveries were approximately 11% greater than those of
the prior year.

For the first half of 2006, the business incurred an operating loss of $29.7
million compared to an operating loss of $36.4 million in 2005. Included in the
2006 loss were AlixPartners' fees of $13.1 million in the first six months and a
$3.5 million gain from the sale of the Douglas, Georgia engine facility.
Exclusive of these two items, operating results improved by approximately 46% in
the first half of 2006 versus the comparable prior year period. The improvement
reflected lower fixed costs associated with plant closures, higher productivity
levels in Brazil, and higher U.S. volumes, partially offset by higher commodity
and transportation costs and a less favorable value of the Brazilian Real.

OTHER MATTERS

Sale of Subsidiary

During the second quarter of 2006, the Company completed the sale of 100% of its
ownership in Little Giant Pump Company. The operating results of Little Giant
Pump Company for 2006 and the comparable prior year periods have been
reclassified from continuing operations to income from

                                                                         Page 27
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

discontinued operations. Under accounting rules, the Company has also allocated
the portion of its interest expense associated with this operation to the
discontinued operations line item. Proceeds from the sale were approximately
$121 million. The Company recognized a pre-tax gain on the sale of $69.5
million. The gain on the sale, plus earnings during the Company's period of
ownership, net of taxes and interest, is presented in income from discontinued
operations and amounted to $62.3 million net of tax ($3.37 per share). In
addition, gains of $8.5 million associated with curtailment of employee benefits
formerly provided to Little Giant employees will be reflected in third quarter
financial results. As required by the Company's lending agreements, the proceeds
were utilized to repay a portion of the Company's debt.

Environmental Matters

We are subject to various federal, state and local laws relating to the
protection of the environment and are actively involved in various stages of
investigation or remediation for sites where contamination has been alleged.
(See Note 9 to the financial statements.) Liabilities relating to probable
remediation activities are recorded when the costs of such activities can be
reasonably estimated based on the facts and circumstances currently known.
Difficulties exist estimating the future timing and ultimate costs to be
incurred due to uncertainties regarding the status of laws, regulations, levels
of required remediation, changes in remediation technology and information
available.

At June 30, 2006 and December 31, 2005, we had accrued $3.4 million and $3.5
million, respectively, for environmental remediation. As these matters continue
toward final resolution, amounts in excess of those already provided may be
necessary to discharge our obligations for these sites. Such amounts, depending
on their amount and timing, could be material to reported net income in the
particular quarter or period in which they are recorded. In addition, the
ultimate resolution of these matters, either individually or in the aggregate,
could be material to the consolidated financial statements.

AlixPartners Engagement

We engaged AlixPartners during the third quarter of 2005 to assist in the
restructuring plans of the Engine & Power Train business. These plans include
focusing on improving profitability and customer service. We believe the
participation by AlixPartners will allow the Company to effect this change in a
shorter time frame than it otherwise could have achieved. The plan includes
eliminating the significant duplicate capacity, among other cost reduction
efforts. During the second quarter and first six months of 2006, the Company
recognized fees of $4.1 million and $13.1 million, respectively, related to the
AlixPartners engagement.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, service
indebtedness, and support working capital requirements. Our principal sources of
liquidity are cash flows from operating activities and borrowings under
available credit facilities. A substantial portion of our operating income is
generated by foreign operations. As a result, we are dependent on the earnings
and cash flows of and the combination of dividends, distributions and advances
from our foreign operations to provide the funds necessary to meet our
obligations in each of our legal jurisdictions. There are no significant
restrictions on the ability of our subsidiaries to pay dividends or make other
distributions.

                                                                         Page 28
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flow

For the first six months of 2006, cash used by operations amounted to $93.8
million, reflecting both an operating loss and net investments in working
capital and other items, particularly recoverable non-income taxes in Brazil.
Accounts receivable increased by $43.3 million from the beginning of the year,
reflecting the seasonal pattern of the Company's sales. Average days sales
outstanding were 58 days at June 30, 2006 versus 56 days at June 30, 2005,
before giving effect to receivables sold. Days inventory on hand were 74 days at
June 30, 2006, down from 87 days at June 30, 2005 due to concerted efforts to
better manage inventory levels. The cash used to fund operations, fund capital
expenditures and repay amounts originally borrowed under the new debt
arrangements was predominantly provided by proceeds from the sale of Little
Giant Pump Company.

Cash provided by investing activities was $96.1 million in the first half of
2006 versus a use of $59.4 million for the same period of 2005. Of the overall
change of $155.5 million, $27.7 million was related to lower capital
expenditures due to significant new product expansions in India and Brazil in
the prior year, and $130.9 million related to proceeds received from the sale of
assets during 2006. Included in such sales were the Company's 100% interest in
Little Giant Pump Company for $120.7 million, the sale of the Company's 7%
interest in Kulthorn Kirby Public Company Limited stock for $4.7 million and the
sale of the Company's former Douglas, Georgia manufacturing facility for $3.5
million. In addition, during the first quarter, the Company acquired a small
Australian-based company, which owned patents related to the manufacturing of
certain types of electric motors, which are applicable to both our Electrical
Components, and Compressor segments. The entire purchase price was allocated to
amortizable intangible assets.

Cash flows from financing activities used cash of $15.3 million in the first
half of 2006 as compared to $26.0 million in the second quarter of 2005. During
the first quarter 2006, the remaining outstanding balances of our Senior
Guaranteed Notes, Revolving Credit Facility and Industrial Revenue Bonds were
replaced by a new financing package that included a $275 million First Lien
Credit Agreement and a $100 million Second Lien Credit Agreement. During the
second quarter 2006, proceeds from the sale of Little Giant Pump Company were
used to repay a portion of First and Second Lien Credit Agreements, based upon
formulas contained in the agreements.

Capitalization

In addition to cash provided by operating activities when available, we use a
combination of our revolving credit arrangement under our First Lien Credit
Agreement, long-term debt under our Second Lien Credit Agreement, and foreign
bank debt to fund our capital expenditures and working capital requirements. For
the six months ended June 30, 2006 and June 30, 2005, our average outstanding
debt balance was $361.3 million and $380.9 million, respectively. During the
second quarter the Company entered into interest rate swap agreements,
effectively converting $90 million of variable rate debt to fixed rate debt. The
weighted average long-term interest rate, including the effect of hedging
activities, was 6.8% and 4.7% for the respective periods. Among other factors,
the change in the weighted average, long-term interest rate for the respective
periods reflects the increase in the borrowing rate applicable to our new
borrowing arrangements of 8.8% as compared to the original interest rate of 4.6%
under our Senior Guaranteed Notes.

                                                                         Page 29
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Accounts Receivable Sales

Certain of our Brazilian and Asian subsidiaries periodically sell their accounts
receivable with financial institutions. Such receivables are factored with
recourse to us and, in the case of Brazil, are excluded from accounts receivable
in our consolidated balance sheets. The amount of sold receivables excluded from
our balance sheet was $48.2 million and $32.1 million as of June 30, 2006 and
December 31, 2005, respectively. We cannot provide any assurances that these
facilities will be available or utilized in the future.

Adequacy of Liquidity Sources

Historically, cash flows from operations and borrowing capacity under previous
credit facilities were sufficient to meet our long-term debt maturities,
projected capital expenditures and anticipated working capital requirements;
however, the negative results experienced during 2005 deteriorated to the point
where we were not able to remain in compliance with the financial covenants of
the Senior Guaranteed Notes and the Revolving Credit Facility as amended as of
August 5, 2005. Accordingly, on February 6, 2006, we replaced the Senior
Guaranteed Notes, Revolving Credit Agreement and Industrial Revenue Bonds with a
new financing package that included a $275 million First Lien Credit Agreement
and a $100 million Second Lien Credit Agreement. The agreements provide for
security interests in substantially all of the Company's assets and specific
financial covenants related to EBITDA (as defined under the agreement and
hereafter referred to as our "Adjusted EBITDA"), capital expenditures, fixed
charge coverage, and limits on additional foreign borrowings. The Adjusted
EBITDA covenant is applicable through September 30, 2007 and thereafter the
fixed charge coverage covenant applies. Additionally, under the terms of the
agreements, no dividends can be paid prior to December 31, 2006 and minimum
amounts of credit availability are required before dividends can be paid
thereafter.

In addition, under terms of the agreement, proceeds from the sale of Little
Giant Pump Company were used to repay portions of the amounts originally
borrowed under the new debt arrangements. Approximately, 63% of the proceeds was
applied against the First Lien borrowing and 37% against the Second Lien
borrowing. After giving affect to the repayments, the weighted average annual
interest rate of these borrowings was 8.8% at the time of repayment. The
effective weighted average interest rates of these borrowings, including the
effect of interest rate swap agreements, was 8.8% at June 30, 2006. At August 4,
2006, the Company had undrawn availability of $33.8 million under the First Lien
Credit Agreement and the ability to borrow an additional $24.4 million through
its foreign subsidiaries.

As of June 30, 2006, the Company was required to have a minimum last twelve
months Adjusted EBITDA of $27.0 million and capital expenditures not to exceed
$125.0 million. The Company is currently in compliance with the covenants of the
debt agreement, including the minimum Adjusted EBITDA and capital expenditure
limits. The Adjusted EBITDA was calculated to be $27.2 million and capital
expenditures were $86.9 million for the twelve months ended June 30, 2006. The
Adjusted EBITDA calculation was close to the minimum because the Company had
anticipated reversing an accrual of approximately $7.0 million for Brazilian
non-income taxes deemed unconstitutional by the Brazilian Supreme Court, which
would have increased the Adjusted EBITDA by $7.0 million. However, GAAP does not
permit such reversal until the Company's own individual case is decided by the
court, because under Brazilian law, lower courts are not bound by Supreme Court
decisions. It is possible that the Brazilian government may take administrative
action to give summary relief to the tens of thousands of companies with similar
cases pending. If the Company is permitted to

                                                                         Page 30
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

reverse an accrual for Brazilian non-income taxes deemed unconstitutional by the
Brazilian Supreme Court of $7.0 million during the third quarter, it will comply
with its Adjusted EBITDA requirement at September 30, 2006 but that if it cannot
reduce the accrual during this quarter, it will not be in compliance at
September 30 unless its lenders agree to amend the credit agreements. The
Company plans to monitor developments in Brazil closely and to seek an amendment
if necessary before September 30, 2006. It expects that its lenders would agree
to such an amendment if requested, but there can be no assurance that this would
in fact prove to be the case. The Company continues to monitor its future
expected results in relationship to the financial covenants specified under the
terms of the respective borrowing arrangements and the amount of availability of
funds provided by the computation of borrowing base. Based upon proceeds
provided by the sale of Little Giant and the total availability of funds, we
believe the Company has sufficient liquidity to complete its turnaround plans;
however, should operating performance fall short of plan, the Company may not
remain in compliance with the covenants under the agreements, or have sufficient
availability of funds. In this scenario, the Company would need to obtain
amendments to the borrowing arrangements. Subsequent to the third quarter,
current projections are highly sensitive to the price of copper and other
commodities and the Company's ability to recover higher commodity costs. As we
cannot predict the movement of commodity prices, which have been substantial in
recent history, we cannot predict with certainty that we can remain in
compliance with the Adjusted EBITDA covenant.

The Company's Brazilian engine manufacturing subsidiary has its own financing
arrangements with Brazilian banks under which it is required to pay principal
installments of various amounts throughout the remainder of 2006 through 2009.
Historically, the subsidiary has experienced negative cash flows from operations
indicating that it may not have sufficient liquidity on its own to make all
required debt repayments as currently scheduled. In combination with a potential
new credit facility at one of the subsidiary's banks, the potential extension of
maturity dates at other of the subsidiary's banks and expected future positive
cash flows of the Engine and Transmissions Group, the Company expects that the
subsidiary will meet its obligations in the ordinary course of business.
However, there can be no assurance that the Company will be successful in
achieving any or all of these goals. If the Brazilian engine subsidiary were to
default in making any of the required payments, the cross-default provisions in
its First and Second Lien Credit Agreements would be triggered, which could
result in the Company no longer having the ability to borrow under the First
Lien Credit Agreement to meet its ongoing operating needs, as well as
acceleration of its indebtedness under the First and Second Lien Credit
Agreements.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

Some of our accounting policies require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. These estimates and
assumptions are subject to an inherent degree of uncertainty. They are based on
our historical experience, the terms of existing contracts, our evaluation of
trends in the industry, information provided by our customers and suppliers, and
information available from other outside sources, as appropriate. Actual results
in these areas could differ from our estimates. For a discussion of our
significant accounting policies and critical accounting estimates, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Significant Accounting Policies and Critical Accounting
Estimates," and Note 1, "Accounting Policies," to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2005.

                                                                         Page 31
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Although not mentioned at December 31, 2005, we regard the recoverability of our
deferred tax assets as a critical accounting estimate. We are required to
estimate whether recoverability of our deferred tax assets is more likely than
not based on forecasts of taxable earnings in the related tax jurisdiction. We
use historical and projected future operating results, based upon approved
business plans, including a review of the eligible carry-forward period, tax
planning opportunities and other relevant considerations. Examples of evidence
that we consider when making judgments about the deferred tax valuation includes
tax law changes, a history of cumulative losses, and variances in future
projected profitability. Full valuation allowances will be maintained against
deferred tax assets in the U.S. and other foreign countries until sufficient
positive evidence exists to reduce or eliminate them. Valuation allowances may
be established against remaining foreign deferred tax assets in Brazil
(aggregating approximately $5.1 million) if negative evidence (such as a
continuation of losses recognized during 2006) results in a determination that
it is no longer more likely than not that the assets will be realized.

Other than the addition of the disclosure of the policy regarding income taxes
noted above, there have been no significant changes to our significant
accounting policies or critical accounting estimates during the first six months
of 2006.

Recently Issued Accounting Pronouncements

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued Financial Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes" an interpretation of FASB Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." This interpretation clarifies the accounting for income taxes recognized
in accordance with SFAS 109 with respect to recognition and measurement for tax
positions that are taken or expected to be taken in a tax return. FIN 48 is
effective on January 1, 2007 and the Company is currently evaluating the impact
of this pronouncement on its consolidated financial statements.

OUTLOOK

Information in this "Outlook" section should be read in conjunction with the
cautionary language and discussion of risks included below.

The outlook for the remainder of 2006 is subject to the same variables that
negatively impacted the Company throughout 2005. Commodity costs, key currency
rates, weather and the overall growth rates of the respective economies around
the world are all important to future performance. Overall, the Company does not
expect these factors to become any more favorable during the year. In fact,
certain key commodities, including copper, aluminum, and steel have risen
precipitously in recent months. From January 1, 2006 through July 29, 2006, the
prices of copper and aluminum have increased approximately 60% and 6%,
respectively.

The Company expects 2006 results to reflect those actions it has been taking to
reduce costs and, potentially, the benefits of new product introductions, to the
extent they are accepted in the market, and has not assumed any improvements
from currencies or commodity costs. Given the recent escalation in commodity
costs, realization of net improvement in total results, which is largely
expected in the latter half of the year, will greatly depend on the Company's
ability to pass on to its customers the cost of these sizeable commodity price
increases, which are hedged to a lesser extent in the later months of the year.
The Compressor and Electrical Components groups introduced both price increases
and

                                                                         Page 32
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

commodity surcharges that took effect in the months of June and July. However,
since such increases were announced, commodity prices have continued to rise. As
a result, the lag between when the Company experiences higher input costs and
when pricing actions become effective, is expected to impact future results if
commodity prices do not moderate in the near future. In addition, there are no
guarantees that the Company will be able to pass along future commodity
increases to its customers, thus making prediction of results difficult should
commodities, particularly copper, continue to escalate.

With respect to each of the Company's segments, results in the Compressor
business are expected to lag the results of 2005 throughout the year. The
Electrical Components business, which had demonstrated monthly year over year
improvement since August of 2005, experienced a decline in results in the second
quarter in part due to the cost of copper. Future improvement will largely be
dependent on the cost of copper and the factors discussed above. The Engine and
Power Train business has taken several major steps to eliminate overcapacity and
costs that will benefit 2006 and beyond. The Company expects the magnitude of
improvements in the latter half of the year to accelerate in comparison to the
first half.

The Company will continue to focus its efforts on improving the profitability
and competitiveness of its worldwide operations. It is possible that additional
production relocation and consolidation initiatives will take place during 2006
and/or 2007 that could have an effect on the consolidated financial position and
future results of operations of the Company. In addition, the Company continues
to evaluate potential acquisitions, joint ventures and dispositions that could
improve the overall competitiveness and financial position of the Company and
enhance its product offerings. Such transactions could also have an effect on
future results of operations.

                                                                         Page 33
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 2
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING STATEMENTS

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

Readers are cautioned that actual results may differ materially from those
projected as a result of certain risks and uncertainties, including, but not
limited to, i) changes in business conditions and the economy in general in both
foreign and domestic markets; ii) the effect of terrorist activity and armed
conflict; iii) weather conditions affecting demand for air conditioners, lawn
and garden products, portable power generators and snow throwers; iv) the
success of our ongoing effort to bring costs in line with projected production
levels and product mix; v) financial market changes, including fluctuations in
interest rates and foreign currency exchange rates; vi) economic trend factors
such as housing starts; vii) emerging governmental regulations; viii)
availability and cost of materials, particularly commodities, including steel,
copper and aluminum, whose cost can be subject to significant variation; ix)
actions of competitors; x) the ultimate cost of resolving environmental and
legal matters; xi) our ability to profitably develop, manufacture and sell both
new and existing products; xii) 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; xiii) the extent of any business disruption caused by
work stoppages initiated by organized labor unions; xiv) the ability of the
Company to maintain adequate liquidity in total and within each foreign
operation; xv potential political and economic adversities that could adversely
affect anticipated sales and production in Brazil; xvi) potential political and
economic adversities that could adversely affect anticipated sales and
production in India, including potential military conflict with neighboring
countries; xvii) our ability to reduce a substantial amount of costs in the
Engine & Power Train group associated with excess capacity, and xviii) the
ongoing financial health of major customers. These forward-looking statements
are made only as of the date of this report, and we undertake no obligation to
update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.

                                                                         Page 34
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 3
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to risk during the normal course of business from credit
risk associated with accounts receivable and from changes in interest rates,
commodity prices, and foreign currency exchange rates. The exposure to these
risks is managed through a combination of normal operating and financing
activities which include the use of derivative financial instruments in the form
of foreign currency forward exchange contracts and commodity forward purchasing
contracts. Fluctuations in commodity prices and foreign currency exchange rates
can be volatile, and the Company's risk management activities do not totally
eliminate these risks. Consequently, these fluctuations can have a significant
effect on results. A discussion of the Company's policies and procedures
regarding the management of market risk and the use of derivative financial
instruments was provided in its Annual Report on Form 10-K in Item 7A and in
Notes 1 and 12 of the Notes to Consolidated Financial Statements. The Company
does not utilize financial instruments for trading or other speculative
purposes. There have been no changes in these policies or procedures during the
first six months of 2006.

The Company is subject to foreign currency exchange exposure for operations
whose assets and liabilities are denominated in currencies other than U.S.
Dollars. On a normal basis, the Company does not attempt to hedge the foreign
currency translation fluctuations in the net investments in its foreign
subsidiaries. The Company does, from time to time, enter into short-term forward
exchange contracts to sell or purchase foreign currencies at specified rates
based on estimated foreign currency cash flows. Company policy allows local
management to hedge known receivables or payables and forecasted cash flows up
to a year in advance. It is the policy of the Company not to purchase financial
and/or derivative instruments for speculative purposes. At June 30, 2006 and
December 31, 2005, the Company held foreign currency forward contracts with a
total notional value of $183.3 million and $173.0 million, respectively. The
Company has a particularly concentrated exposure to the Brazilian Real. The
Company estimates, excluding any mitigation as the result of hedging activities,
that a change in the value of the Real of 0.10 per U.S. Dollar will affect
pre-tax results by approximately $10 million on an annual basis.

The Company uses commodity forward purchasing contracts to help control the cost
of traded commodities, primarily copper and aluminum, used as raw material in
the production of motors, electrical components and engines. Company policy
allows local management to contract commodity forwards for a limited percentage
of projected raw material requirements up to one year in advance. Commodity
contracts at most of the Company's divisions and subsidiaries are essentially
purchase contracts designed to fix the price of the commodities during the
operating cycle. The Company's practice has been to accept delivery of the
commodities and consume them in manufacturing activities. At June 30, 2006 and
December 31, 2005, the Company held a total notional value of $18.3 million and
$61.8 million, respectively, in commodity forward purchasing contracts. The
majority of these contracts were not recorded on the balance sheet as they did
not require an initial cash outlay and do not represent a liability until
delivery of the commodities is accepted; however, commodity contracts at the
Company's French compressor subsidiary are essentially derivative financial
instruments designed to hedge the fluctuation in commodity pricing and, as such,
are subject to the provisions of SFAS No. 133, as amended by SFAS 149.

The Company is subject to interest rate risk, primarily associated with its
borrowings of $357.2 million at June 30, 2006. The Company's $275 million First
Lien Credit Agreement and $100 million Second Lien Credit agreement are
variable-rate debt. The Company has entered into variable to fixed interest rate
swaps with notional amounts totaling $90 million. The Company's remaining
borrowings consists

                                                                         Page 35
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 3
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

of variable-rate borrowings by its foreign subsidiaries. This resulted in 25% of
the Company's total debt at June 30, 2006 being fixed-rate. While changes in
interest rates impact the fair value of the fixed rate debt, there is no impact
to earnings and cash flow because the Company intends to hold these obligations
to maturity unless refinancing conditions are favorable. Alternatively, while
changes in interest rates do not affect the fair value of the Company's
variable-interest rate debt, they do affect future earnings and cash flows. A 1%
increase in interest rates would increase interest expense for the year by
approximately $2.7 million.

                                                                         Page 36
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                     PART 1. FINANCIAL INFORMATION - ITEM 4
                             CONTROLS AND PROCEDURES

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

As of the end of the fiscal quarter covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's Disclosure Committee and management, including the President and Chief
Executive Officer and the Company's Vice President, Treasurer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon such evaluation, the Company's President and Chief Executive Officer along
with the Company's Vice President, Treasurer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures which were
identified as not effective as of December 31, 2005 because of the material
weakness discussed below, have not yet been fully corrected and are, therefore,
not effective at the reasonable assurance level as of June 30, 2006. In light of
the material weakness, the Company performed additional analysis and other
post-closing procedures to ensure our consolidated financial statements were
prepared in accordance with generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this
report fairly state in all material respects our financial condition, results of
operations and cash flows for the periods presented.

As outlined in management's annual report as of December 31, 2005, the Company
did not maintain effective controls over user access rights to certain financial
application systems which could affect accounts receivable and revenue,
inventory and cost of goods sold, and accounts payable and other financial
statement accounts at a number of its locations. Specifically, the control
deficiencies demonstrated an inadequate design of access security policies and
segregation of duties requirements as well as a lack of independent monitoring
of user access to financial application programs and data. Individually, these
deficiencies were evaluated as representing a more than remote likelihood that a
misstatement that is more than inconsequential, but less than material, could
occur; however, when aggregated, these deficiencies could result in a
misstatement to the financial statement accounts, resulting in a material
misstatement to the consolidated financial statements that would not be
prevented or detected.

The Company has implemented additional controls to remediate this material
weakness. These controls include, but are not limited to, additional levels of
reviews of transactions, additional reviews of changes to financial applications
and data by those with access to both, and reassignment of responsibilities to
provide for better segregation of duties. While specific efforts have been
undertaken, and are on-going, to address the segregation of duties and system
access issues within each of the affected locations, the Company has not
completed its process to verify the adequacy of the measures taken and ensure
these steps had completely addressed the previously identified concerns.

The Company has also made progress with respect to its implementation of a
common, global ERP system, which represents the long-term solution to these
deficiencies as well as a significant improvement to the overall internal
control structure of the Company. The system implementation includes improved
controls over access to financial application programs and data, independent

                                                                         Page 37
<PAGE>
monitoring of users having unrestricted access to financial application programs
and data, and provides for improved segregation of duties. On April 1, 2006,
four of nine locations, scheduled for implementation during 2006, went live.
These locations represented approximately 8% of the Company's employee base, 14%
of its assets and 4% of its revenues. On May 1, 2006, two additional locations
went live representing approximately 14%, 5% and 7% of employees, assets and
revenues, respectively. The remaining three locations went live on August 1,
2006, representing approximately 36%, 47% and 40% of employees, assets and
revenues, respectively. As of the date of this filing, in aggregate,
approximately 58% of the Company's employee base, 66% of its assets and 51% of
its revenues would be operating under the Company's new ERP system. However,
some of the remaining locations utilize systems that have segregation of duty
limitations as previously described. The remainder of these locations are
expected to adopt the new system in 2007. Until such time, the Company is
implementing other measures to correct the segregation of duty issues at these
locations.

Changes In Internal Control Over Financial Reporting

As noted above, the Company is in the process of implementing a new global ERP
system. A pilot implementation was completed in the first quarter of 2005. The
Company's remaining locations are expected to go live during 2006 and 2007.
During this time period, there will be significant changes in internal controls
over financial reporting at the operations affected. The Company believes it has
designed adequate controls into the new system and will begin testing their
application at each location after their respective go-live dates.

There have been no changes in the Company's internal controls over financial
reporting that occurred during the quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting, other than the system implementations noted above, which
did affect our ability to report on a timely basis for the second quarter.

Limitations On The Effectiveness Of Controls And Procedures

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

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

                                    Page 38
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
                           PART II. OTHER INFORMATION
ITEM 6.  EXHIBITS

<TABLE>
<CAPTION>
   (a)   Exhibit
         Number     Description
         ------     -----------
<S>      <C>        <C>
          31.1      Certification of the President and Chief Executive Officer
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

          31.2      Certification of the Chief Financial Officer pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.

          32.1      Certification of the President and Chief Executive Officer
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

          32.2      Certification of the Chief Financial Officer pursuant to
                    Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

                                                                         Page 39
<PAGE>
                   TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          TECUMSEH PRODUCTS COMPANY
                                                (Registrant)

Dated: August 14, 2006                    BY:   /s/   James S. Nicholson
       -------------------------------        ----------------------------------
                                              James S. Nicholson
                                                Vice President, Treasurer and
                                                Chief Financial Officer (on
                                                behalf of the Registrant and as
                                                principal financial officer)

                                                                         Page 40
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.    DESCRIPTION
<S>            <C>
     31.1      Certification of the President and Chief Executive Officer
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     31.2      Certification of the Chief Financial Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

     32.1      Certification of the President and Chief Executive Officer
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     32.2      Certification of the Chief Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act of 2002.
</TABLE>