NEW HAVEN, CT – Proliance International has announced results for the first quarter ended March 31.

Net sales in the first quarter of 2007 were $91.9 million, compared to $91.3 million in the first quarter of 2006. The sales increase was primarily attributable to growth in the company’s European operations. The company reported a net loss for the first quarter of 2007 of $6.3 million, or 42 cents per basic and diluted share, compared to a net loss of $5.1 million, or 33 cents per basic and diluted share in the first quarter of 2006.

Charles Johnson, president and CEO of Proliance stated, “The seasonally weak first quarter came in much as expected, as higher cost inventory continued to work its way through to the market, and we continued to experience mild weather conditions accompanied by lower driving activity by consumers, attributable to high fuel costs. Our results in the quarter reflect higher commodity costs, changes to our heat exchange sales mix as we experienced higher sales to wholesale customers and relatively less to our direct customers and a continued highly competitive marketplace. At the same time, we continued to make improvements to our business in the quarter, including a reduction of inventory and further implementation of cost reduction and branch alignment initiatives to effectively adapt to the trends we are seeing in the market.”

The company continued to lower inventory levels during the quarter while maintaining high service levels with its customers. Inventories at March 31 were $113.7 million versus $118.9 million at Dec. 31, 2006, a decrease of $5.2 million. The reduction in the current quarter reflects success in the company’s efforts to add speed and supply flexibility to better manage inventory levels. Inventory reduction remains a key goal for 2007, and the company is currently targeting year-end 2007 inventory levels below those seen in year-end 2006 levels.

Domestic segment heat exchange product unit volumes were slightly stronger in the first quarter, despite the decline in miles driven for the first two months of 2007 versus 2006 levels. However, as noted above, the shift in sales mix towards wholesale customers and away from the company’s direct customers translated into lower average selling prices and lower overall average margins for certain domestic heat exchange products. As has been noted in prior communications, the company has taken action to better align its branch system with market needs as a result of this change in mix. Domestic temperature control product sales were lower than year-ago levels, reflecting higher preseason orders in 2006 from several of its major customers and generally mild weather conditions. Softer market conditions also led to lower domestic heavy duty product sales in the first quarter of 2007. International segment sales increased in the quarter, primarily as a result of higher marine and heat exchange sales in Europe, as well as increased foreign translation rates.

As noted, the impact of higher commodity prices, low production rates and the shift in the customer mix of sales away from direct customers and toward wholesale customers were reflected in lower gross margins for the quarter. For the first quarter of 2007, consolidated gross margin was $17.4 million, or 18.9 percent of net sales, versus a consolidated gross margin of $20.9 million or 22.9 percent of net sales, in the same period in 2006. Copper and aluminum market costs are up more than 70 percent and 30 percent, respectively, over their levels of a year ago. The decrease in gross margin was partially offset by cost reduction initiatives completed in 2006. The company has continued to undertake initiatives to reduce product costs and implement price actions wherever possible. The company has also initiated programs to reduce product costs through product design improvements, reductions of direct manufacturing costs and overheads, as well as alternative approaches to sourcing, which will begin to have impact throughout the remainder of 2007.

Selling, general and administrative expenses totaled $20.6 million, or 22.4 percent of net sales, in the 2007 first quarter, compared to $22.9 million, or 25.1 percent of net sales, in the same period in 2006. The decrease in expenses primarily reflects the lower administrative spending as a result of cost reduction actions implemented in 2006, including the elimination of the Racine administrative office and the consolidation of these functions into the company’s New Haven corporate office. Branch expenses for the quarter were also lower due to the impact of the branch realignment program initiated during the third quarter of 2006 to better align the company’s go-to-market strategy with customer needs. The company reported $0.3 million of restructuring costs for the first quarter of 2007, primarily associated with changes to the company’s branch operating structure. These changes resulted in the reduction of branch and agency locations from 94 at the end of the 2006 fourth quarter to 90 at the end of the 2007 first quarter and the establishment of supply agreements with distribution partners in certain areas. These activities are part of the previously announced $2 - $3 million of new restructuring initiatives in 2007. In addition, as previously disclosed, during the second quarter of 2007, the company will continue to take actions to reduce costs, including manufacturing and administrative staff reductions and the closure of five additional branch locations, which will result in additional restructuring costs of about $1.1 million. This will further improve our year-over-year overhead comparisons.

“As we enter the beginning of our peak selling season and ramp up our plants to meet our increased seasonal demand, we will begin to see the favorable impact of our cost-reduction initiatives as we sell off higher cost product,” said Johnson. “This will become increasingly apparent in our results for the third quarter and fourth quarter in year-over-year comparisons. We continue to anticipate improved profitability over 2006 levels for the 2007 fiscal year and remain committed to our goal of achieving profitability for the full year. Although our sales levels were essentially flat for the first quarter, we expect sales to grow overall in 2007. At the same time, we will continue our efforts to improve our products and customer service, our ‘go-to-market’ distribution system, our inventory turns and further improve our overhead structure.”