Readers are cautioned that certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not related to historical results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive, that depend upon or refer to future events or conditions, or that include words such as "may," "could," "should," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions are also forward-looking statements.

Forward-looking statements are based on current expectations, projections and assumptions regarding future events that may not prove to be accurate. These statements reflect our judgment as of the date of this Quarterly Report with respect to future events, the outcome of which are subject to risks, which may have a significant impact on our business, operating results or financial condition. Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may differ materially from those described herein. We undertake no obligation to update forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, dependence on significant customers, possible component parts and/or core shortages, the ability to achieve and manage growth, future indebtedness and liquidity, environmental matters, and competition. For a discussion of these and certain other factors, please refer to Item 1A. "Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2008. Please also refer to our other filings with the Securities and Exchange Commission.

Our financial statements are based on the selection and application of significant accounting policies, some of which require management to make estimates and assumptions regarding matters that are inherently uncertain. We believe that the following are the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. We evaluate the adequacy of our allowance for doubtful accounts and make judgments and estimates in determining the appropriate allowance at each reporting period based on historical experience, credit evaluations, specific customer collection issues and the length of time a receivable is past due. Since our accounts receivable are often concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse effect on our financial statements. Our net write-offs were $0.1 million for each of the years ended December 31, 2008, 2007 and 2006. For each of the three months ended March 31, 2009 and 2008, our net write-offs were less than $0.1 million. As of March 31, 2009, we had $92.1 million of accounts receivable, net of allowance for doubtful accounts of $0.5 million.

Inventory Valuation. We make adjustments to write down our inventories for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated market value based on assumptions about market conditions, future demand and expected usage rates. Changes in economic conditions, customer demand, product introductions or pricing changes can affect the carrying value of our inventory. Demand for our products has fluctuated in the past and may do so in the future, which could result in an increase in excess quantities on hand. If actual market conditions are less favorable than those projected by management, causing usage rates to vary from those estimated, additional inventory write-downs may be required. Although no assurance can be given, these write-downs would not be expected to have a material adverse effect on our financial statements. During 2008, as part of the restructuring and consolidation of our Drivetrain business and changes in the economic and financial condition of the automotive sector, we revised our estimates of net realizable value for inventory in our Drivetrain businesses. For the years ended December 31, 2008, 2007 and 2006, we recorded charges for excess and obsolete inventory of approximately $10.4 million (including $7.3 million classified as exit, disposal, certain severance and other charges), $4.4 million (including $1.4 million classified as exit, disposal, certain severance and other charges), and $1.7 million, respectively. For each of the three months ended March 31, 2009 and 2008, we recorded charges for excess and obsolete inventory of approximately $0.5 million. As of March 31, 2009 we had inventory of $66.6 million, net of a reserve for excess and obsolete inventory of $6.5 million.

Goodwill and Indefinite Lived Intangible Assets. Our goodwill and indefinite lived intangible assets are tested for impairment on an annual basis unless events or circumstances would require an immediate review. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit, which generally is an operating segment or a component of an operating segment as defined in paragraph 10 of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information and paragraph 30 of SFAS No. 142, Goodwill and Other Intangible Assets. In accordance with paragraph 30 of SFAS No. 142, certain components of an operating segment with similar economic characteristics are aggregated and deemed a single reporting unit. Goodwill amounts are generally allocated to the reporting units based upon the amounts allocated at the time of their respective acquisition, adjusted for significant transfers of business between reporting units. The goodwill impairment test is a two-step process which requires us to make estimates regarding the fair value of the reporting unit. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is not required. However, if the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss (if any), which compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. In estimating the fair value of our reporting units, we utilize a valuation technique based on multiples of projected cash flow, giving consideration to unusual items, cost reduction initiatives, new business initiatives and other factors that generally would be considered in determining value. Impairments are recorded (i) if the fair value is less than the carrying value or (ii) when an individual reporting unit is disposed of. Actual results may differ from these estimates under different assumptions or conditions. If we were to lose a key customer within a particular operating segment or its sales were to decrease materially, impairment adjustments that may be required could have a material adverse effect on our financial statements. As of March 31, 2009, goodwill was recorded at a carrying value of approximately $53.2 million.

Deferred Income Taxes and Valuation Allowances. Tax law requires items to be included in the tax return at different times than when these items are reflected in the consolidated financial statements. As a result, our annual tax rate reflected in our consolidated financial statements is different than that reported in our tax return. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year in which the differences are expected to reverse. Based on the evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that realizing these benefits is considered more likely than not.

We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. Our valuation allowances, primarily related to tax benefits associated with loss carryforwards in states where we no longer do business, were $6.3 million as of March 31, 2009 and December 31, 2008.

Warranty Liability. We provide an allowance for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including inspection and testing at various stages of the remanufacturing process and the testing of each finished assembly on equipment designed to simulate performance under operating conditions, our warranty obligation is affected by the number of products sold, historical and anticipated rates of warranty claims and costs per unit and actual product failure rates. Additionally, we participate in the tear-down and analysis of returned products with certain of our customers to assess responsibility for product failures. For the years ended December 31, 2008, 2007 and 2006, we (i) recorded charges for estimated warranty costs for sales made in the respective year of approximately $1.0 million, $1.6 million and $1.3 million, respectively, and (ii) paid and/or settled warranty claims of approximately $0.7 million, $0.8 million and $1.3 million, respectively. For the three months ended March 31, 2009 and 2008, we (i) recorded charges for estimated warranty costs of approximately $0.2 million and $0.3 million, respectively, and (ii) paid and/or settled warranty claims of approximately $0.1 million and $0.4 million, respectively. Should actual product failure rates differ from our estimates, revisions to the estimated warranty liability may be required. Although no assurance can be given, these revisions would not be expected to have a material adverse effect on our financial statements.

Accounting for Stock-Based Awards. We apply the fair value recognition provisions of SFAS No. 123R, Share-Based Payment, and adopted this standard using the modified prospective transition method. Our stock option valuations are estimated by using the Black-Scholes option pricing model and restricted stock awards are measured at the market value of our common stock on the date of issuance. During the three months ended March 31, 2009 we awarded our Chief Executive Officer 10,000 shares of restricted stock at the time he entered into a new employment agreement. Total estimated compensation of $0.2 million related to this award is being amortized over the requisite service period. For all stock-based awards outstanding as of March 31, 2009, we have yet to record, on a pre-tax basis, an estimated total of $3.1 million of compensation expense to be recognized over a weighted-average period of 1.3 years.

Results of Operations for the Three Month Period Ended March 31, 2009 Compared to the Three Month Period Ended March 31, 2008.

Income from continuing operations decreased $3.9 million, or 35.1%, to $7.2 million for the three months ended March 31, 2009 from $11.1 million for the three months ended March 31, 2008. Income from continuing operations per diluted share was $0.37 for the three months ended March 31, 2009 and $0.50 for the three months ended March 31, 2008. Our results for 2009 and 2008 included exit, disposal, certain severance and other charges of $2.0 million (net of tax) and $0.6 million (net of tax), respectively. Other factors which contributed to the lower income from continuing operations in 2009 as compared to 2008 included:

· a decrease in sales in 2009 for two Logistics segment programs that were substantially completed in 2008;

· scheduled price concessions to certain customers, primarily in our Logistics segment, granted in connection with previous contract renewals;

· lower sales to TomTom in 2009, due to the reduction of retail inventories in the first quarter of 2009 and to the ramp-up of new services in the first quarter of 2008; and

· reduced demand for remanufactured transmissions due to a variety of factors including (i) a reduction in the size of in-warranty vehicle fleets for Honda and Ford due to declining new car sales, (ii) improved quality of new OEM transmissions, and (iii) macro-economic factors believed to have resulted in a reduction in the number of miles driven and the deferral of repairs;

partially offset by:

· the launch and ramp-up of new business in our Logistics segment; and

· benefits from our on-going lean and continuous improvement program and other cost reduction initiatives.

Net Sales

Net sales decreased $16.0 million, or 12.4%, to $113.5 million for the three months ended March 31, 2009 from $129.5 million for the three months ended March 31, 2008. This decrease was primarily due to:

· a decrease in sales in 2009 for two Logistics segment programs that were substantially completed in 2008;

· lower sales to TomTom in 2009, due to the reduction of retail inventories in the first quarter of 2009 and to the ramp-up of new services in the first quarter of 2008;

· reduced demand for remanufactured transmissions due to a variety of factors including (i) a reduction in the size of in-warranty vehicle fleets for Honda and Ford due to declining new car sales, (ii) improved quality of new OEM transmissions, and (iii) macro-economic factors believed to have resulted in a reduction in the number of miles driven and the deferral of repairs; and

· scheduled price concessions to certain customers, primarily in our Logistics segment, granted in connection with previous contract renewals;

partially offset by the launch and ramp-up of new business in our Logistics segment.

Of our net sales for the three months ended March 31, 2009 and 2008, AT&T accounted for 50.5% and 40.6%, Ford accounted for 10.8% and 10.9%, Honda accounted for 10.1% and 9.7%, and TomTom accounted for 6.6% and 10.7%, respectively.

Gross Profit

Gross profit decreased $5.1 million, or 15.8%, to $27.2 million for the three months ended March 31, 2009 from $32.3 million for the three months ended March 31, 2008. The decrease was primarily the result of the factors described above under "Net Sales," partially offset by benefits from our on-going lean and continuous improvement program and other cost reduction initiatives. As a percentage of net sales, gross profit decreased to 23.9% for 2009 from 24.9% for 2008.

Selling, General and Administrative Expense

Selling, general and administrative ("SG&A") expense decreased $0.6 million, or 4.5%, to $12.8 million for the three months ended March 31, 2009 from $13.4 million for the three months ended March 31, 2008. The net decrease is primarily the result of the benefits from our on-going lean and continuous improvement program and other cost reduction initiatives and a reduction in cost for incentive compensation programs. As a percentage of net sales, SG&A expense increased to 11.2% for the three months ended March 31, 2009 from 10.3% for the three months ended March 31, 2008.

Exit, Disposal, Certain Severance and Other Charges

During 2008, our Drivetrain customers and the supporting supply base experienced unprecedented distress due to the economic slowdown and adverse changes in the North American vehicle industry. As a result, during 2008 we began to take actions to restructure our North American Drivetrain operations, including the closure and consolidation of our Springfield, Missouri automatic transmission remanufacturing operations into our Drivetrain operations located in Oklahoma City, Oklahoma. In connection with this restructuring, we recorded pre-tax charges of $3.2 million ($2.0 million net of tax) during the three months ended March 31, 2009, consisting of (i) $2.2 million ($1.4 million net of tax) of costs to transfer production from the Springfield facility to the Oklahoma City facility and other facility exit costs (including $0.4 million of costs classified as cost of sales - products) and (ii) $1.0 million ($0.6 million net of tax) of severance and related costs for employees being terminated as part of the closure of the Springfield facility.

Production lines were moved in stages in order to provide uninterrupted delivery of product to our customers. As of March 31, 2009, substantially all production had been transferred from our Springfield facility to our Oklahoma City operations. We expect to incur an additional $2.2 million of restructuring costs related to this activity over the remainder of 2009 as we complete the exit of the Springfield facility. The restructuring includes the streamlining of both administrative and operations functions to more efficiently meet the needs of our customers while providing adequate resources to pursue new opportunities as we work to drive growth in the Drivetrain business. Upon the completion of these restructuring activities, we expect to achieve pre-tax annual cost savings of approximately $6 million.

During the three months ended March 31, 2008, we recorded $1.0 million ($0.6 million net of tax) of exit, disposal, certain severance and other charges, consisting of (i) $0.8 million ($0.5 million net of tax) of severance and other costs primarily related to certain cost reduction activities and (ii) $0.2 million ($0.1 million net of tax) of certain legal and other professional fees unrelated to our ongoing operations.

As an on-going part of our planning process, we continue to identify and evaluate areas where cost efficiencies can be achieved through consolidation of redundant facilities, outsourcing functions or changing processes or systems. Implementation of any of these could require us to incur additional exit, disposal, certain severance and other charges, which would be offset over time by the projected cost savings.

Operating Income

Operating income decreased $6.3 million, or 35.2%, to $11.6 million for the three months ended March 31, 2009 from $17.9 million for the three months ended March 31, 2008. This decrease was primarily the result of the factors described above under "Net Sales," "Gross Profit" and "Exit, Disposal, Certain Severance and Other Charges." As a percentage of net sales, operating income decreased to 10.2% for the three months ended March 31, 2009 from 13.8% for the three months ended March 31, 2008.

Interest Income

Interest income decreased to $0.1 million for the three months ended March 31, 2009 from $0.3 million for the three months ended March 31, 2008. This decrease was primarily attributable to lower interest rates in 2009 as compared to 2008.

Interest Expense

Interest expense increased to $0.3 million for the three months ended March 31, 2009 from $0.1 million for the three months ended March 31, 2008. This increase was primarily due to the $70.0 million borrowing we made under our credit facility during the three months ended March 31, 2009 to increase our cash position and preserve our financial flexibility in light of the current uncertainty in the capital markets.

Income Tax Expense

Income tax expense as a percentage of income from continuing operations decreased to 37.0% for the three months ended March 31, 2009, from 38.8% for the three months ended March 31, 2008. This decrease was primarily due to the change in mix of our taxable income by state and currently enacted laws.

Discontinued Operations

During 2008 we recorded after-tax losses from discontinued operations of $2.5 million.

During the three months ended March 31, 2008, we concluded that the potential return on the investment for our NuVinci CVP project was not sufficient to continue development activities. As a result, we sold certain tangible and intangible assets related to the NuVinci project to Fallbrook Technologies Inc. for a total of $6.1 million. The after-tax loss of $2.5 million for 2008 is primarily related to our discontinued NuVinci CVP project. On a pre-tax basis, the loss of $4.1 million included $2.4 million of operating losses from NuVinci and a charge of $1.7 million related to the exit from this project, which consisted of charges of (i) $1.0 million for termination benefits, (ii) $0.3 million for certain inventory deemed unusable by Fallbrook, (iii) $0.2 million primarily related to the write-off of capitalized patent development costs, and
(iv) $0.2 million related to the disposal of certain fixed assets. There were no similar costs recorded in 2009.

See Note 13. "Discontinued Operations."

Reportable Segments

Logistics Segment

The following table presents net sales and segment profit expressed in millions
of dollars and as a percentage of net sales:

                                  For the Three Months Ended March 31,
                                       2009                     2008
              Net sales      $    77.3       100.0 %     $    84.8   100.0 %
              Segment profit $    13.5        17.5 %     $    15.3    18.0 %

Net Sales. Net sales decreased $7.5 million, or 8.8%, to $77.3 million for the three months ended March 31, 2009 from $84.8 million for the three months ended March 31, 2008. This decrease was primarily related to:

· a decrease in sales in 2009 for two programs that were substantially completed in 2008;

· lower sales to TomTom in 2009, due to the reduction of retail inventories in the first quarter of 2009 and to the ramp-up of new services in the first quarter of 2008; and

· scheduled price concessions granted to certain customers in connection with previous contract renewals;

partially offset by the launch and ramp-up of new business.

Of our segment net sales for the three months ended March 31, 2009 and 2008, AT&T accounted for 74.2% and 62.1% and TomTom accounted for 9.7% and 16.4%, respectively.

Segment Profit. Segment profit decreased $1.8 million, or 11.8%, to $13.5 million (17.5% of segment net sales) for the three months ended March 31, 2009 from $15.3 million (18.0% of segment net sales) for the three months ended March 31, 2008. The decrease was primarily the result of the factors described above under "Net Sales," partially offset by benefits from our lean and continuous improvement program and other cost reduction initiatives.

Exit, Disposal, Certain Severance and Other Charges. During the three months ended March 31, 2008, we recorded $0.1 million of these costs for severance and other costs primarily related to cost reduction activities. There were no similar costs recorded in 2009.

Drivetrain Segment

The following table presents net sales and segment (loss) profit expressed in
millions of dollars and as a percentage of net sales:

                                            For the Three Months Ended March 31,
                                                2009                       2008
     Net sales                       $    36.2         100.0 %     $    44.8    100.0 %
     Exit, disposal, certain
     severance and other charges     $     3.2           8.8 %     $     0.9      2.0 %
     Segment (loss) profit           $    (1.9 )           -       $     2.6      5.8 %

Net Sales. Net sales decreased $8.6 million, or 19.2%, to $36.2 million for the three months ended March 31, 2009 from $44.8 million for the three months ended March 31, 2008. The decrease was primarily due to reduced demand for remanufactured transmissions due to a variety of factors including (i) a reduction in the size of in-warranty vehicle fleets for Honda and Ford due to declining new car sales, (ii) improved quality of new OEM transmissions, and
(iii) macro-economic factors believed to have resulted in a reduction in the number of miles driven and the deferral of repairs.

Of our segment net sales for the three months ended March 31, 2009 and 2008, Ford accounted for 34.0% and 31.6% and Honda accounted for 31.5% and 27.9%, respectively.

Exit, Disposal, Certain Severance and Other Charges. During the three months ended March 31, 2009, we recorded $3.2 million of these costs consisting of (i) $2.2 million of costs to transfer production from Springfield to Oklahoma City and other facility exit costs and (ii) $1.0 million of severance and related costs for employees being terminated as part of the closure of the Springfield facility.

During the three months ended March 31, 2008, we recorded $0.9 million of these costs consisting of (i) 0.7 million of severance primarily related to cost reduction activities and (ii) $0.2 million of certain legal and other professional fees unrelated to ongoing operating activities of the segment.

Segment (Loss) Profit. Segment (loss) profit decreased to a loss of $1.9 million for the three months ended March 31, 2009 from a profit of $2.6 million (5.8% of segment net sales) for the three months ended March 31, 2008. This decrease was primarily the result of the costs described above under "Exit, Disposal, Certain Severance and Other Charges," and to a lesser extent reduced volumes as described above under "Net Sales."

Liquidity and Capital Resources

We had total cash and cash equivalents on hand of $78.4 million at March 31, . . .