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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    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 1-13894
 PROLIANCE INTERNATIONAL, INC.
  Delaware
    
    34-1807383(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2009 and 2008 (unaudited)
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2009 (unaudited)
and December 31, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2009 and 2008 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    31Signatures
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 PROLIANCE INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months(Unaudited)
    
    Ended March 31,(in thousands, except per share amounts)
    
    2009
    
    
    2008Net sales
    
    $
    60,978
    
    
    $
    76,540Cost of sales
    
    
    54,678
    
    
    
    65,458Gross margin
    
    
    6,300
    
    
    
    11,082Selling, general and administrative expenses
    
    
    15,237
    
    
    
    12,831Restructuring charges
    
    
    835
    
    
    
    172Operating loss
    
    
    (9,772
    )
    
    
    (1,921
    )Interest expense
    
    
    3,020
    
    
    
    3,736Debt extinguishment costs
    
    
    7
    
    
    
    576Financing cost write-off
    
    
    1,905
    
    
    
    Unrealized (gain) from warrant fair value adjustment
    
    
    (327
    )
    
    
    Loss before income taxes
    
    
    (14,377
    )
    
    
    (6,233
    )Income tax provision (benefit)
    
    
    16
    
    
    
    (57
    )Net loss
    
    $
    (14,393
    )
    
    $
    (6,176
    )Basic and diluted net loss per common share
    
    $
    (0.92
    )
    
    $
    (0.40
    )Weighted average common shares  basic and diluted
    
    
    15,758
    
    
    
    15,730
  3




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PROLIANCE INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2009
    
    
    2008(in thousands, except share data)
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,233
    
    
    $
    2,444Accounts receivable (less allowances of $5,272 and $3,938)
    
    
    45,924
    
    
    
    57,005Inventories
    
    
    72,375
    
    
    
    84,586Other current assets
    
    
    4,427
    
    
    
    5,198Total current assets
    
    
    124,959
    
    
    
    149,233Property, plant and equipment
    
    
    48,178
    
    
    
    47,678Accumulated depreciation and amortization
    
    
    (27,016
    )
    
    
    (25,792
    )Net property, plant and equipment
    
    
    21,162
    
    
    
    21,886Other assets
    
    
    14,186
    
    
    
    16,086Total assets
    
    $
    160,307
    
    
    $
    187,205LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    35,855
    
    
    $
    43,960Accounts payable
    
    
    62,451
    
    
    
    64,788Accrued liabilities
    
    
    17,414
    
    
    
    18,546Total current liabilities
    
    
    115,720
    
    
    
    127,294Long-term liabilities:Long-term debt
    
    
    745
    
    
    
    877Warrants outstanding , at fair value
    
    
    234
    
    
    
    Other long-term liabilities
    
    
    16,792
    
    
    
    16,845Total long-term liabilities
    
    
    17,771
    
    
    
    17,722Commitments and contingent liabilitiesStockholders equity:Preferred stock, $.01 par value: Authorized 2,500,000 shares; issued and outstanding as follows:Series A junior participating preferred stock, $.01 par value: authorized
200,000 shares; issued and outstanding  none at March 31, 2009 and December 31, 2008
    
    
    
    
    
    
    Series B convertible preferred stock, $.01 par value: authorized 30,000 shares; issued and outstanding;  9,913 shares at March 31, 2009 and December
31, 2008 (liquidation preference $3,453)
    
    
    
    
    
    
    Common stock, $.01 par value: authorized 47,500,000 shares; issued 15,821,594 and
15,840,913 shares, outstanding 15,779,658 and 15,798,977 shares at March 31, 2009 and December 31, 2008, respectively
    
    
    158
    
    
    
    158Paid-in capital
    
    
    109,452
    
    
    
    112,434Accumulated deficit
    
    
    (64,231
    )
    
    
    (52,274
    )Accumulated other comprehensive loss
    
    
    (18,548
    )
    
    
    (18,114
    )Treasury stock, at cost, 41,936 shares at March 31, 2009 and December 31, 2008
    
    
    (15
    )
    
    
    (15
    )Total stockholders equity
    
    
    26,816
    
    
    
    42,189Total liabilities and stockholders equity
    
    $
    160,307
    
    
    $
    187,205
  4




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PROLIANCE INTERNATIONAL, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months Ended(Unaudited)
    
    March 31,(in thousands)
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (14,393
    )
    
    $
    (6,176
    )Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation and amortization
    
    
    2,174
    
    
    
    2,501Provision for uncollectible accounts receivable
    
    
    1,606
    
    
    
    52Non-cash stock compensation costs
    
    
    58
    
    
    
    55Non-cash debt extinguishment costs
    
    
    7
    
    
    
    193Financing cost write-off
    
    
    1,905
    
    
    
    Gain on disposal of fixed assets
    
    
    (27
    )
    
    
    (3,164
    )Unrealized gain from warrant fair value adjustment
    
    
    (327
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    9,365
    
    
    
    627Inventories
    
    
    11,968
    
    
    
    20,100Accounts payable
    
    
    (2,213
    )
    
    
    9,850Accrued expenses
    
    
    (1,098
    )
    
    
    (1,731
    )Southaven Casualty Event insurance claim
    
    
    
    
    
    
    (20,756
    )Other
    
    
    589
    
    
    
    (23
    )Net cash provided by operating activities
    
    
    9,614
    
    
    
    1,528Cash flows from investing activities:Capital expenditures, net of normal sales and retirements
    
    
    (777
    )
    
    
    (1,437
    )Proceeds from sale of building
    
    
    
    
    
    
    1,538Insurance proceeds from damaged fixed assets
    
    
    
    
    
    
    2,674Cash expenditures for restructuring costs on merger opening balance sheet
    
    
    
    
    
    
    (62
    )Net cash (used in) provided by investing activities
    
    
    (777
    )
    
    
    2,713Cash flows from financing activities:Dividends paid
    
    
    (44
    )
    
    
    (44
    )Net (repayments) borrowings under revolving credit facility
    
    
    (6,742
    )
    
    
    4,314(Repayments) borrowings of short-term foreign debt
    
    
    (1,678
    )
    
    
    3,528Repayments of term loan and capitalized lease obligations
    
    
    (236
    )
    
    
    (6,323
    )Deferred debt issuance and financing costs
    
    
    (324
    )
    
    
    (3,074
    )Net cash used in financing activities
    
    
    (9,024
    )
    
    
    (1,599
    )Effect of exchange rate changes on cash
    
    
    (24
    )
    
    
    80(Decrease) increase in cash and cash equivalents
    
    
    (211
    )
    
    
    2,722Cash and cash equivalents at beginning of period
    
    
    2,444
    
    
    
    476Cash and cash equivalents at end of period
    
    $
    2,233
    
    
    $
    3,198
  5




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PROLIANCE INTERNATIONAL, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Interim Financial Statements
    Note 2  Southaven Event and Related Liquidity Issues
  6




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Note 3  Inventory
  March 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Raw material and component parts
    
    $
    21,306
    
    
    $
    25,479Work in progress
    
    
    3,028
    
    
    
    4,043Finished goods
    
    
    48,041
    
    
    
    55,064Total inventory
    
    $
    72,375
    
    
    $
    84,586
 Note 4  Debt
  March 31,
    
    
    December 31,(in thousands)
    
    2009
    
    
    2008Short-term foreign debt
    
    $
    1,598
    
    
    $
    3,277Term loan
    
    
    33,685
    
    
    
    33,377Revolving credit facility
    
    
    
    
    
    
    6,742Current portion of long-term debt
    
    
    572
    
    
    
    564Total short-term debt and current
portion of long-term debt
    
    $
    35,855
    
    
    $
    43,960
  Silver Point Agreement
  8




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9




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Refinancing Process
  10




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Note 5  Accounting for Warrants
  11




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Note 6  Comprehensive Loss
  Three Months EndedMarch 31,(in thousands)
    
    2009
    
    
    2008Net loss
    
    $
    (14,393
    )
    
    $
    (6,176
    )Minimum pension liability
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    (434
    )
    
    
    1,454Comprehensive loss
    
    $
    (14,827
    )
    
    $
    (4,722
    )
 Note 7  Restructuring Charges
    12




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Workforce
    
    
    Facility(in thousands)
    
    Related
    
    
    Consolidation
    
    
    TotalBalance at December 31, 2008
    
    $
    220
    
    
    $
    304
    
    
    $
    524Charge to operations
    
    
    812
    
    
    
    23
    
    
    
    835Cash payments
    
    
    (561
    )
    
    
    (103
    )
    
    
    (664
    )Balance at March 31, 2009
    
    $
    471
    
    
    $
    224
    
    
    $
    695
  Note 8  Retirement and Post-Retirement Plans
  Three Months Ended March 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    Retirement Plans
    
    
    Post-retirement PlansService cost
    
    $
    99
    
    
    $
    258
    
    
    $
    
    
    
    $
    Interest cost
    
    
    519
    
    
    
    502
    
    
    
    2
    
    
    
    3Expected return on plan assets
    
    
    (515
    )
    
    
    (548
    )
    
    
    
    
    
    
    Amortization of net loss
    
    
    197
    
    
    
    133
    
    
    
    (1
    )
    
    
    (2
    )Net periodic benefit cost
    
    $
    300
    
    
    $
    345
    
    
    $
    1
    
    
    $
    1
    Note 9  Gain on Sale of Building
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Note 10  Stock Compensation Plans
 Stock Options
  Option Price RangeNumber of
    
    
    
    
    
    WeightedOptions
    
    Low
    
    Average
    
    HighStock PlanOutstanding at December 31, 2008
    
    
    309,777
    
    
    $
    2.56
    
    
    $
    3.93
    
    
    $
    5.25Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    309,777
    
    
    $
    2.56
    
    
    $
    3.93
    
    
    $
    5.25Directors PlanOutstanding at December 31, 2008
    
    
    30,800
    
    
    $
    2.70
    
    
    $
    4.61
    
    
    $
    5.50Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2009
    
    
    30,800
    
    
    $
    2.70
    
    
    $
    4.61
    
    
    $
    5.50Equity Incentive PlanOutstanding at December 31, 2008
    
    
    644,423
    
    
    $
    1.20
    
    
    $
    2.25
    
    
    $
    5.27Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    (34,026
    )
    
    
    1.20
    
    
    
    2.06
    
    
    
    5.27Outstanding at March 31, 2009
    
    
    610,397
    
    
    $
    1.20
    
    
    $
    2.26
    
    
    $
    5.27
  Restricted Stock
  Grant Date Fair ValueNumber of
    
    
    
    
    
    WeightedShares
    
    Low
    
    Average
    
    HighOutstanding at December 31,
2008
    
    
    43,115
    
    
    $
    1.20
    
    
    $
    4.19
    
    
    $
    5.27Vested
    
    
    (8,239
    )
    
    
    5.27
    
    
    
    5.27
    
    
    
    5.27Cancelled
    
    
    (18,299
    )
    
    
    4.24
    
    
    
    4.27
    
    
    
    5.27Outstanding at March 31, 2009
    
    
    16,577
    
    
    $
    1.20
    
    
    $
    3.57
    
    
    $
    5.27
  14




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Note 11  Loss Per Share
  Three MonthsEnded March 31,(in thousands, except per share amounts)
    
    2009
    
    
    2008Numerator:Net loss
    
    $
    (14,393
    )
    
    $
    (6,176
    )Deduct  preferred stock dividend
    
    
    (43
    )
    
    
    (43
    )Net loss attributable to common stockholders  basic and diluted
    
    $
    (14,436
    )
    
    $
    (6,219
    )Denominator:Weighted average common shares basic and diluted
    
    
    15,758
    
    
    
    15,730Basic and diluted net loss per common share
    
    $
    (0.92
    )
    
    $
    (0.40
    )
  Note 12  Business Segment Data
  15




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Three MonthsEnded March 31,(in thousands)
    
    2009
    
    
    2008Net sales:Domestic
    
    $
    38,636
    
    
    $
    49,717International
    
    
    22,342
    
    
    
    26,823Intersegment sales:Domestic
    
    
    1,006
    
    
    
    589International
    
    
    3,010
    
    
    
    4,791Elimination of intersegment sales
    
    
    (4,016
    )
    
    
    (5,380
    )Total net sales
    
    $
    60,978
    
    
    $
    76,540Operating (loss) income:Domestic
    
    $
    (6,126
    )
    
    $
    (883
    )Restructuring charges
    
    
    (432
    )
    
    
    (172
    )Domestic total
    
    
    (6,558
    )
    
    
    (1,055
    )International
    
    
    (654
    )
    
    
    62Restructuring charges
    
    
    (403
    )
    
    
    International total
    
    
    (1,057
    )
    
    
    62Corporate expenses
    
    
    (2,157
    )
    
    
    (928
    )Total operating loss
    
    $
    (9,772
    )
    
    $
    (1,921
    )
   Three MonthsEnded March 31,(in thousands)
    
    2009
    
    
    2008Automotive and light truck heat exchange products
    
    $
    38,154
    
    
    $
    45,393Automotive and light truck temperature control products
    
    
    3,402
    
    
    
    9,679Heavy duty heat exchange products
    
    
    19,422
    
    
    
    21,468Total net sales
    
    $
    60,978
    
    
    $
    76,540
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Note 13  Supplemental Cash Flow Information
  Three Months EndedMarch 31,(in thousands)
    
    2009
    
    
    2008Non-cash financing activity:Value of common stock warrants and
increase of deferred debt costs
    
    $
    
    
    
    $
    3,040Amendment fee which increased term loan
and deferred debt costs
    
    $
    420
    
    
    $
    Cash paid (refunded) during the period for:Interest
    
    $
    2,442
    
    
    $
    3,345Income taxes
    
    $
    375
    
    
    $
    (220
    )
 Note 14  Recent Accounting Pronouncements
    Note 15  Subsequent Events
  17




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
       Operating Results
 Quarter Ended March 31, 2009 Versus Quarter Ended March 31, 2008
  19




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Three Months Ended March 312009
    
    
    2008
    
    
    Increase
    
    (Decrease)%
    
    
    
    
    
    %(in thousands of dollars)
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    PercentNet sales
    
    $
    60,978
    
    
    
    100.0
    %
    
    $
    76,540
    
    
    
    100.0
    %
    
    $
    (15,562
    )
    
    
    (20.3
    )%Cost of sales
    
    
    54,678
    
    
    
    89.7
    
    
    
    65,458
    
    
    
    85.5
    
    
    
    (10,780
    )
    
    
    (16.5
    )Gross margin
    
    
    6,300
    
    
    
    10.3
    
    
    
    11,082
    
    
    
    14.5
    
    
    
    (4,782
    )
    
    
    (43.2
    )Selling,
general and administrative
expenses
    
    
    15,237
    
    
    
    25.0
    
    
    
    12,831
    
    
    
    16.8
    
    
    
    2,406
    
    
    
    18.8Restructuring charges
    
    
    835
    
    
    
    1.3
    
    
    
    172
    
    
    
    0.2
    
    
    
    663
    
    
    
    385.5Operating loss
    
    
    (9,772
    )
    
    
    (16.0
    )
    
    
    (1,921
    )
    
    
    (2.5
    )
    
    
    (7,851
    )
    
    
    (408.7
    )Interest expense
    
    
    3,020
    
    
    
    5.0
    
    
    
    3,736
    
    
    
    4.9
    
    
    
    (716
    )
    
    
    (19.2
    )Debt extinguishment costs
    
    
    7
    
    
    
    0.0
    
    
    
    576
    
    
    
    0.7
    
    
    
    (569
    )
    
    
    (98.8
    )Financing cost write-off
    
    
    1,905
    
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    1,905
    
    
    NmUnrealized
(gain) from warrant fair value adjustment
    
    
    (327
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    327
    
    
    NmLoss before income taxes
    
    
    (14,377
    )
    
    
    (23.6
    )
    
    
    (6,233
    )
    
    
    (8.1
    )
    
    
    (8,144
    )
    
    
    (130.7
    )Income tax provision (benefit)
    
    
    16
    
    
    
    0.0
    
    
    
    (57
    )
    
    
    0.0
    
    
    
    73
    
    
    
    128.1Net loss
    
    $
    (14,393
    )
    
    
    (23.6
    )%
    
    $
    (6,176
    )
    
    
    (8.1
    )%
    
    $
    (8,217
    )
    
    
    (133.0
    )%Nm-not meaningful percent change.The following table compares net sales and gross margin by the Companys two business segments
(Domestic and International) for the three months ended March 31, 2009 and 2008.Three Months Ended March 312009
    
    
    2008%
    
    
    
    
    
    %(in thousands of dollars)
    
    
    
    
    
    
    
    
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    of Net SalesNet salesDomestic segment
    
    
    
    
    
    
    
    
    
    $
    38,636
    
    
    
    63.4
    %
    
    $
    49,717
    
    
    
    65.0
    %International segment
    
    
    
    
    
    
    
    
    
    
    22,342
    
    
    
    36.6
    
    
    
    26,823
    
    
    
    35.0Total net sales
    
    
    
    
    
    
    
    
    
    $
    60,978
    
    
    
    100.0
    %
    
    $
    76,540
    
    
    
    100.0
    %Gross marginDomestic segment
    
    
    
    
    
    
    
    
    
    $
    1,867
    
    
    
    4.8
    %
    
    $
    5,274
    
    
    
    10.6
    %International segment
    
    
    
    
    
    
    
    
    
    
    4,433
    
    
    
    19.8
    
    
    
    5,808
    
    
    
    21.7Total gross margin
    
    
    
    
    
    
    
    
    
    $
    6,300
    
    
    
    10.3
    %
    
    $
    11,082
    
    
    
    14.5
    %
  20




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Financial Condition, Liquidity and Capital Resources
   23




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Silver Point Agreement
    24




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25




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Refinancing Process
  26




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Liquidity
 Short-term
  27




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Longer-term
   Critical Accounting Estimates
  Recent Accounting Pronouncements
  29




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Forward-Looking Statements and Cautionary Factors
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
  30




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PART II. OTHER INFORMATION
 
 Item 6. EXHIBITS
 31.1
    
    Certification of CEO in accordance with Section 302 of the Sarbanes-Oxley
Act.31.2
    
    Certification of CFO in accordance with Section 302 of the Sarbanes-Oxley
Act.32.1
    
    Certification of CEO in accordance with Section 906 of the Sarbanes-Oxley
Act.32.2
    
    Certification of CFO in accordance with Section 906 of the Sarbanes-Oxley Act.
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SIGNATURES
  PROLIANCE INTERNATIONAL, INC.
(Registrant)Date:  May 6, 2009
    By:
    /s/ Charles E. JohnsonCharles E. JohnsonPresident and Chief Executive Officer (Principal
Executive Officer)Date:  May 6, 2009
    By:
    /s/ Arlen F. HenockArlen F. HenockExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 32