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Executives

Teresa Hess – Director, IR

Ed Buker – Chairman, President, and CEO

Jim Nicholson – CFO, VP, and Treasurer

Analysts

Brian Grad [ph] – DLS Capital Management

Charlie Rentschler – Wall Street Access

Tecumseh Products Company (TECUA) Q2 2008 Earnings Call Transcript August 7, 2008 11:00 AM ET

Operator

Good morning everyone and welcome to the Tecumseh Products Company second quarter 2008 earnings conference call. All participants are in a listen-only mode until the question-and-answer session of the conference. This conference is being recorded at the request of Tecumseh Products. I would now like to introduce Ms. Teresa Hess, Director of Financial Reporting and Investor Relations at Tecumseh Products. Ms. Hess, you may proceed.

Teresa Hess

Thank you, Tony. Good morning and welcome to Tecumseh Products second quarter 2008 conference call. On the call today are Ed Buker, President and CEO, and Jim Nicholson, Vice President, Treasurer, and Chief Financial Officer.

Yesterday afternoon, we announced the company’s second quarter 2008 results for the period ended June 30, 2008. If you did not yet receive a copy of the press release, please contact Amanda Passage at 616-233-0500 to have one sent to you. Please note that the release is also available on many news sites and it can be viewed on our corporate website at www.tecumseh.com.

Before I turn the call over to Ed and Jim to comment on our results, I would like to remind you that this conference call contains certain statements regarding the company’s plans and expectations, which are forward-looking statements and are made pursuant to the Safe Harbor provision of the Securities and Litigation Reform Act of 1995. These forward-looking statements reflect the company’s views at the time such statements are made with respect to the company’s future plans, objectives, events, and financial results such as revenues, expenses, income, earnings per share, operating margins, financial position, expected results of operation, and other financial items, as well as industry trends and observations.

In addition, words such as estimate, expect, intend, should, could, will, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. There are a number of factors, many of which are beyond the company’s control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements.

Risk factors exist and new risk factors emerge from time to time that may cause actual results to differ materially from those contained in the forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the company expressly disclaims any obligation to update, amend, or clarify forward-looking statements.

In addition to the foregoing, several risk factors are discussed in the company’s most recently filed Annual Report on Form 10-K and other SEC filings under the titles Risk Factors or Cautionary Statements Relating To Forward-Looking Statements and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated by reference in this call.

With that said, I would now like to turn the call over to Ed Buker, President and CEO of Tecumseh Products.

Ed Buker

Thank you, Teresa. Good morning and welcome to our second quarter 2008 conference call. This call is being simultaneously broadcast on the Internet and will also be archived for replay starting this afternoon. The replay can be accessed at our website, www.tecumseh.com.

On our first quarter call, I described in detail the company's ongoing transformation process in the context of three phases. During today's call, I will update our progress and the initial impacts we are seeing in terms of our global operations and financial results. More than a year, our management team has focused on modernizing every aspect of our company, from our products and processes, to our operations and manufacturing footprint, to our corporate governance and capital structure, all with the view of establishing Tecumseh as a world-class competitor and among the leaders in public company governance and structure. During the call today, we will update you on the status of these efforts and our plans to continue moving forward.

Before turning to a detailed review of our compressor operations, I'd like to make note of the fact that we've sold our MP Pumps business to Lionheart Ventures for $14.6 million on June 30. This sale was a continuation of our efforts to divest business lines outside of our core compressors. MP Pumps was relatively small but profitable, accounting for approximately $20 million in revenues. However, it simply did not fit with our core operations. Over the coming months we will likely continue to identify smaller divestitures as we refine our focus. However, the largest steps in this process have already been accomplished.

We've made significant strides in reshaping Tecumseh into a global leader focused on our core compressor business. We've divested our two primary non-core divisions, raising significant levels of cash in the process. Our highly leveraged balance sheet has been dramatically improved as we paid down debt, resulting in lower interest expense and increased flexibility in operating our core business.

Although our work has just begun, we've made the initial critical steps toward improving our operational processes. We've begun to shift our operations through right-sizing our manufacturing to match the needs of our business. We have focused on improving our cost of goods through improved inventory control, better quality control, and effective supply chain management.

To better address customer demand, we've focused our product development efforts on core products and markets while shifting our global engineering resources to better meet regional market demand. In addition, we continue our efforts to reduce SG&A costs at the corporate level as well as overhead at our production facilities to leverage our non-production staff.

And, in facing continued commodity inflation and US dollar weakness, we are proactively managing foreign exchange exposure and hedging our commodity inputs wherever possible. Many more opportunities lie ahead of us, and we look forward to taking on these challenges as we move our operations toward the world-class capability we fully expect to achieve.

In the second quarter, we continued to see the initial benefits of these actions; gains in productivity, purchasing savings, and other improvements contributed about $10.5 million to the gross margins when compared to the same period in 2007. We expect to see more incremental benefits throughout the remainder of 2008 and into 2009. As I have indicated on prior calls, our expectation is that these operational initiatives will be one of the key factors in restoring our profitability.

As I've previously stated, we still expect to reach levels of operating profit between 3% and 5% by the end of 2010. Based upon the recommendations made by our strategic consultants as well as our own analysis, we see clear, definable steps to exceed those levels, particularly as we look beyond that time frame. The ultimate potential of the business will depend not only on our success as we execute our long-term strategic objectives, but also on the level of marketplace challenges we encounter as we move forward.

The recommended actions of our strategic consultant can broadly be categorized according to the time horizon involved. In the short-term, our opportunities are concentrated in making readily defined and rapidly implemented improvements in our manufacturing processes. These improvements include eliminating duplicative efforts, identifying the lowest cost locations for each operation, and renewing our emphasis on product quality. They also involve improving our production efficiencies, manpower utilization, and inventory carrying costs through the implementation of tools already available in the marketplace such as lean manufacturing concepts and the well known TPS systems, which of course we refer to as the Tecumseh Production System.

Other opportunities over the mid-range timeframe involve optimizing our level of vertical integration, reducing product costs through strategic sourcing, and the simplification of product platforms and their components. Over the longer term, we see potential to better optimize our product offerings and mix, while identifying and successfully penetrating those markets that offer the greatest opportunities for those products.

These recommendations have been reviewed and approved by our Board of Directors. And the process of cascading them throughout the entire global organization has already begun. In future calls, we'll continue to update you on the status of our efforts, and we'll communicate the magnitude of the results in measurable terms.

We've recently completed the move of our global headquarters from Tecumseh to Ann Arbor. The new location provides us with access to an enhanced pool of professional talent and easier access to travel through a major hub. These benefits will be key to effective management of our growing global enterprise.

During the second quarter, we continued our lean manufacturing training plan at all major locations. We anticipate that the final phase of the 2008 training plan will be completed in the third quarter, followed by a review of the program and planning for the 2009 training program, which will commence in the fourth quarter.

16 Kaizen training events have been completed worldwide, resulting in significant improvements in productivity, reduction in floor space requirements, and work-in-process inventory reductions. Although we're just in the training phase of implementing Kaizen processes, as we go forward, we intend to achieve a run rate of about 30 Kaizen events per quarter, or about one per plant per month, which will bring us into line with industry best practices.

The consolidation of our former manufacturing operations in Tecumseh, Michigan into our other North American locations is now complete. In July, we also completed the consolidation of our La Verpilliere operations into our Cessieu operations, thereby reducing the number of manufacturing locations in France from three to two.

In August, we intend to launch two updated product platforms in India and another project will focus on launching the updated compressor line in the Cessieu plant in France. An important element of the renewed focus on the optimization of our manufacturing capabilities is the re-vitalization of our engineering function. As part of this effort, we have welcomed the new Vice President of Global Engineering to our team, an individual with advanced leadership and turnaround capabilities.

The initiatives demonstrate the significant efforts that our new leadership team has made and will continue to make in order to produce the results that we have projected. As we stretch the organization to achieve a breakeven operating profit level before impairment and restructuring charges in 2008, the quality of our execution on our stated objectives gives me a higher level of confidence in our ability and commitment to reaching the operating and financial goals we have established. It's unfortunate that the marketplace conditions have somewhat masked our successes, I am pleased by the continued progress our team is making in our efforts to position Tecumseh as a world-wide industry leader.

As Jim will discuss shortly, we continued to improve on a number of operational and financial metrics in the second quarter even in the face of some significant headwinds in the global economy. The significant slowing of global economic activity adversely affected our revenues and unit volumes. However, it's important to note that as in the first quarter, some of these declines in market share were deliberate, in instances where profit margins were unacceptable due to the declining value of other currencies against the Brazilian real.

We were also challenged by plant shutdowns by several of our major customers, especially in Brazil and India that we did not have anticipation of. Given that we received very little advance notification of these shutdowns, sometimes as little as a week, we were unable to control our inventory levels and manufacturing efficiencies as proactively as we would have liked.

Going forward, as we shorten our product lead times, we will be able to better minimize the impact of these unanticipated events. We are also working diligently to address the overall softening sales environment and market share erosion by targeting new customers, increase volumes with existing customers, and introducing new Energy Star products, including our innovative refrigeration scroll compressor.

Despite the slowdown in global economic activity, we also are experiencing rapidly rising commodity prices creating upward pressure on our cost of sales, while the weakening of the US dollar against the euro and the real has further adversely affected our results. Although we've made significant strides in our process for hedging currency and commodity exposures, we will continue to refine our approach in order to minimize our risk exposure to these extremely volatile factors in our product cost. Nonetheless, we anticipate these factors will continue to influence our results over the near term.

As a Board and management team, we are looking to make improvements across our entire business. From our operations, manufacturing footprint, and quality initiatives, to our capital structure and corporate governance, we are actively engaged in establishing world-class processes, structures, and procedures. As part of this process, we are actively reviewing potential options for bringing our governance and capital structures up to date and in line with best practices.

The improvements we are contemplating to our governance and capital structure reflect the fact that we are a widely held public company. Our current capital structure is a vestige of an earlier time, when management and ownership of the business were more focused on a single family. We believe that the modernization of our capital structure is just as important as the changes we are implementing in our operational, leadership, and overall strategic focus. Accordingly, we are actively contemplating the elimination of our existing dual class structure and moving to a single class of stock.

As part of this undertaking, we have benchmarked the best governance practices of other companies. We've also initiated direct discussions with many of our largest shareholders, and, by the way, look forward to meeting with as many more shareholders as possible over the next several months. The information we've obtained through this process has strongly reinforced our own assessment. Not only is the single class of stock preferred by a majority of our shareholders, it's also widely recognized as a best practice by shareholder advocacy firms and corporate governance experts.

We believe the single class of stock would provide significant benefit to all shareholders, including aligning their economic and voting interests, and would provide additional liquidity and broader appeal that will benefit existing shareholders and potential shareholders, investors alike. We intend to move forward in this in the very near future to complete our evaluation and begin the execution of a plan to modernize our governance structure, including our capital structure. We look forward to sharing our conclusions with you once our analysis is complete.

Jim, will you elaborate on the financial results?

Jim Nicholson

Yes. Thank you, Ed. Income from continuing operations for the second quarter 2008 amounted to a net loss of $6.6 million, or $0.36 per fully diluted share, compared to a net loss from continuing operations of $7.4 million, or $0.40 per fully diluted share a year ago.

Operating loss increased by $3.2 million to $4.1 million from $900,000 last year. . Operating results included impairments, restructuring, and other charges of $3.3 million versus $1.7 million in 2007. Excluding these charges, operating results were nearly flat. Despite being flat, we made substantial improvements in order to achieve this result by offsetting lost margin of $13.9 million from the slowdown in global activity, higher commodity costs of $6.8 million, and unfavorable currency movements of $9.6 million. These unfavorable factors, which aggregate to $30.3 million for the quarter when compared to the prior year, were offset by selling price advances of $7.7 million and overall cost improvements of $11 million. – I’m sorry, I've just been notified. I said $7.7 million, I did mean $17.7 million.

Of the $11 million in overall cost improvements, $500,000 was attributable to reductions in selling and administrative costs. The company spent $3.9 million in the second quarter for one-time professional fees, including consulting services for strategic planning and various professional fees, including legal fees, for corporate governance matters.

While this represents a net reduction of $3.8 million in professional fees incurred for one-time projects when compared to the second quarter of 2007, it still represents higher spending than was contemplated for the period and represents further opportunity for reduction once the company is able to stabilize its ownership and modernize its capital structure.

The improvement in professional fees, however, was offset by a $3.3 million increase in administrative costs, which included a $2.1 million loss on currency forward contracts undertaken at our Indian facilities. The remaining increase in administrative cost was the result of costs in continuing operations that were formerly allocated to operations now classified as discontinued.

During the second quarter, we had a number of shifts on the sales front. Consolidated net sales for the quarter fell $23.2 million to $273.8 million from $297.0 million in the second quarter of 2007. Excluding the impact of currency translation, consolidated net sales would have declined by $51 million in the quarter.

Breaking down the total $23.2 million decline in net sales, sales for refrigeration and freezer applications fell by $25.9 million or 23.5% in the second quarter. There was a distinct pull back in volumes from our R&F customers around the entire globe as they took actions to adjust inventories. We estimate that more than 80% of the overall volume decline for the quarter was the result of this market slowdown.

The decline in these sales was partially offset by sales of compressors used in air conditioning and commercial applications, which increased by $2.7 million or 0.2%. Unit sales for these applications fell during the quarter, however, the impact of price increases and currency effects more than offset the declines in unit volumes.

And now, let me say a few words about our hedging activities and foreign exchange, and their impacts on our business in the second quarter. With regard to commodity hedging, we are actively engaged in forward purchase contracts to lock in prices and reduce the risk of commodity volatility on most key commodities. Our most significant commodity exposure remaining is steel, simply because there are no well-established effective hedging vehicles available for steel and we are facing further increases in steel costs in the second half of the year in the 20% to 30% magnitude.

You may recall that we previously indicated that the full year impact of commodity cost increases was estimated to be $35 million. With the last activity in steel pricing, we now believe that number to be closer to $50 million for the full year, with the increase in our estimate all being attributable to the second half of the year. To address this, we have implemented price increases ranging from 4% to 8% effective at various times from August 1 to October1.

Turning to foreign exchange exposure, including the effects of our hedging activities, our average realized rate for the real was 1.83 real to the dollar in the second quarter of 2008 versus 2.08 for the same period in 2007. Our current expectation is that our average realized rate will be 1.84 for 2008 versus 2.10 for 2007 respectively. Therefore, we are essentially maintaining our full year estimate of the unfavorable impact of the real and other currencies at $19 million.

It’s probably worth spending a couple of minutes on interest expense as well. As we have indicated in previous calls, the elimination of our North American debt has resulted in an approximate $20 million reduction in annual interest expense. In the second quarter, our interest expense was reduced by approximately $4.6 million from $10.8 million in the second quarter to $6.2 million this year. Additionally, given the sizable increase in our cash balances, interest income for the second quarter more than doubled to $3.3 million.

Now I will turn the call back over to Ed for some closing remarks.

Ed Buker

Thanks, Jim. In the second quarter, we continued to make progress in achieving our operational objectives. Our cost reduction efforts continued to gain traction, while our continued management of sales mix and sourcing activities helped to offset the commodity and currency-related headwinds prevalent in the market. Certainly, the biggest challenge we still face as we look to the remainder of the year is the ongoing global economic softness and its dampening effect on our revenues.

We are working diligently to address the softening sales environment by targeting new customers, increasing volumes with existing customers and managing the size of our infrastructure and our levels of manpower. However, we will continue to be selective in our approach to sales growth, ever mindful of the potential trade-off between revenues and margins.

With commodity inflation, we will continue to work closely with our supply date to minimize the impact while also implementing judicious price increases to cover the increasing costs of raw materials. While currency will continue to have a negative impact on our 2008 operating results, we believe our existing effort to hedge against foreign exchange volatility does protect us in part. Perhaps the more immediate challenge lies in the cost of purchased materials, including commodities such as steel and copper, which continue to trade at elevated levels.

With respect to copper, we continue to hedge through forward purchase agreements, which offer some degree of protection from continued price increases. Steel and other purchase materials represent a bigger challenge, as they cannot effectively be hedged using futures contracts or forwards.

Section 5.3 While currency will continue to have a negative impact on our 2008 operating results, we believe our existing efforts to hedge against foreign exchange volatility does protect us in part. Perhaps the more immediate challenge lies in the cost of purchased materials, including commodities such as steel and copper, which continue to trade at elevated levels. With respect to copper, we continue to hedge through forward purchase agreements, which offer some degree of protection from continued price increases. Steel and other purchased materials represent a bigger challenge, as they cannot effectively be hedged using futures contracts or forwards.

This concludes our prepared comments for this morning. Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator instructions) And we’ll go first to Brian Grad [ph] at DLS Capital Management.

Brian Grad – DLS Capital Management

Hi, guys, how are you?

Ed Buker

Good, Brian.

Brian Grad – DLS Capital Management

Good. Couple of quick questions for you. One is, does the cash balance at 6.30 include the MP Pumps or is that still held as if assets available for sale?

Ed Buker

This does not include MP Pumps. That transaction actually closed before the end of the quarter. So, all balances with respect to MP Pumps are not reflected in the financials.

Brian Grad – DLS Capital Management

Okay. And secondly, can you give us a little – kind of a little bit of a picture on how much of the sales decline is unit sales versus how much is falling prices? And is there any pricing power out there at all to raise prices to pass through some of your material cost?

Jim Nicholson

As I poorly [ph] mentioned, with price increases contributed additive sales by $17.7 million. So there is some ability to alter prices in light of what’s going on with our costs. With respect to unit volumes, I think on average we see unit volumes in the quarter of around 18%, or in the 15% to 20% range.

Brian Grad – DLS Capital Management

Okay. Do you expect that kind of rate of decline to continue or is it stabilizing here?

Jim Nicholson

I think our expectation is the third quarter will be pretty consistent with the second quarter with respective volumes and the fourth quarter is just too early to call to see what’s going to happen out there in the marketplace.

Brian Grad – DLS Capital Management

Okay. One more quick comment. Could you give us kind of an update on all the cash items that you were talking about on previous calls, tax refunds, inventory reductions, idle assets, and all that?

Jim Nicholson

We can do that. The picture really hasn’t changed from the last time that we went through this list, but we will do it again. Cash on hand, roughly $280 million. We still expect that there will be sizable collection of refundable taxes in Brazil in the second half of ’08. That estimate is in the range of $75 million to $90 million. Next year, in 2009, we should complete the reversion of the hourly pension plan that should generate proceeds of $35 million to $45 million range. We still expect to achieve inventory reductions globally in ’08 to the tune of, say, $25 million. And I guess the last item to talk about, we still continue to pursue a $14 million refund of taxes paid in the United States. The IRS has in fact challenged the timing of that deduction. And while we believe we will prevail, this could take some time to achieve.

Brian Grad – DLS Capital Management

Okay. So, no problem we’ve got plenty of cash on hand around the business, may I say it?

Jim Nicholson

I think we see it that way too. We have the liquidity necessary to take the actions that we want to take to improve profitability.

Ed Buker

It’s clearly a competitive advantage for us in light of the distressed volumes in markets.

Brian Grad – DLS Capital Management

Any possibility that any attractive assets come up for sale at good prices that could augment your business?

Ed Buker

We are constantly open to the right pieces of competitive advantage to hold on to the company. Currently, as we’ve talked before, we’re looking to get the operating performance and processes in place before trying to swallow any kind of additional acquisition, but if it was such a compelling opportunity, we certainly will consider, but it would not be a large one in my estimation.

Brian Grad – DLS Capital Management

Okay, thank you.

Operator

(Operator instructions) And we’ll go next to Charlie Rentschler of Wall Street Access.

Charlie Rentschler – Wall Street Access

Charlie Rentschler. Good morning, everybody.

Ed Buker

Hi, Charlie.

Charlie Rentschler – Wall Street Access

Just quickly on that projected sources of cash comment, Jim, last time you indicated the refund of the Brazilian income tax could stretch out into next year. But I think the numbers I had was $60 million to $65 million in the second half of this year and $40 million in ’09. But the $75 million to $90 million that you just gave, does that imply or suggest then that the ’09 refund would actually occur this year?

Jim Nicholson

I think there is a slight change in the timing. Overall, we’re still looking at $140 million in refundable taxes in Brazil. So, that gives you an idea of the mix. Maybe early if I were [ph] to be conservative, what we talked in ’08 is closer to the $75 million part of that range. But there is the possibility that we can shake loose more than we have previously indicated.

Charlie Rentschler – Wall Street Access

And then depreciation is running in the area of $40 million a year type thing and –

Jim Nicholson

Yes. If you look at the financial statement, I think we had a full cash flow statement in there.

Teresa Hess

Well, we do, but we won’t issue the 10-Q until later today and it’s compressed in the earnings release. So, Charlie wouldn’t have –

Jim Nicholson

It’s still compressed. Okay. So, depreciation through the first two quarters was $22.6 million in continuing operations. Now I think that is a fair and representative piece of what depreciation would be for the full year.

Charlie Rentschler – Wall Street Access

Yes. Which is considerably in excess of CapEx – of your projected CapEx.

Jim Nicholson

True.

Charlie Rentschler – Wall Street Access

Second question had to do, Ed, with maybe could you get a bit more granular about your manufacturing strategy in terms of – you mentioned going from three plants to two in France, but can you tell us a bit more about what’s going on in Brazil and also what’s happening in India, please?

Ed Buker

Sure. I think we’ve mentioned before that we’ve begun to look at all of our locations for what products are producing and which ones are the most competitive. And clearly, India is one of our most competitive position to be in. So we’re in the process over the next few months targeting by the end of the year to ship several product lines in that regard and we talked about two updated compressors specifically in that regard. The –

Charlie Rentschler – Wall Street Access

From Brazil to India?

Ed Buker

It’s the combination of all – unfortunately we don’t make one product line in one location, Charlie. It’s a little more complicated than that. There are portions of product in each location. And what we are doing is looking at pulling both pieces or lines out of each location moving to India, including France, Europe, and the United States, both in moving some of those products that direction. We currently make some of the components already for those products. Again, we are moving to rest of the some of the assembly operations that we call those components the machine pump portion, we call that a kit. We do lots of kit work and we’re moving the balance of the compressor assembly on some cases to both lines to fill it up. And in Brazil, we’re looking at focusing on the countries where there are better competitors for Brazil and shipping some of the products we make in India from Brazil to India to supply to North America or Europe to make them a more competitive position.

Charlie Rentschler – Wall Street Access

And, Ed, from what you can see so far, would you describe these manufacturing opportunities, I guess it would take a year or two or three to play out, but would you call them modest or large or very large, or how would you – what’s your sense of all of this?

Ed Buker

I think the opportunity itself over the next three years is large to very large, Charles. The way that we have historically invested and set up lack of flexibility from our system as we make the move, we add back the better flexibility over investment. And there are big opportunities in reduction of the cost to produce the components, on looking [ph] complement with our supply base.

Charlie Rentschler – Wall Street Access

So, I mean you’ve made a lot of improvements so far, but really the two big questions are what to make and where to make it. Those are the two really unanswered questions, which have, as you say, large opportunities.

Ed Buker

They are becoming – work with the strategy consultants over the next 24 to 36 months, we’ve answered in our minds where they should be made. And the timing and execution is our only constraint. The human resources we make it happen effectively without stumbling is the key for us. And as we get better at this, we can become faster in doing this, but we have to have some successes before we try to swallow the whole elephant.

Charlie Rentschler – Wall Street Access

Okay. I’ll get back in the line. Thank you.

Operator

(Operator instructions) And we will return to Charlie Rentschler at Wall Street Access.

Charlie Rentschler – Wall Street Access

Nobody else is in line there. Can you – let’s go back to the single class stock. Does that probably will also deal with the Herrick family situation? I mean, that would make that situation positive I guess.

Ed Buker

I believe, Charlie, we would satisfy their request for liquidity with that particular approach.

Charlie Rentschler – Wall Street Access

And is that something we might look forward to yet by year-end or is that too optimistic, too aggressive?

Ed Buker

We have to take a careful look at the implications in the timing and do it properly. But we are actively involved with the Board and professionals in trying to find the best possible answer for all of our shareholders as rapidly as possible.

Charlie Rentschler – Wall Street Access

And then I guess if nobody else is in the queue, can we go back to manufacturing? Tecumseh, Michigan and Dundee, Michigan are essentially close or there is still some stuff going on there?

Ed Buker

The manufacturing operations in Tecumseh and all but some engineering activities and lab work are done. Dundee is down to a single product line that we’ll finish up in the next two to three months.

Charlie Rentschler – Wall Street Access

And so that leaves the only domestic manufacturing is, what, Mississippi?

Ed Buker

In Tupelo is the compressor location and (inaudible).

Charlie Rentschler – Wall Street Access

Okay. All right. Thank you.

Operator

(Operator instructions) We’ll return to Brian Grad at DLS Capital Management.

Brian Grad – DLS Capital Management

Hi, guys. Just one more quick question on the corporate governance side, I mean, is there anything that prevents you from buying back our stock down here? I mean, you’re trading at significant value below tangible book. And it seems like with all the excess cash that you’ve got and cash that you are generating through tax, tax refunds, why don’t you just buy back your stock or take your company private?

Ed Buker

We have done a careful discussion with outside advisors to consider what are the best options for us at this time based upon the markets, the environment, and that’s why we are focusing on the recapitalization at this point in time.

Brian Grad – DLS Capital Management

Okay. Fair enough.

Operator

And we are standing by with no further questions at this time. I’d like to turn the call back to Mr. Buker for any closing or additional comments.

Ed Buker

Thank you very much, Tony. I appreciate the call and your support through the conference and your support as we’ve been going through our processes. It's been a year for me as of next week and it’s been a pretty dramatic change in improvement from my perspective as far as my ability to see where we are going and how we are going there and the opportunities. So, I look forward to helping deliver the kind of results we’ve talked about very rapidly and the best in class procedures. With that, I’ll conclude our conference call and talk with you shortly with our next call. Thank you everyone.

Operator

Thank you. This does conclude today’s conference. We do thank you very much for your participation. You may now disconnect at this time.

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