This Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Report are indicated by words such as "anticipates," "expects," "believes," "intends," "plans," "estimates," "projects" and similar expressions. These statements represent our expectations based on current information and assumptions and are inherently subject to risks and uncertainties. Our actual results could differ materially from those which are anticipated or projected as a result of certain risks and uncertainties, including, but not limited to, our substantial leverage; economic and market conditions (including access to credit and financial markets); the performance of the aftermarket sector; changes in business relationships with our major customers and in the timing, size and continuation of our customers' programs; changes in the product mix and distribution channel mix; the ability of our customers to achieve their projected sales; competitive product and pricing pressures; increases in production or material costs that cannot be recouped in product pricing; successful integration of acquired businesses; our ability to achieve cost savings from our restructuring initiatives; product liability and environmental matters (including, without limitation, those related to asbestos-related contingent liabilities and remediation costs at certain properties); as well as other risks and uncertainties, such as those described under Risk Factors, Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the Company with the SEC. Forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In addition, historical information should not be considered as an indicator of future performance. The following discussion should be read in conjunction with the unaudited consolidated financial statements, including the notes thereto, included elsewhere in this Report.

Business Overview

We are a leading independent manufacturer, distributor and marketer of replacement parts for motor vehicles in the automotive aftermarket industry, with an increasing focus on the original equipment and original equipment service markets. We are organized into two major operating segments, each of which focuses on a specific line of replacement parts. Our Engine Management Segment manufactures ignition and emission parts, ignition wires, battery cables and fuel system parts. Our Temperature Control Segment manufactures and remanufactures air conditioning compressors, air conditioning and heating parts, engine cooling system parts, power window accessories, and windshield washer system parts. We also sell our products in Europe through our European Segment.

We place significant emphasis on improving our financial performance by achieving operating efficiencies and improving asset utilization, while maintaining product quality and high customer order fill rates. We intend to continue to improve our operating efficiency and cost position by focusing on company-wide overhead and operating expense cost reduction programs, such as closing excess facilities and consolidating redundant functions.

Seasonality. Historically, our operating results have fluctuated by quarter, with the greatest sales occurring in the second and third quarters of the year and revenues generally being recognized at the time of shipment. It is in these quarters that demand for our products is typically the highest, specifically in the Temperature Control Segment of our business. In addition to this seasonality, the demand for our Temperature Control products during the second and third quarters of the year may vary significantly with the summer weather and customer inventories. For example, a cool summer may lessen the demand for our Temperature Control products, while a hot summer may increase such demand. As a result of this seasonality and variability in demand of our Temperature Control products, our working capital requirements typically peak near the end of the second quarter, as the inventory build-up of air conditioning products is converted to sales and payments on the receivables associated with such sales have yet to be received. During this period, our working capital requirements are typically funded by borrowing from our revolving credit facility.

Inventory Management. We face inventory management issues as a result of warranty and overstock returns. Many of our products carry a warranty ranging from a 90-day limited warranty to a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet industry published specifications. In addition to warranty returns, we also permit our customers to return products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. We accrue for overstock returns as a percentage of sales, after giving consideration to recent returns history.

In order to better control warranty and overstock return levels, we tightened the rules for authorized warranty returns, placed further restrictions on the amounts customers can return and instituted a program so that our management can better estimate potential future product returns. In addition, with respect to our air conditioning compressors, which are our most significant customer product warranty returns, we established procedures whereby a warranty will be voided if a customer does not provide acceptable proof that complete air conditioning system repair was performed.

Discounts, Allowances and Incentives. In connection with our sales activities, we offer a variety of usual customer discounts, allowances and incentives. First, we offer cash discounts for paying invoices in accordance with the specified discount terms of the invoice. Second, we offer pricing discounts based on volume and different product lines purchased from us. These discounts are principally in the form of "off-invoice" discounts and are immediately deducted from sales at the time of sale. For those customers that choose to receive a payment on a quarterly basis instead of "off-invoice," we accrue for such payments as the related sales are made and reduce sales accordingly. Finally, rebates and discounts are provided to customers as advertising and sales force allowances, and allowances for warranty and overstock returns are also provided. Management analyzes historical returns, current economic trends, and changes in customer demand when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. We account for these discounts and allowances as a reduction to revenues, and record them when sales are recorded.

Interim Results of Operations:

Comparison of Three Months Ended March 31, 2009 to Three Months Ended March 31, 2008

Sales. Consolidated net sales for the three months ended March 31, 2009 were $172.2 million, a decrease of $35.9 million, or 17.2%, compared to $208.1 million in the same period of 2008. The decrease in consolidated net sales resulted primarily from decreases in net sales of $20.5 million, or 14.3%, in our Engine Management Segment, $9.3 million, or 18.8%, in our Temperature Control Segment and $3.7 million, or 33%, in our European Segment. The Engine Management decrease in net sales compared to the first three months of 2008 is the result of lower sales volumes in our traditional markets as a single large customer changed brands to a competitor and as customers reduced their inventory levels in response to the economic environment. The Temperature Control decrease in net sales is the result of lower retail sales due partially to a merger of customers that required the integration of product lines. The reduction in sales in our European Segment is the result of a decrease in OES sale volumes and an unfavorable change in foreign currency exchange rates compared to the first three months of 2008.

Gross margins. Gross margins, as a percentage of consolidated net sales, decreased to 23.7% in the first quarter of 2009, compared to 24.6% in the first quarter of 2008. The decrease resulted primarily from decreases in Engine Management margins of 0.6 percentage points and European margins of 3.8 percentage points while margins in our Temperature Control Segment remained constant. The decrease in the Engine Management margin was primarily due to lower sales volumes and product mix offset by a reduction in our fixed overhead costs as a result of our cost reduction programs. The European Segment's decrease resulted primarily from a change in product mix and the adverse impact of changes in foreign currency exchange rates.

Selling, general and administrative expenses. Selling, general and administrative expenses (SG&A) decreased by $7.8 million to $36 million or 20.9% of consolidated net sales, in the first quarter of 2009, as compared to $43.9 million, or 21.1% of consolidated net sales in the first quarter of 2008. The decrease in SG&A expenses is due primarily to lower selling, marketing and distribution expenses, and the benefit recognized from the post-retirement benefit plan amendment announced in May 2008.

Restructuring and integration expenses. Restructuring and integration expenses decreased to $1.2 million in the first quarter of 2009, compared to $2.8 million in the first quarter of 2008. The 2009 expense related primarily to severance and other exit costs incurred in connection with the closure of our Edwardsville, Kansas manufacturing operations and Wilson, North Carolina facility. The 2008 expenses related primarily to charges incurred for severance and related costs in connection with the shutdown of our Long Island City, New York manufacturing operations.

Operating income. Operating income was $3.7 million in the first quarter of 2009, compared to $4.5 million in the first quarter of 2008. The decrease of $0.8 million was due primarily to lower gross margins as a percentage of sales driven by lower sales volumes and a change in product mix offset by lower SG&A expenses reflecting the impact of our post-retirement benefit amendment and cost reduction programs implemented in the second half of 2008.

Other income, net. Other income, net decreased to $0.1 million in the first quarter of 2009 compared to $20.4 million in the same period in 2008. Other income, net in the first quarter of 2008 included a $21.1 million gain on the sale of our Long Island City, New York property, offset partially by a $1.4 million charge related to the defeasance of our mortgage on the property.

Interest expense. Interest expense decreased by $1.7 million in the first quarter of 2009 compared to the same period in 2008 due to a reduction in average borrowing costs and lower average borrowings primarily related to the repurchase of $45.1 million principal amount of our 6.75% convertible subordinated debentures during the final six months of 2008 and lower borrowings on our revolving credit facility. Borrowings were lower in the three months ended March 31, 2009 due to our accounts receivable factoring programs initiated during the second quarter of 2008 with some of our larger customers in order to accelerate collection of accounts receivable balances and improved working capital management.

Income tax provision. The income tax provision in the first quarter of 2009 was $0.6 million at an effective tax rate of 41.2% compared to $7.4 million and an effective tax rate of 35.7% for the same period in 2008. The increase in the effective tax rate is primarily attributable to a loss in a foreign jurisdiction for which there is no tax benefit.

Loss from discontinued operation. Loss from discontinued operation, net of tax, reflects legal expenses associated with our asbestos related liability. We recorded $0.3 million as a loss from discontinued operation for the first quarter of 2009 and 2008. As discussed more fully in Note 12 in the notes to our consolidated financial statements, we are responsible for certain future liabilities relating to alleged exposure to asbestos containing products.

Liquidity and Capital Resources

Operating Activities. During the first three months of 2009, cash provided by operations amounted to $18.5 million compared to cash used in operations of $47.4 million in the same period of 2008. The year-over-year increase in cash provided by operations is primarily the result of the impact of our customer accounts receivable factoring program and improved inventory and working capital management.

Investing Activities. Cash used in investing activities was $3.3 million in the first three months of 2009, compared to cash provided by investing activities of $34.5 million in the same period of 2008. Investing activities in 2009 included a $6 million payment to complete our core sensor asset purchase transaction agreed to in 2008 offset, in part, by a $4 million cash receipt in connection with our December 2008 divestiture of certain of our joint venture equity ownerships. Cash provided by investing activities in 2008 includes $37.3 million in net cash proceeds from the sale of our Long Island City, New York property. Capital expenditures in the first three months of 2009 were $1.3 million compared to $2.9 million in the comparable period last year.

Financing Activities. Cash used in financing activities was $10.1 million in the first three months of 2009, compared to cash provided by financing activities of $15 million in the same period of 2008. During the first three months of 2008 we reduced our borrowings under our revolving credit facilities reflecting the impact of the accounts receivable factoring programs and improved working capital management. During the first three months of 2008, net cash provided by financing activities was reduced by the proceeds received from the sale of our Long Island City, New York property. Dividends of $1.7 million were paid in the first three months of 2008. No dividends were paid in 2009.

In March 2007, we entered into a Second Amended and Restated Credit Agreement with General Electric Capital Corporation, as agent, and a syndicate of lenders for a secured revolving credit facility. This restated credit agreement replaces our prior credit facility with General Electric Capital Corporation. The restated credit agreement provides for a line of credit of up to $275 million (inclusive of the Canadian term loan described below) and expires in 2012. Direct borrowings under the restated credit agreement bear interest at the LIBOR rate plus the applicable margin (as defined), or floating at the index rate plus the applicable margin, at our option. The interest rate may vary depending upon our borrowing availability. The restated credit agreement is guaranteed by certain of our subsidiaries and secured by certain of our assets.

In December 2008, we amended our restated credit agreement (1) to establish a limit of $50 million on the amount of 6.75% convertible subordinated debentures that we can repurchase in the open market prior to the closing of any additional debt financing transaction, (2) to establish a minimum borrowing availability reserve of $15 million, except in certain circumstances (provided that the minimum borrowing availability reserve shall be reduced to zero on the effective date of the redemption or repayment of our convertible subordinated debentures), and (3) to establish a $25 million minimum borrowing availability requirement effective on the date of redemption or repayment of our convertible subordinated debentures, which amount may be reduced by up to $10 million in certain circumstances. In addition, as of the date of the amendment the margin added to the index rate increased to 1.50% and the margin added to the LIBOR rate increased to 2.75%; and as of March 31, 2009 the margin added to the index rate further increased to between 1.75% - 2.25% and the margin added to the LIBOR rate further increased to between 3% - 3.5%, in each case depending upon the level of excess availability as defined in the restated credit agreement.

Borrowings under the restated credit agreement are collateralized by substantially all of our assets, including accounts receivable, inventory and fixed assets, and those of certain of our subsidiaries. After taking into account outstanding borrowings under the restated credit agreement, there was an additional $67.8 million available for us to borrow pursuant to the formula at March 31, 2009, of which $29.9 million is reserved for repayment, repurchase or redemption, as the case may be, of the aggregate outstanding amount of our 6.75% convertible subordinated debentures. At March 31, 2009 and December 31, 2008, the interest rate on our restated credit agreement was 3.9% and 4.6%, respectively. Outstanding borrowings under the restated credit agreement (inclusive of the Canadian term loan described below), which are classified as current liabilities, were $134.3 million and $143.2 million at March 31, 2009 and December 31, 2008, respectively.

At any time that our average borrowing availability over the previous thirty days is less than $30 million or if our borrowing availability is less than $20 million for more than two days in a consecutive 30-day period and until such time that we have maintained an average borrowing availability of $30 million or greater for a continuous period of ninety days, the terms of our restated credit agreement provide for, among other provisions, financial covenants requiring us, on a consolidated basis, (1) to maintain specified levels of fixed charge coverage at the end of each fiscal quarter (rolling twelve months), and (2) to limit capital expenditure levels. As of March 31, 2009, we were not subject to these covenants. Availability under our restated credit agreement is based on a formula of eligible accounts receivable, eligible inventory and eligible fixed assets. Pursuant to our December 2008 amendment to the restated credit agreement, beginning January 15, 2009 and on a monthly basis thereafter, our borrowing availability will be reduced by $5 million for the repayment, repurchase or redemption of the aggregate outstanding amount of our convertible debentures. Our restated credit agreement also permits dividends and distributions by us provided specific conditions are met.

In May 2009, we amended our restated credit agreement to provide that, beginning October 15, 2010 and on a monthly basis thereafter, our borrowing availability will be reduced by approximately $2 million for the repayment, repurchase or redemption of the aggregate outstanding amount of our newly issued 15% convertible subordinated debentures due 2011.

In March 2007, we amended our credit agreement with GE Canada Finance Holding Company, for itself and as agent for the lenders. The amended credit agreement provides for a line of credit of up to $12 million, of which $7 million is currently outstanding and which amount is part of the $275 million available for borrowing under our restated credit agreement with General Electric Capital Corporation (described above). The amended credit agreement is guaranteed and secured by us and certain of our wholly-owned subsidiaries and expires in 2012. Direct borrowings under the amended credit agreement bear interest at the same rate as our restated credit agreement with General Electric Capital Corporation (described above).

In December 2008, we amended our credit agreement with GE Canada Finance Holding Company, for itself and as agent for the lenders. The amendment provides for, among other things (1) the allowance of cash proceeds from the divestiture of the Blue Streak Electronics joint venture to be applied in accordance with the requirements of our U.S. restated credit agreement, and (2) an increase in the interest rates applicable to our outstanding borrowings under the Canadian credit agreement to be in line with the increases set forth in our restated credit agreement (described above).

Our European subsidiary has revolving credit facilities which, at March 31, 2009, provide for aggregate lines of credit up to $6.2 million. The amount of short-term bank borrowings outstanding under these facilities was $5.2 million on March 31, 2009 and $5.8 million on December 31, 2008. The weighted average interest rate on these borrowings on each of March 31, 2009 and December 31, 2008 was 6.2%.

In July 1999, we completed a public offering of convertible subordinated debentures amounting to $90 million. The 6.75% convertible subordinated debentures carry an interest rate of 6.75%, payable semi-annually, and will mature on July 15, 2009. The $90 million principal amount of the 6.75% convertible subordinated debentures was convertible into 2,796,120 shares of our common stock at the option of the holder. We may, at our option, redeem some or all of the 6.75% convertible subordinated debentures at any time on or after July 15, 2004, for a redemption price equal to the issuance price plus accrued interest. In addition, if a change in control, as defined in the agreement, occurs at the Company, we will be required to make an offer to purchase the 6.75% convertible subordinated debentures at a purchase price equal to 101% of their aggregate principal amount, plus accrued interest. The 6.75% convertible subordinated debentures are subordinated in right of payment to all of our existing and future senior indebtedness.

We may, from time to time, repurchase the debentures in the open market, or through privately negotiated transactions, on terms that we believe to be favorable with any gains or losses as a result of the difference between the net carrying amount and the reacquisition price recognized in the period of repurchase. In 2008, we repurchased $45.1 million principal amount of the debentures resulting in a gain on the repurchase of $3.8 million. In April 2009, we repurchased an additional $0.5 million principal amount of the 6.75% convertible subordinated debentures. As of March 31, 2009, the remaining outstanding $44.9 million principal amount of the 6.75% convertible subordinated debentures is convertible into 1,393,866 shares of our common stock at the option of the holder. Pursuant to our amendment to our restated credit agreement in December 2008, we are limited to $50 million in the aggregate in convertible subordinated debentures that can be repurchased in the open market, of which $4.4 million is still currently available for repurchase.

On March 20, 2009, we announced the commencement of an exchange offer for up to a maximum of $20 million aggregate principal amount of our outstanding 6.75% convertible subordinated debentures due 2009. Pursuant to the exchange offer, we offered to exchange $1,000 in principal amount of 15% convertible subordinated debentures due 2011 for each $1,000 in principal amount of the 6.75% convertible subordinated debentures. In connection with the exchange offer, holders of $12.3 million aggregate principal amount of these debentures elected to exchange such debentures for a like principal amount of newly issued 15% convertible subordinated debentures due 2011. Following the settlement of the exchange offer, approximately $32.1 million aggregate principal amount of 6.75% convertible subordinated debentures remains outstanding.

In order to reduce our accounts receivable balances and improve our cash flow, we sold undivided interests in certain of our receivables to financial institutions. We entered these agreements at our discretion when we determined that the cost of factoring was less than the cost of servicing our receivables with existing debt. Pursuant to these agreements, we sold $29.8 million of receivables during the three months ended March 31, 2009. Under the terms of the agreements, we retain no rights or interest, have no obligations with respect to the sold receivables and do not service the receivables after the sale. As such, these transactions are being accounted for as a sale in accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." A charge in the amount of $0.4 million related to the sale of receivables is included in selling, general and administrative expense in our consolidated statements of operations for the three months ended March 31, 2009.

We anticipate that our present sources of funds, including funds from operations and additional borrowings, will continue to be adequate to meet our financing needs over the next twelve months. In addition, we have taken several initiatives to improve our cash flow in anticipation of the maturity of our 6.75% convertible subordinated debentures including the sale of our Long Island City building, substantial reductions in inventory and accounts receivable, a salary freeze, temporarily suspending the quarterly dividend and other cost reduction measures. We continue to evaluate alternative sources to further improve the liquidity of our business and to fund the refinance, repurchase or redemption, as the case may be, of the aggregate outstanding amount of our 6.75% convertible subordinated debentures, which may include cash, securities or a combination thereof. The timing, terms, size and pricing of any alternative sources of financing will depend on investor interest and market conditions, and there can be no assurance that we will be able to obtain any such financing. In addition, we have a significant amount of indebtedness which could, among other things, increase our vulnerability to general adverse economic and industry conditions, make it more difficult to satisfy our obligations with respect to our 6.75% convertible subordinated debentures, limit our ability to pay future dividends, limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, and require that a substantial portion of our cash flow from operations be used for the payment of interest on our indebtedness and the redemption of our 6.75% convertible subordinated debentures instead of for funding working capital, capital expenditures, acquisitions or for other corporate purposes. If we default on any of our indebtedness, or breach any financial covenant in our revolving credit facility, our business could be adversely affected. For further information regarding the risks of our business, please refer to the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2008.

The following table summarizes our contractual commitments as of December 31, 2008 and expiration dates of commitments through 2022:

                                                                                           2014-
(in thousands)               2009         2010        2011        2012        2013         2022          Total
Principal payments of
long term debt             $ 44,953     $     89     $    88     $    88     $     8     $       -     $  45,226
Operating leases              9,376        7,919       6,210       5,445       5,552        16,624        51,126
Post retirement benefits      1,099        1,132       1,158       1,212       1,258        13,227        19,086
Severance payments
related to restructuring
and integration               6,548        2,118         897         747         615         2,196        13,121
Total commitments          $ 61,976     $ 11,258     $ 8,353     $ 7,492     $ 7,433     $  32,047     $ 128,559

Summary of Significant Accounting Policies

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