Company Overview
We are a leading supplier of fully integrated system solutions for the global commercial vehicle market, including the Heavy-duty (Class 8) truck market, the construction, military, bus and agriculture market and the specialty transportation markets. As a result of our strong leadership in cab-related products and systems, we are positioned to benefit from the increased focus of our customers on cab design and comfort and convenience features to better serve their end-user, the driver. Our products include suspension seat systems, electronic wire harness assemblies, control and switches, cab structures and components, interior trim systems (including instrument panels, door panels, headliners, cabinetry and floor systems), mirrors and wiper systems specifically designed for applications in commercial vehicles.
We are differentiated from suppliers to the automotive industry by our ability to manufacture low volume customized products on a sequenced basis to meet the requirements of our customers. We believe that we have the number one or two position in most of our major markets and that we are the only supplier in the North American commercial vehicle market that can offer complete cab systems including cab body assemblies, sleeper boxes, seats, interior trim, flooring, wire harnesses, panel assemblies and other structural components. We believe our products are used by virtually every major North American heavy truck commercial vehicle OEM, which we believe creates an opportunity to cross-sell our products and offer a fully integrated system solution.
Demand for our heavy truck products is generally dependent on the number of new heavy truck commercial vehicles manufactured in North America, which in turn is a function of general economic conditions, interest rates, changes in governmental regulations, consumer spending, fuel costs and our customers' inventory levels and production rates. New heavy truck commercial vehicle demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. Production of heavy truck commercial vehicles in North America initially peaked in 1999 and experienced a downturn from 2000 to 2003 that was due to a weak economy, an oversupply of new and used vehicle inventory and lower spending on heavy truck commercial vehicles and equipment. Demand for commercial vehicles improved in 2006 due to broad economic recovery in North America, corresponding growth in the movement of goods, the growing need to replace aging truck fleets and OEMs received larger than expected pre-orders in anticipation of the new EPA emissions standards becoming effective in 2007.
During 2007, the demand for North American Class 8 heavy trucks experienced a downturn as a result of pre-orders in 2006 and general weakness in the North American economy and corresponding decline in the need for commercial vehicles to haul freight tonnage in North America. The demand for new heavy truck commercial vehicles in 2008 remained close to 2007 levels as weakness in the overall North American economy continued to impact production related orders. We believe this general weakness has contributed to the reluctance of trucking companies to invest in new truck fleets. In addition, the recent tightening of credit in financial markets may adversely affect the ability of our customers to obtain financing for significant truck orders, which we have experienced through September 30, 2009. North American Class 8 production levels through September 30, 2009 are down approximately 48% over the same period in 2008 as the overall weakness in the North American economy and credit markets continue to put pressure on the demand for new vehicles. If the sustained downturn in the economy and the disruption in the financial markets continue, we expect that low demand for Class 8 trucks could continue to have a negative impact on our revenues, operating results and financial position.
Demand for our construction products is also dependent on the overall vehicle demand for new commercial vehicles in the global construction equipment market and generally follows certain economic conditions around the world. Within the construction market, there are two classes of construction equipment, the medium/heavy equipment market (weighing over 12 metric tons) and the light construction equipment market (weighing below 12 metric tons). Demand in the medium/heavy construction equipment market is typically related to the level of larger scale infrastructure development projects such as highways, dams, harbors, hospitals, airports and industrial development as well as activity in the mining, forestry and other raw material based industries. Demand in the light construction equipment market is typically related to certain economic conditions such as the level of housing construction and other smaller-scale developments and projects. Our products are primarily used in the medium/heavy construction equipment markets. Demand in the construction equipment market through September 30, 2009 has declined significantly from the same period in 2008 as a result of the continuing economic downturn in the housing and financial markets. If the downturn in the global economy and the disruption in the financial markets continue, we expect that low demand for construction equipment could continue to have a negative impact on our revenues, operating results and financial position.

Along with the United States, we have operations in Europe, China, Australia and Mexico. Our operating results are, therefore, impacted by exchange rate fluctuations to the extent we translate our foreign operations from their local currencies into U.S. dollars.
We continuously seek ways to improve our operating performance by lowering costs. These efforts include, but are not limited to, the following:
• eliminating excess production capacity through the closure and consolidation of manufacturing, warehousing or assembly facilities;

• adjusting our hourly and salaried workforce to optimize costs in line with our production levels;

• working capital improvements through reduced inventory and capital spending;

• sourcing efforts in Europe and Asia;

• consolidating our supply base to improve purchasing leverage; and

• implementing Lean Manufacturing and Total Quality Production System ("TQPS") initiatives to improve operating efficiency and product quality.

Although OEM demand for our products is directly correlated with new vehicle production, we also have the opportunity to grow through increasing our product content per vehicle through cross selling and bundling of products. We generally compete for new business at the beginning of the development of a new vehicle platform and upon the redesign of existing programs. New platform development generally begins at least one to three years before the marketing of such models by our customers. Contract durations for commercial vehicle products generally extend for the entire life of the platform, which is typically five to seven years.
In sourcing products for a specific platform, the customer generally develops a proposed production timetable, including current volume and option mix estimates based on their own assumptions, and then sources business with the supplier pursuant to written contracts, purchase orders or other firm commitments in terms of price, quality, technology and delivery. In general, these contracts, purchase orders and commitments provide that the customer can terminate if a supplier does not meet specified quality and delivery requirements and, in many cases, they provide that the price will decrease over the proposed production timetable. Awarded business generally covers the supply of all or a portion of a customer's production and service requirements for a particular product program rather than the supply of a specific quantity of products. Accordingly, in estimating awarded business over the life of a contract or other commitment, a supplier must make various assumptions as to the estimated number of vehicles expected to be produced, the timing of that production, mix of options on the vehicles produced and pricing of the products being supplied. The actual production volumes and option mix of vehicles produced by customers depend on a number of factors that are beyond a supplier's control. Results of Operations
The table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated:

                                                    Three Months Ended                Nine Months Ended
                                                      September 30,                     September 30,
                                                  2009             2008             2009             2008
Revenues                                          100.0 %          100.0 %          100.0 %          100.0 %
Cost of revenues                                   96.7             91.2            100.2             89.8

Gross profit (loss)                                 3.3              8.8             (0.2 )           10.2
Selling, general and administrative
expenses                                           10.2              8.3             10.8              8.0
Amortization expense                                0.1              0.2              0.1              0.2
Gain on sale of long-lived asset                      -                -                -             (1.0 )
Intangible asset impairment                           -                -              2.2                -
Long-lived asset impairment                           -                -              1.1                -
Restructuring costs                                   -                -              0.6                -

Operating (loss) income                            (7.0 )            0.3            (15.0 )            3.0
Other expense (income)                              1.1                -             (2.2 )            1.0
Interest expense                                    3.6              1.9              3.5              1.9
Loss on early extinguishment of debt                0.4                -              0.4                -
Expense relating to debt exchange                   2.6                -              0.9                -

(Loss) income before (benefit) provision
for income taxes                                  (14.7 )           (1.6 )          (17.6 )            0.1
(Benefit) provision for income taxes               (0.4 )           (0.3 )            0.3                -

Net (loss) income                                 (14.3 )%          (1.3 )%         (17.9 )%           0.1 %

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Revenues. Revenues decreased approximately $82.1 million, or 42.5%, to $110.8 million in the three months ended September 30, 2009 from $192.9 million in the three months ended September 30, 2008. This decrease resulted primarily from the decline in global economic conditions, which negatively impacted our North American end market revenues by approximately $55.9 million and our European and Asian end market revenues by approximately $23.7 million. In addition, translation of our foreign operations into U.S. dollars decreased our revenues by approximately $2.5 million over the prior year period. Gross Profit. Gross profit was approximately $3.6 million for the three months ended September 30, 2009 compared to gross profit of $16.9 million in the three months ended September 30, 2008, a decrease of approximately $13.3 million, or 78.6%. As a percentage of revenues, gross profit was 3.3% for the three months ended September 30, 2009 compared to gross profit of 8.8% in the three months ended September 30, 2008. This decrease was primarily the result of our inability to reduce our costs in proportion with the $82.1 million decrease in our revenues from the prior year period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately $4.7 million, or 29.3%, to $11.3 million in the three months ended September 30, 2009 from $16.0 million in the three months ended September 30, 2008. The decrease was primarily the result of reductions in wages and general spending in connection with our restructuring and cost containment efforts during the three months ended September 30, 2009. Amortization Expense. Amortization expense was approximately $0.1 million and $0.4 million, respectively, for the three months ended September 30, 2009 and 2008. This decrease was primarily related to the impairment of our definite-lived customer relationship intangible assets at C.I.E.B. and PEKM. Other Expense (Income). We use forward exchange contracts to hedge foreign currency transaction exposures related primarily to our United Kingdom operations. We estimate our projected revenues and purchases in certain foreign currencies or locations and will hedge a portion or all of the anticipated long or short position. As of September 30, 2009, none of our derivatives were designated as hedging instruments; therefore, our forward foreign exchange contracts have been marked-to-market and the fair value of contracts recorded in the consolidated balance sheets with the offsetting non-cash gain or loss recorded in our consolidated statements of operations. The $1.2 million expense for the three months ended September 30, 2009 and the $0.1 million income for the three months ended September 30, 2008 are primarily related to the noncash change in value of the forward exchange contracts in existence at the end of each period.
Interest Expense. Interest expense increased approximately $0.3 million to $4.0 million in the three months ended September 30, 2009 from $3.7 million in the three months ended September 30, 2008. This increase was primarily due to higher average interest rate on our outstanding indebtedness.

Loss on Early Extinguishment of Debt. In connection with entering into an amendment to our Loan and Security Agreement during the three months ended September 30, 2009, we recorded approximately $0.5 million in fees relating to a proportionate impairment of previously deferred financing fees.
Expense Relating to Debt Exchange. In connection with the private exchange of a portion of our 8% senior rotes and the issuance of a new second lien term loan during the three months ended September 30, 2009, we recorded approximately $2.9 million in third party fees relating to the modification of our debt arrangements.
Benefit for Income Taxes. Our effective tax rate was 2.8% for the three months ended September 30, 2009 and 15.8% for the same period in 2008. An income tax benefit of approximately $0.5 million was recorded for the three months ended September 30, 2009 and September 30, 2008. The change in effective rate from the prior year quarter can be primarily attributed to valuation allowances. Valuation allowances continue to be necessary as it is more likely than not that we will not realize the deferred tax assets.
Net Loss. Net loss was $15.9 million in the three months ended September 30, 2009, compared to a net loss of $2.6 million in the three months ended September 30, 2008, primarily as a result of the factors discussed above. Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Revenues. Revenues decreased approximately $276.3 million, or 46.1%, to $322.8 million in the nine months ended September 30, 2009 from $599.1 million in the nine months ended September 30, 2008. This decrease resulted primarily from the decline in global economic conditions, which impacted our North American end market revenues by approximately $170.0 million and our European and Asian end market revenues by approximately $93.1 million. In addition, translation of our foreign operations into U.S. dollars decreased our revenues by approximately $13.2 million over the prior year period.
Gross (Loss) Profit. Gross loss was approximately $0.7 million for the nine months ended September 30, 2009 compared to gross profit of $61.1 million in the nine months ended September 30, 2008, a decrease of approximately $61.8 million, or 101.2%. As a percentage of revenues, gross loss was 0.2% for the nine months ended September 30, 2009 compared to gross profit of 10.2% in the nine months ended September 30, 2008. This decrease was primarily the result of our inability to reduce our costs in proportion with the $276.3 million decrease in our revenues from the prior year period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately $12.8 million, or 26.7%, to $35.0 million in the nine months ended September 30, 2009 from $47.8 million in the nine months ended September 30, 2008. The decrease was primarily the result of reductions in wages and general spending in connection with our restructuring and cost containment efforts during the nine months ended September 30, 2009. Amortization Expense. Amortization expense was approximately $0.3 million and $1.1 million, respectively, for the nine months ended September 30, 2009 and 2008. We recorded less amortization expense for the nine months ended September 30, 2009 primarily due to the impairment of our definite-lived customer relationships at C.I.E.B. and PEKM.
Gain on Sale of Long-Lived Assets. We sold the land and building of our Seattle, Washington facility with a carrying value of approximately $1.2 million, for $7.3 million and recognized a gain on the sale of long-lived assets of approximately $6.1 million for the nine months ended September 30, 2008. We did not record a gain on sale of long-lived assets for the nine months ended September 30, 2009.
Intangible Asset Impairment. Our intangible asset impairment analysis is performed annually during the second quarter. In connection with this test, we determined that the fair value was less than the carrying value of our net assets and resulted in the recording of an impairment charge of approximately $7.0 million for the nine months ended September 30, 2009.
Long-Lived Asset Impairment. During the nine months ended September 30, 2009, we identified that an impairment indicator existed related to our long-lived assets. As a result, we recorded an impairment of approximately $3.4 million in the second fiscal quarter of 2009 as the carrying value of the assets exceeded their fair value.
Restructuring Costs. We recorded restructuring charges for the nine months ended September 30, 2009 of $1.9 million relating to reductions in our workforce and the closure of certain manufacturing, warehousing and assembly facilities. We did not record a restructuring charge for the nine months ended September 30, 2008.

Other (Income) Expense. We use forward exchange contracts to hedge foreign currency transaction exposures related primarily to our United Kingdom operations. We estimate our projected revenues and purchases in certain foreign currencies or locations and will hedge a portion or all of the anticipated long or short position. As of September 30, 2009, none of our derivatives were designated as hedging instruments; therefore, our forward foreign exchange contracts have been marked-to-market and the fair value of contracts recorded in the consolidated balance sheets with the offsetting non-cash gain or loss recorded in our consolidated statements of operations. The $7.2 million gain for the nine months ended September 30, 2009 and the $5.8 million expense for the nine months ended September 30, 2008 are primarily related to the noncash change in value of the forward exchange contracts in existence at the end of each period.
Interest Expense. Interest expense decreased approximately $0.1 million to $11.3 million in the nine months ended September 30, 2009 from $11.4 million in the nine months ended September 30, 2008. This decrease was due primarily to a lower average amount outstanding on our revolving credit facility compared to the prior year period.
Loss on Early Extinguishment of Debt. In connection with entering into our Loan and Security Agreement on January 7, 2009, we expensed approximately $0.8 million of fees relating to the prior senior credit agreement. In connection with entering into an amendment to our Loan and Security Agreement during the three months ended September 30, 2009, we recorded approximately $0.5 million in fees relating to a proportionate impairment of previously deferred financing fees.
Expense Relating to Debt Exchange. In connection with the private exchange of a portion of our 8% senior notes and the issuance of a new second lien term loan during the nine months ended September 30, 2009, we recorded approximately $2.9 million in third party fees relating to the modification of our debt arrangements.
Provision for Income Taxes. Our effective tax rate was negative 2.0% for the nine months ended September 30, 2009 and 12.1% for the same period in 2008. An income tax provision of approximately $1.1 million was recorded for the nine months ended September 30, 2009 compared to $0.1 million for the nine months ended September 30, 2008. The change in effective rate from the prior year quarter can be primarily attributed to valuation allowances. Valuation allowances continue to be necessary as it is more likely than not that we will not realize the deferred tax assets.
Net (Loss) Income. Net loss was $57.8 million in the nine months ended September 30, 2009, compared to net income of $1.0 million in the nine months ended September 30, 2008, primarily as a result of the factors discussed above. Liquidity and Capital Resources
Cash Flows
For the nine months ended September 30, 2009, net cash provided by operations was approximately $14.0 million compared to $7.0 million from the prior year period. The net cash provided by operations for the nine months ended September 30, 2009 was primarily a result of decreases in accounts receivable and inventory, which was partially offset by changes in accounts payable and accrued liabilities.
Net cash used in investing activities was approximately $6.7 million for the nine months ended September 30, 2009 compared to approximately $6.5 million for the comparable period in 2008. The amounts used in investing activities for the nine months ended September 30, 2009 primarily reflect capital expenditure purchases. The amounts used in investing activities for the nine months ended September 30, 2008 reflect ongoing capital expenditure purchases and post-acquisition adjustments, which was partially offset by the sale of long-lived assets.
Net cash used in financing activities was approximately $5.0 million for the nine months ended September 30, 2009, compared to $0.3 million in the same period of 2008. The net cash used in financing activities was primarily due to debt issuance costs for the nine months ended September 30, 2009 and 2008. Debt and Credit Facilities
As of September 30, 2009, we had an aggregate of $160.9 million of outstanding indebtedness excluding $1.7 million of outstanding letters of credit under various financing arrangements and an additional $35.8 million of borrowing capacity under our Loan and Security Agreement, which is subject to a $10.0 million availability block. The indebtedness consisted of the following:

• no borrowings under our revolving credit facility and $0.1 million of capital lease obligations;

• $97.8 million of 8.0% senior notes due 2013;

• $12.4 million ($16.8 million principal amount, net of $4.4 million of original issue discount) of 15% second lien term loan;

• $50.5 million ($42.1 million principal amount, and $8.4 million of issuance premium) of 11%/13% third lien secured notes due 2013; and

• $0.1 million of paid-in-kind interest on the 11%/13% third lien secured notes due 2013.

Loan and Security Agreement
On January 7, 2009, we and certain of our direct and indirect U.S. subsidiaries, as borrowers (the "borrowers"), entered into a Loan and Security Agreement (the "Loan and Security Agreement") with Bank of America, N.A., as agent and lender. Set forth below is a description of the material terms and conditions of the Loan and Security Agreement:
The Loan and Security Agreement provides for a three-year asset-based revolving credit facility (the "revolving credit facility") in an aggregate principal amount of up to $37.5 million (after giving effect to the Second Amendment described below), which is subject to an availability block and the borrowing base limitations described below. Up to an aggregate of $10.0 million is available to the borrowers for the issuance of letters of credit, which reduce availability under the revolving credit facility.
On January 7, 2009, we borrowed $26.8 million under the revolving credit facility and used that amount to repay in full our borrowings under our prior senior credit agreement and to pay fees and expenses related to the Loan and Security Agreement. We use the revolving credit facility to fund ongoing operating and working capital requirements.
On March 12, 2009, we entered into a first amendment to the Loan and Security Agreement (the "First Amendment"). Pursuant to the terms of the First Amendment, the lenders consented to changing the thresholds in the minimum EBITDA (as described in the Loan and Security Agreement, as amended) covenant. In addition, the First Amendment provided for (i) an increase in the applicable margin for interest rates on amounts borrowed by the borrowers of 1.50%, (ii) a limitation on permitted capital expenditures in 2009 and (iii) a temporary decrease in domestic availability until such time as the borrowers demonstrate a fixed charge coverage ratio of at least 1.0:1.0 for any fiscal quarter ending on or after March 31, 2010.
On August 4, 2009, we entered into a second amendment to the Loan and Security Agreement (the "Second Amendment"). Pursuant to the terms of the Second Amendment, the lender consented to the notes exchange described below, including the issuance of the third lien notes, and the second lien term loan described below.
The Second Amendment included a reduction in size of the commitment from $47.5 million to $37.5 million and provided that borrowings under the Loan and Security Agreement are subject to an availability block of $10.0 million, until we deliver a compliance certificate for any fiscal quarter ending March 31, 2010 or thereafter demonstrating a fixed charge coverage ratio of at least 1.1 to 1.0 for the most recent four fiscal quarters, at which time the availability block will be $7.5 million at all times while the fixed charge coverage ratio is at least 1.1 to 1.0.
The aggregate amount of loans permitted to be made to the borrowers under the revolving credit facility may not exceed a borrowing base consisting of the lesser of: (a) $37.5 million, minus the availability block and domestic letters of credit, and (b) the sum of eligible accounts receivable and eligible inventory of the borrowers, minus the availability block and certain availability reserves. Borrowings under the Loan and Security Agreement are denominated in U.S. dollars. The weighted average interest rate on borrowings under the Loan and Security Agreement was approximately 6.2% for the nine months ended September 30, 2009.
The Second Amendment further provided that we need not comply with any minimum EBITDA requirement or fixed charge coverage ratio requirement for as long as we maintain at least $5.0 million of borrowing availability (after giving effect to the $10.0 million availability block) under the Loan and Security Agreement. If . . .