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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 September 30, 2008
 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
(State or other jurisdiction 
of incorporation or organization)
    
    34-1807383
(I.R.S. Employer
Identification No.)
 
 
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



INDEX
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2008 and 2007 (unaudited)Condensed Consolidated Balance Sheets at September 30, 2008
(unaudited) and December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2008 and 2007 (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
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    36PART II.
    
    OTHER INFORMATIONItem 5.
    
    Other Information
    
    
    36Item 6.
    
    Exhibits
    
    
    36Signatures
    
    
    
    
    37EX-10.1: NINTH AMENDMENT TO CREDIT AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months
    
    
    Nine Months(Unaudited)
    
    Ended September 30,
    
    
    Ended September 30,(in thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    95,387
    
    
    $
    115,333
    
    
    $
    274,081
    
    
    $
    309,685Cost of sales
    
    
    75,673
    
    
    
    88,115
    
    
    
    222,745
    
    
    
    243,857Gross margin
    
    
    19,714
    
    
    
    27,218
    
    
    
    51,336
    
    
    
    65,828Selling, general and administrative expenses
    
    
    11,281
    
    
    
    19,107
    
    
    
    38,876
    
    
    
    59,602Arbitration earn-out decision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,174Restructuring charges
    
    
    
    
    
    
    1,864
    
    
    
    172
    
    
    
    3,192Operating income (loss)
    
    
    8,433
    
    
    
    6,247
    
    
    
    12,288
    
    
    
    (140
    )Interest expense
    
    
    3,845
    
    
    
    4,556
    
    
    
    12,130
    
    
    
    10,159Debt extinguishment costs
    
    
    2,246
    
    
    
    891
    
    
    
    2,822
    
    
    
    891Income (loss) before income taxes
    
    
    2,342
    
    
    
    800
    
    
    
    (2,664
    )
    
    
    (11,190
    )Income tax provision
    
    
    924
    
    
    
    671
    
    
    
    1,573
    
    
    
    1,247Net income (loss)
    
    $
    1,418
    
    
    $
    129
    
    
    $
    (4,237
    )
    
    $
    (12,437
    )Net income (loss) per common share-basic
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    (0.28
    )
    
    $
    (0.89
    )Net income (loss) per common share-diluted
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    (0.28
    )
    
    $
    (0.89
    )Weighted average common shares  basic
    
    
    15,756
    
    
    
    15,269
    
    
    
    15,745
    
    
    
    15,265Weighted average common shares  diluted
    
    
    19,572
    
    
    
    17,454
    
    
    
    15,745
    
    
    
    15,265
  3




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PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,(in thousands, except share data)
    
    2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,301
    
    
    $
    476Accounts receivable (less allowances of $3,353 and $4,601)
    
    
    70,152
    
    
    
    60,153Inventories
    
    
    96,020
    
    
    
    106,756Other current assets
    
    
    5,227
    
    
    
    7,645Total current assets
    
    
    174,700
    
    
    
    175,030Property, plant and equipment
    
    
    47,379
    
    
    
    50,165Accumulated depreciation and amortization
    
    
    (24,695
    )
    
    
    (29,001
    )Net property, plant and equipment
    
    
    22,684
    
    
    
    21,164Other assets
    
    
    16,024
    
    
    
    12,699Total assets
    
    $
    213,408
    
    
    $
    208,893LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    47,804
    
    
    $
    67,242Accounts payable
    
    
    69,290
    
    
    
    48,412Accrued liabilities
    
    
    29,557
    
    
    
    24,649Total current liabilities
    
    
    146,651
    
    
    
    140,303Long-term liabilities:Long-term debt
    
    
    41
    
    
    
    211Other long-term liabilities
    
    
    5,165
    
    
    
    5,353Total long-term liabilities
    
    
    5,206
    
    
    
    5,564Commitments 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 September 30, 2008 and
December 31, 2007
    
    
    
    
    
    
    Series B convertible preferred stock, $.01 par value: authorized 30,000 shares;
issued and outstanding;  9,913 shares at September 30, 2008 and December
31,2007 (liquidation preference $3,453)
    
    
    
    
    
    
    Common stock, $.01 par value: authorized 47,500,000 shares; issued 15,840,913 and
15,838,962 shares, outstanding 15,798,977 and 15,797,026 shares at September 30, 2008
and December 31, 2007, respectively
    
    
    158
    
    
    
    158Paid-in capital
    
    
    112,363
    
    
    
    109,145Accumulated deficit
    
    
    (52,405
    )
    
    
    (48,039
    )Accumulated other comprehensive income
    
    
    1,450
    
    
    
    1,777Treasury stock, at cost, 41,936 shares at September 30, 2008 and December 31, 2007
    
    
    (15
    )
    
    
    (15
    )Total stockholders equity
    
    
    61,551
    
    
    
    63,026Total liabilities and stockholders equity
    
    $
    213,408
    
    
    $
    208,893
  4




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PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months Ended(Unaudited)
    
    September 30,(in thousands)
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (4,237
    )
    
    $
    (12,437
    )Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    7,199
    
    
    
    6,197Provision for (benefit from) uncollectible accounts receivable
    
    
    785
    
    
    
    (65
    )Non-cash stock compensation costs
    
    
    180
    
    
    
    117Non-cash debt extinguishment costs
    
    
    1,931
    
    
    
    576Non-cash arbitration earn-out decision charge
    
    
    
    
    
    
    3,174Gain on disposal of fixed assets
    
    
    (4,038
    )
    
    
    (942
    )Deferred income tax
    
    
    
    
    
    
    136Changes in operating assets and liabilities:Accounts receivable
    
    
    (10,896
    )
    
    
    (11,873
    )Inventories
    
    
    10,687
    
    
    
    8,210Accounts payable
    
    
    20,899
    
    
    
    892Accrued liabilities
    
    
    4,981
    
    
    
    (1,639
    )Other
    
    
    (258
    )
    
    
    (2,994
    )Net cash provided by (used in) operating activities
    
    
    27,233
    
    
    
    (10,648
    )Cash flows from investing activities:Capital expenditures, net of normal sales and retirements
    
    
    (6,387
    )
    
    
    (1,810
    )Proceeds from sales of buildings
    
    
    1,538
    
    
    
    806Insurance proceeds for fixed assets damaged by tornadoes
    
    
    3,428
    
    
    
    Cash expenditures for restructuring costs on Modine Aftermarket
acquisition balance sheet
    
    
    (62
    )
    
    
    (195
    )Net cash used in investing activities
    
    
    (1,483
    )
    
    
    (1,199
    )Cash flows from financing activities:Dividends paid
    
    
    (129
    )
    
    
    (1,183
    )Net repayments of revolving credit facilities
    
    
    (9,925
    )
    
    
    (38,497
    )Borrowings of short-term foreign debt
    
    
    7,045
    
    
    
    6,001Borrowings under term loans
    
    
    
    
    
    
    58,000Repayments of term loans and capitalized lease obligations
    
    
    (16,729
    )
    
    
    (9,650
    )Deferred debt issuance costs
    
    
    (3,184
    )
    
    
    (4,964
    )Proceeds from stock option exercise
    
    
    
    
    
    
    25Net cash (used in) provided by financing activities
    
    
    (22,922
    )
    
    
    9,732Effect of exchange rate changes on cash
    
    
    (3
    )
    
    
    23Increase (decrease) in cash and cash equivalents
    
    
    2,825
    
    
    
    (2,092
    )Cash and cash equivalents at beginning of period
    
    
    476
    
    
    
    3,135Cash and cash equivalents at end of period
    
    $
    3,301
    
    
    $
    1,043
  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
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Raw material and component parts
    
    $
    28,410
    
    
    $
    23,055Work in progress
    
    
    4,205
    
    
    
    4,044Finished goods
    
    
    63,405
    
    
    
    79,657Total inventory
    
    $
    96,020
    
    
    $
    106,756
 Note 4  Debt
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Short-term foreign debt
    
    $
    7,045
    
    
    $
    Term loan
    
    
    33,490
    
    
    
    49,625Revolving credit facility
    
    
    7,154
    
    
    
    17,078Current portion of long-term debt
    
    
    115
    
    
    
    539Total short-term debt and current
portion of long-term debt
    
    $
    47,804
    
    
    $
    67,242
    8




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Note 5  Comprehensive Income (Loss)
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,418
    
    
    $
    129
    
    
    $
    (4,237
    )
    
    $
    (12,437
    )Minimum pension liability adjustment
    
    
    
    
    
    
        
    
    
        
    
    
    Foreign currency translation adjustment
    
    
    (2,980
    )
    
    
    281
    
    
    
    (327
    )
    
    
    854Comprehensive (loss) income
    
    $
    (1,562
    )
    
    $
    410
    
    
    $
    (4,564
    )
    
    $
    (11,583
    )
 12




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Note 6  Stock Compensation Plans
 Stock Options
  Option Price RangeNumber of
    
    
    
    
    
    WeightedOptions
    
    Low
    
    Average
    
    HighStock PlanOutstanding at December 31, 2007
    
    
    339,777
    
    
    $
    2.56
    
    
    $
    3.99
    
    
    $
    5.25Cancelled
    
    
    (25,000
    )
    
    
    4.51
    
    
    
    4.64
    
    
    
    4.72Outstanding at September 30, 2008
    
    
    314,777
    
    
    $
    2.56
    
    
    $
    3.94
    
    
    $
    5.25Directors PlanOutstanding at December 31, 2007
    
    
    30,800
    
    
    $
    2.70
    
    
    $
    4.61
    
    
    $
    5.50Cancelled
    
    
        
    
    
    
    
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    30,800
    
    
    $
    2.70
    
    
    $
    4.61
    
    
    $
    5.50Equity Incentive PlanOutstanding at December 31, 2007
    
    
    177,500
    
    
    $
    2.90
    
    
    $
    6.34
    
    
    $
    11.75Granted
    
    
    572,000
    
    
    
    1.20
    
    
    
    1.80
    
    
    
    2.80Cancelled
    
    
    (102,315
    )
    
    
    2.80
    
    
    
    6.84
    
    
    
    11.75Outstanding at September 30, 2008
    
    
    647,185
    
    
    $
    1.20
    
    
    $
    2.25
    
    
    $
    5.27
    13




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Restricted Stock
  Grant Date Fair ValueNumber of
    
    
    
    
    
    WeightedShares
    
    Low
    
    Average
    
    HighOutstanding at December 31, 2007
    
    
    69,330
    
    
    $
    2.35
    
    
    $
    4.26
    
    
    $
    5.27Granted
    
    
    5,000
    
    
    
    1.20
    
    
    
    1.20
    
    
    
    1.20Vested
    
    
    (28,166
    )
    
    
    2.35
    
    
    
    3.71
    
    
    
    5.27Cancelled
    
    
    (3,049
    )
    
    
    5.27
    
    
    
    5.27
    
    
    
    5.27Outstanding at September 30, 2008
    
    
    43,115
    
    
    $
    1.20
    
    
    $
    4.19
    
    
    $
    5.27
   Performance Restricted Stock
  Note 7  Restructuring and Other Special Charges
  14




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Workforce
    
    
    Facility(in thousands)
    
    Related
    
    
    Consolidation
    
    
    TotalBalance at December 31, 2007
    
    $
    979
    
    
    $
    702
    
    
    $
    1,681Charge to operations
    
    
    164
    
    
    
    8
    
    
    
    172Cash payments
    
    
    (866
    )
    
    
    (413
    )
    
    
    (1,279
    )Balance at September 30, 2008
    
    $
    277
    
    
    $
    297
    
    
    $
    574
  Note 8  Retirement and Post-Retirement Plans
  Three Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    Retirement Plans
    
    
    Post-retirement PlansService cost
    
    $
    154
    
    
    $
    251
    
    
    $
    
    
    
    $
    Interest cost
    
    
    301
    
    
    
    431
    
    
    
    1
    
    
    
    (2
    )Expected return on plan assets
    
    
    (322
    )
    
    
    (435
    )
    
    
    
    
    
    
    Amortization of net loss (gain)
    
    
    56
    
    
    
    113
    
    
    
    (1
    )
    
    
    Net periodic benefit cost
    
    $
    189
    
    
    $
    360
    
    
    $
    
    
    
    $
    (2
    )
 Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    Retirement Plans
    
    
    Post-retirement PlansService cost
    
    $
    743
    
    
    $
    820
    
    
    $
    
    
    
    $
    Interest cost
    
    
    1,746
    
    
    
    1,430
    
    
    
    7
    
    
    
    5Expected return on plan assets
    
    
    (2,009
    )
    
    
    (1,455
    )
    
    
    
    
    
    
    Amortization of net loss (gain)
    
    
    384
    
    
    
    390
    
    
    
    (5
    )
    
    
    Net periodic benefit cost
    
    $
    864
    
    
    $
    1,185
    
    
    $
    2
    
    
    $
    5
  15




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Note 9  Gain on Sale of Building
  Note 10  Income (Loss) Per Share
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(in thousands, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,418
    
    
    $
    129
    
    
    $
    (4,237
    )
    
    $
    (12,437
    )Deduct  preferred stock dividend
    
    
    (56
    )
    
    
    (56
    )
    
    
    (129
    )
    
    
    (1,223
    )Net income (loss) attributable to common
stockholders  basic
    
    
    1,362
    
    
    
    73
    
    
    
    (4,366
    )
    
    
    (13,660
    )Add back: preferred stock dividend
    
    
    56
    
    
    
    56
    
    
    
    
    
    
    
    Net income (loss) attributable to common
stockholders  diluted
    
    $
    1,418
    
    
    $
    129
    
    
    $
    (4,366
    )
    
    $
    (13,660
    )Denominator:Weighted average common shares basic
    
    
    15,756
    
    
    
    15,269
    
    
    
    15,745
    
    
    
    15,265Dilutive effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive effect of restricted stock
    
    
    41
    
    
    
    314
    
    
    
    
    
    
    
    Dilutive effect of preferred stock
    
    
    3,385
    
    
    
    1,871
    
    
    
    
    
    
    
    Dilutive effect of warrants
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares diluted
    
    
    19,572
    
    
    
    17,454
    
    
    
    15,745
    
    
    
    15,265Basic net income (loss) per common share
    
    $
    0.09
    
    
    $
    0.01
    
    
    $
    (0.28
    )
    
    $
    (0.89
    )Diluted net income (loss) per common share
    
    $
    0.07
    
    
    $
    0.01
    
    
    $
    (0.28
    )
    
    $
    (0.89
    )
   16




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Note 11  Business Segment Data
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales:Domestic
    
    $
    60,589
    
    
    $
    84,030
    
    
    $
    178,674
    
    
    $
    229,672International
    
    
    34,798
    
    
    
    31,303
    
    
    
    95,407
    
    
    
    80,013Intersegment sales:Domestic
    
    
    997
    
    
    
    1,113
    
    
    
    2,977
    
    
    
    3,149International
    
    
    7,280
    
    
    
    4,701
    
    
    
    17,305
    
    
    
    13,618Elimination of intersegment sales
    
    
    (8,277
    )
    
    
    (5,814
    )
    
    
    (20,282
    )
    
    
    (16,767
    )Total net sales
    
    $
    95,387
    
    
    $
    115,333
    
    
    $
    274,081
    
    
    $
    309,685Operating income (loss):Domestic
    
    $
    2,623
    
    
    $
    7,804
    
    
    $
    3,244
    
    
    $
    10,532Restructuring charges
    
    
    
    
    
    
    (1,492
    )
    
    
    (172
    )
    
    
    (2,727
    )Domestic total
    
    
    2,623
    
    
    
    6,312
    
    
    
    3,072
    
    
    
    7,805International
    
    
    2,935
    
    
    
    2,141
    
    
    
    4,845
    
    
    
    2,689Restructuring charges
    
    
    
    
    
    
    (372
    )
    
    
    
    
    
    
    (465
    )International total
    
    
    2,935
    
    
    
    1,769
    
    
    
    4,845
    
    
    
    2,224Corporate income (expenses)
    
    
    2,875
    
    
    
    (1,834
    )
    
    
    4,371
    
    
    
    (6,995
    )Arbitration earn  out decision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,174
    )Total operating income (loss)
    
    $
    8,433
    
    
    $
    6,247
    
    
    $
    12,288
    
    
    $
    (140
    )
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Automotive and light truck heat exchange products
    
    $
    57,539
    
    
    $
    73,714
    
    
    $
    165,148
    
    
    $
    199,162Automotive and light truck temperature control products
    
    
    11,887
    
    
    
    16,775
    
    
    
    35,537
    
    
    
    42,291Heavy duty heat exchange products
    
    
    25,961
    
    
    
    24,844
    
    
    
    73,396
    
    
    
    68,232Total net sales
    
    $
    95,387
    
    
    $
    115,333
    
    
    $
    274,081
    
    
    $
    309,685
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Note 12 Supplemental Cash Flow Information
  Nine Months EndedSeptember 30,(in thousands)
    
    2008
    
    
    2007Non-cash financing activity:Value of common stock warrants and
increase of deferred debt costs
    
    $
    3,040
    
    
    
    Cash paid during the period for:Interest
    
    $
    10,563
    
    
    $
    9,273Income taxes
    
    $
    1,364
    
    
    $
    1,175
 Note 13  Recent Accounting Pronouncements
    Note 14  Subsequent Events
  18




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Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Introduction
     19




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Operating Results
 Quarter Ended September 30, 2008 Versus Quarter Ended September 30, 2007
  Three Months Ended September 30,2008
    
    
    2007
    
    
    Increase (Decrease)%
    
    
    
    
    
    
    %(in thousands of dollars)
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    PercentNet sales
    
    $
    95,387
    
    
    
    100.0
    %
    
    $
    115,333
    
    
    
    100.0
    %
    
    $
    (19,946
    )
    
    
    (17.3
    )%Cost of sales
    
    
    75,673
    
    
    
    79.3
    
    
    
    88,115
    
    
    
    76.4
    
    
    
    (12,442
    )
    
    
    (14.1
    )Gross margin
    
    
    19,714
    
    
    
    20.7
    
    
    
    27,218
    
    
    
    23.6
    
    
    
    (7,504
    )
    
    
    (27.6
    )Selling, general and administrative
expenses
    
    
    11,281
    
    
    
    11.8
    
    
    
    19,107
    
    
    
    16.6
    
    
    
    (7,826
    )
    
    
    (41.0
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    1.6
    
    
    
    (1,864
    )
    
    
    (100.0
    )Operating income
    
    
    8,433
    
    
    
    8.9
    
    
    
    6,247
    
    
    
    5.4
    
    
    
    2,186
    
    
    
    35.0Interest expense
    
    
    3,845
    
    
    
    4.0
    
    
    
    4,556
    
    
    
    3.9
    
    
    
    (711
    )
    
    
    (15.6
    )Debt extinguishment costs
    
    
    2,246
    
    
    
    2.4
    
    
    
    891
    
    
    
    0.8
    
    
    
    1,355
    
    
    
    152.1Income before income taxes
    
    
    2,342
    
    
    
    2.5
    
    
    
    800
    
    
    
    0.7
    
    
    
    1,542
    
    
    
    192.8Income tax provision
    
    
    924
    
    
    
    1.0
    
    
    
    671
    
    
    
    0.6
    
    
    
    253
    
    
    
    37.7Net income
    
    $
    1,418
    
    
    
    1.5
    %
    
    $
    129
    
    
    
    0.1
    %
    
    $
    1,289
    
    
    
    999.2
    %
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Three Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %(in thousands of dollars)
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    of Net SalesNet SalesDomestic segment
    
    $
    60,589
    
    
    
    63.5
    %
    
    $
    84,030
    
    
    
    72.9
    %International segment
    
    
    34,798
    
    
    
    36.5
    
    
    
    31,303
    
    
    
    27.1Total net sales
    
    $
    95,387
    
    
    
    100.0
    %
    
    $
    115,333
    
    
    
    100.0
    %Gross MarginDomestic segment
    
    $
    10,419
    
    
    
    17.2
    %
    
    $
    19,624
    
    
    
    23.4
    %International segment
    
    
    9,295
    
    
    
    26.7
    
    
    
    7,594
    
    
    
    24.3Total gross margin
    
    $
    19,714
    
    
    
    20.7
    %
    
    $
    27,218
    
    
    
    23.6
    %
  21




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Nine Months Ended September 30, 2008 Versus Nine Months Ended September 30, 2007
  Nine Months Ended September 30,2008
    
    
    2007
    
    
    Increase
    
    
    (Decrease)%
    
    
    
    
    
    
    %(in thousands of dollars)
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    PercentNet sales
    
    $
    274,081
    
    
    
    100.0
    %
    
    $
    309,685
    
    
    
    100.0
    %
    
    $
    (35,604
    )
    
    
    (11.5
    )%Cost of sales
    
    
    222,745
    
    
    
    81.3
    
    
    
    243,857
    
    
    
    78.7
    
    
    
    (21,112
    )
    
    
    (8.7
    )Gross margin
    
    
    51,336
    
    
    
    18.7
    
    
    
    65,828
    
    
    
    21.3
    
    
    
    (14,492
    )
    
    
    (22.0
    )Selling, general and
administrative expenses
    
    
    38,876
    
    
    
    14.2
    
    
    
    59,602
    
    
    
    19.3
    
    
    
    (20,726
    )
    
    
    (34.8
    )Arbitration earn-out decision
    
    
    
    
    
    
    
    
    
    
    3,174
    
    
    
    1.0
    
    
    
    (3,174
    )
    
    
    (100.0
    )Restructuring charges
    
    
    172
    
    
    
    0.1
    
    
    
    3,192
    
    
    
    1.0
    
    
    
    (3,020
    )
    
    
    (94.6
    )Operating income (loss)
    
    
    12,288
    
    
    
    4.4
    
    
    
    (140
    )
    
    
    0.0
    
    
    
    12,428
    
    
    NmInterest expense
    
    
    12,130
    
    
    
    4.4
    
    
    
    10,159
    
    
    
    3.3
    
    
    
    1,971
    
    
    
    19.4Debt extinguishment costs
    
    
    2,822
    
    
    
    1.0
    
    
    
    891
    
    
    
    0.3
    
    
    
    1,931
    
    
    
    216.7Loss before income taxes
    
    
    (2,664
    )
    
    
    (1.0
    )
    
    
    (11,190
    )
    
    
    (3.6
    )
    
    
    8,526
    
    
    
    76.2Income tax provision
    
    
    1,573
    
    
    
    0.5
    
    
    
    1,247
    
    
    
    0.4
    
    
    
    326
    
    
    
    26.1Net loss
    
    $
    (4,237
    )
    
    
    (1.5
    )%
    
    $
    (12,437
    )
    
    
    (4.0
    )%
    
    $
    8,200
    
    
    
    65.9
    %
 
 Nm-not meaningful percent change.  Nine Months Ended September 30,2008
    
    
    2007%
    
    
    
    
    
    
    %(in thousands of dollars)
    
    Amount
    
    
    of Net Sales
    
    
    Amount
    
    
    of Net SalesNet SalesDomestic segment
    
    $
    178,674
    
    
    
    65.2
    %
    
    $
    229,672
    
    
    
    74.2
    %International segment
    
    
    95,407
    
    
    
    34.8
    
    
    
    80,013
    
    
    
    25.8Total net sales
    
    $
    274,081
    
    
    
    100.0
    %
    
    $
    309,685
    
    
    
    100.0
    %Gross MarginDomestic segment
    
    $
    28,129
    
    
    
    15.7
    %
    
    $
    47,623
    
    
    
    20.7
    %International segment
    
    
    23,207
    
    
    
    24.3
    
    
    
    18,205
    
    
    
    22.8Total gross margin
    
    $
    51,336
    
    
    
    18.7
    %
    
    $
    65,828
    
    
    
    21.3
    %
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Financial Condition, Liquidity and Capital Resources
  27




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28




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29




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Short-term Liquidity
  33




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Longer-term Liquidity
  Critical Accounting Estimates
  Recent Accounting Pronouncements
  34




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##### Table of Contents



Forward-Looking Statements and Cautionary Factors
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  35




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
 10.1
    
    Ninth Amendment to Credit Agreement dated October 29, 200831.1
    
    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.
 36




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SIGNATURES
  PROLIANCE INTERNATIONAL, INC.
(Registrant)Date: October 31, 2008
    By:
    /s/ Charles E. JohnsonCharles E. JohnsonPresident and Chief Executive
Officer (Principal Executive
Officer)Date:  October 31, 2008
    By:
    /s/ Arlen F. HenockArlen F. HenockExecutive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer) 37