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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-13894
TRANSPRO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1807383
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 Par Value New York Stock Exchange
(together with associated
Preferred Stock purchase rights)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 14, 1997 was $63,446,412. On that date, there were 6,591,835
outstanding shares of the registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to stockholders for the fiscal year ended December 31, 1996
incorporated by reference into Parts I and II hereof.
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders
are incorporated by reference into Part III of this report.
Exhibit Index is on pages 16 and 17 of this report.
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TRANSPRO, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
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PAGE
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PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security
Holders 12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the
Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related
Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15
Signatures 18
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
On September 29, 1995, TransPro, Inc. (the "Company") completed a
series of transactions pursuant to which the Company's sole stockholder, The
Allen Group Inc. ("Allen"), contributed (the "Contribution") to the Company
substantially all of the assets and liabilities of Allen's original equipment
radiator and fabricated metal products business (the "Automotive and Truck
Products Business"), as well as Allen's 50% ownership interest in GO/DAN
Industries ("GDI"), a 50/50 joint venture partnership between affiliates of
Allen and Handy & Harman ("H&H"). Immediately thereafter, Allen caused GDI to
redeem the outstanding ownership interest in GDI not already owned by Allen (the
"GDI Redemption"), thereby making GDI an indirect wholly owned partnership of
the Company. GDI produces replacement radiators and other heat transfer products
for the automotive and truck aftermarkets.
In addition, Allen effected the distribution (the "Distribution") of
100% of the outstanding shares of the Company's common stock to the holders of
record of Allen's common stock as of the close of business on September 29, 1995
(the "Record Date"). The Distribution was made on the basis of one share of the
Company's common stock for every four shares of Allen's common stock outstanding
on the Record Date, which resulted in the distribution of an aggregate of
6,621,349 shares of TransPro common stock. As a result of the Contribution, the
Distribution, and the GDI Redemption, TransPro now owns the Automotive and Truck
Products Business and 100% of GDI, and is an independent publicly-traded
company.
The Company is comprised of operating units that supply heat transfer
and fabricated metal products to original equipment manufacturers ("OEMs") of
trucks, vans and other industrial products and to the automotive and truck
aftermarkets. The Company's G&O Manufacturing Company division ("G&O") produces
radiators for OEMs of heavy duty trucks and industrial and off-highway
equipment. The Company's Crown divisions ("Crown") perform pickup truck
conversions for Ford, install specialized interiors in utility trucks and vans
for major commercial fleets and design, manufacture and assemble fabricated
metal parts for light truck, telecommunications and other industrial customers.
Through GDI, the Company is also a producer of replacement radiators and other
heat transfer products for the automotive and truck aftermarkets.
The Company's origins date back to 1915 when G&O commenced operations
in New Haven, Connecticut as a manufacturer of radiators for custom built
automobiles, fire engines and original equipment radiators for Ford. Allen
acquired G&O in 1970 as part of its strategy to become a broad-based automotive
supplier. Crown commenced operations in 1947 and was acquired by Allen in 1967
as part of the same business strategy. GDI was formed in 1990 when Allen
contributed a portion of its G&O division and other assets, which together
represented all of Allen's aftermarket radiator business, and H&H contributed
substantially all of the assets of its then wholly owned subsidiaries, Daniel
Radiator Corporation, Jackson Industries, Inc., Lexington Tube Co., Inc. and
U.S. Auto Radiator Manufacturing Corporation, to form a 50/50 joint venture
partnership.
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DESCRIPTION OF BUSINESS
MARKETS
The automotive and heavy truck parts industries are each comprised of
two distinct sectors, the OEM market and the aftermarket. The manufacture of
individual component parts for use in the original equipment manufacturing
process of automobiles, vans and light trucks forms the automotive OEM market
and the manufacture of individual components for use in the original equipment
manufacturing process of heavy trucks forms the heavy truck OEM market. The
products and services used to maintain and repair automobiles, vans and light
trucks and heavy trucks, as well as accessories not supplied with such vehicles
when manufactured, form the respective automotive and heavy truck aftermarkets.
The Company believes that in recent years demand for replacement parts and
supplies in both the automotive and heavy truck aftermarkets has increased as
both individuals and commercial fleet operators are driving more and keeping
their vehicles longer. The Company sells its products and services principally
to the light truck segment of the automotive OEM market and the heavy truck OEM
market as well as both the automotive and heavy truck aftermarkets. The Company
also sells its products to OEMs of off-highway equipment and other industrial
customers.
PRINCIPAL PRODUCTS AND SERVICES
The Company designs, manufactures and markets radiators and other
specialty heat exchangers for OEMs of heavy trucks and industrial and
off-highway equipment as well as replacement radiators, air conditioning
condensers and other heat transfer products for the automotive and heavy truck
aftermarkets. The Company also performs pickup truck conversions for Ford,
installs specialized interiors in utility trucks and vans for major commercial
fleets and designs, manufactures and assembles fabricated metal products for
light truck, telecommunications and other industrial customers. A description of
the particular products manufactured and the services performed by the Company
through each of its principal operating units is set forth below.
GO/DAN Industries
Through GDI, the Company provides one of the most extensive product
ranges of high-quality radiators, radiator cores, heater cores and air
conditioning condensers to the automotive and heavy truck aftermarkets. In
addition to its standard models, the Company can produce special orders of such
products typically within 24 hours.
The purpose of a radiator is to cool the engine. A radiator acts as a
heat exchanger, removing heat from engine coolant as it passes through the
radiator. The construction of a radiator usually contains the radiator core,
which consists of coolant-carrying tubes and a large cooling area; a receiving
(inlet) tank; a dispensing (outlet) tank; and side columns. In operation,
coolant is pumped from the engine to the inlet tank where it spreads over the
tops of the tubes. As the engine coolant passes through the tubes, it loses its
heat to the air stream through the fins connected to the tubes. After passing
through the tubes, the reduced temperature coolant enters the outlet tank, and
is then recirculated through the engine.
Complete Radiators. The Company's lines of complete radiators are
produced for automotive, light and heavy truck applications and consist of more
than 700 models, which are able to service approximately 90% of the automobiles
in the United States. The Company has established itself as an industry leader
with its well recognized line of Ready-Rad(R) radiators. The Ready-Rad(R) Plus
line has become extremely popular because of its ability to fit the requirements
of a broad line of vehicles, enabling distributors to service a larger number of
vehicles with lower inventory levels.
The Company introduced its Ready Rad(R) Heatbuster line of complete
radiators in fiscal 1994. This line of replacement radiators is specially
designed to provide approximately 20% more cooling capability than a standard
radiator. The Heatbuster line is the ideal replacement radiator for vehicles
which are used for towing, hauling,
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plowing, or off-highway purposes, and as a result, it has been particularly
popular in the growing light truck segment of the automotive fleet.
Radiator Cores. Radiator cores are the largest and most expensive
component of a complete radiator. The Company's Ready-Core(R) line consists of
2,500 models of radiator cores for automobiles and light trucks. Given the wide
range of cores required by today's automobile and truck fleet, there are many
times when a specific core is not readily available. In these cases, the Company
can produce a new core, on demand, within several hours. The Company is able to
provide same day service to virtually the entire United States using its 13
strategically positioned, regional manufacturing plants.
Industrial cores are heavy duty units which are constructed of
extremely durable materials in order to meet the demands of the commercial
marketplace. The Company produces approximately 13,000 models of industrial
cores, and these products serve many different needs in a variety of markets. In
general, an industrial core is much larger than an automotive core and typically
sells for four times the cost of an automotive core.
Heater Cores. The Company produces more than 350 different heater core
models for domestic and foreign cars and trucks, which cover the requirements
for more than 95% of today's automotive fleet. A heater core is part of a
vehicle's heater system through which heated coolant from the engine cooling
system flows; the warm air generated as the liquid flows through the heater core
is propelled into the vehicle by a fan.
The Company's Ready-Aire(R) line of heater cores is recognized as an
industry leader and its models utilize both cellular and tubular technology.
Traditional heater cores utilize cells to transport coolant through the unit,
while the more modern models transport coolant through tubes. The Company
introduced its tubular CT Ready-Aire(R) line of heater cores in 1988, and its CT
heater cores now account for approximately 20% of the Company's total heater
core sales.
Air Conditioning Condensers. Automotive air conditioning condensers
were added to the GDI product line in 1996 through the acquisition of certain
assets and liabilities of Rahn Industries, Inc., an independent aftermarket
supplier of automotive air conditioning condensers. Air conditioning condensers
are a component of a vehicle's air conditioning system which removes heat from
the air conditioner refrigerant allowing the refrigerant to produce cool air for
circulation into the passenger compartment by a fan. GDI distributes this
product under both the GDI and Rahn Industries brands and has fully integrated
this product in the GDI distribution network. GDI catalogs more than 900
condenser part numbers through Rahn.
Parts and Supplies. The Company sells radiator shop supplies and
consumable products used by its customers in the process of radiator repairs.
The Company's expansive line includes radiator parts, small hand tools and
equipment, and solders and fluxes. The Company is one of the largest domestic
supplier of stamped metal radiator parts, supplying these parts to regional core
manufacturers throughout the United States.
The Crown Divisions
The Company's Crown divisions are comprised of three interrelated
businesses. The principal products produced and services performed by each of
these businesses is set forth below.
Truck Cab Conversions. At the Company's 129,000 square foot
manufacturing facility located near Louisville, Kentucky, the Company produces a
four-door pickup truck cab for Ford's F-Series Truck (a "Crew Cab") and modifies
rear wheel fender assemblies to accommodate a dual rear wheel axle ("DRWs"). The
Crew Cab is produced by the Company utilizing an assembly line production
process in which various stamped components are assembled using certain welding
techniques. In much the same fashion, the Company produces DRWs in order to
provide adequate space for the additional tire on each side of the rear wheel
axle assembly.
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The Company is the exclusive supplier of Crew Cabs and DRWs to Ford,
and has provided such products to Ford for 30 years and 20 years, respectively,
excluding a brief period from 1980 to 1982 when Ford did not offer either option
with its F-Series Pickup Trucks. Crown was notified by Ford that Ford intends to
move manufacture of Crew Cabs and DRWs in-house in late 1997. Crown expects to
continue to provide Ford with its needs until that time. The Company's
production facility is located in close proximity with Ford's truck assembly
plant in Louisville, Kentucky and was leased by the Company in 1993 as a result
of Ford shifting production of its F-Series Pickup Truck from Ontario, Canada to
Kentucky. This facility provides Ford with Crew Cabs and DRWs on a just-in-time
basis and is electronically connected to Ford's facility to facilitate
information exchange.
Utility Truck and Van Conversions. The Company is one of the leaders in
the installation of specialized interiors in utility trucks and vans for major
commercial fleets such as Sears, Airborne Express, General Electric and the
regional telephone companies. The Company's van conversion installation
facilities are strategically located near each of the major production
facilities for utility trucks and vans of Ford, Chrysler and General Motors. The
Company offers its customers a full range of customizing options ranging from
the installation of ladder racks, specialized bins and shelves and other
components for convenient and safe storage to decaling the outside of the
vehicle. Each interior is installed according to the customer's specifications,
based upon various design and equipment options offered by the Company. Much of
the specialized equipment installed by the Company in its conversion business is
also manufactured by the Company. The Company's van conversion business has
received a contract from the Ford Motor Company to convert approximately 9,000
Aerostar and Windstar mini vans for the U.S. Postal Service. The vehicles are
expected to go into service during 1997. The Company will perform the
modification at its Lorain, Ohio and St. Louis, Missouri facilities.
The Company enjoys a reputation in the industry of offering new and
innovative products. For example, the Company introduced in the early 1990s its
exclusive Slide-Down(TM) ladder rack, which enables service technicians to
easily load and unload heavy ladders from the top of the vehicle with reduced
risk of back injury and strain and Slide-Out(TM) storage racks, which make it
easier and safer for service technicians to retrieve parts and components
transported by commercial van users. The Company is attempting to further
capitalize on such reputation by increasing its sales to the aftermarket portion
of the van conversion industry.
Fabricated Metal Products. The Company designs, manufactures and
assembles over 400 different fabricated metal parts such as high tolerance
cabinets for light truck, telecommunications and other industrial customers such
as Ingersoll-Rand, Lucent Technologies, DSC and East Penn. The Company's metal
fabrication business is principally conducted out of its Wooster, Ohio and
Thomaston, Georgia manufacturing facilities. Certain of the products produced by
the Company are used in its own van conversion business. In addition to van
conversion products, the Company also produces fabricated metal components for
telephone switching equipment, wireless communications equipment, stationary
rotary air compressors and heavy duty battery boxes. The Company focuses on the
production of large, complex parts that typically require greater engineering
and more sophisticated production techniques than traditional high volume,
undifferentiated products. The Company's Wooster, Ohio facility is ISO 9001
certified.
The G&O Manufacturing Company Division
Through its G&O division, the Company designs, manufactures and markets
radiators and charge air coolers to OEMs of heavy duty trucks, buses and
industrial and off-highway equipment such as generator sets, construction
vehicles, railroad locomotives and military equipment. The Company manufactures
its products in Jackson, Mississippi. The Company's Jackson, Mississippi
facility is ISO 9002 certified, which is an internationally recognized
verification system for quality management.
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Radiators. The Company custom designs, manufactures and sells
approximately 400 different models of radiators, most of which are specifically
designed and engineered to meet customer specifications. The Company's radiators
are specifically engineered to withstand the demanding applications of its
industrial customers. The Company's radiators are sold under the
widely-recognized Ultra-Fused(R) brand name when utilizing welded tube-to-header
core constructions.
Charge Air Coolers. The Company offers its customers approximately 200
different models of aluminum charge air coolers. A charge air cooler is a device
that is used to decrease the temperature of the air that is used by the engine
in its combustion process, which in turn improves the operating efficiency of
the engine and lowers its emission levels. The Company believes that the demand
for charge air coolers will continue to increase as the Company's customers face
increasing pressure to produce vehicles and equipment that are more fuel
efficient and less polluting. In 1995 and 1996, the Company obtained its charge
air coolers, which are designed and engineered by the Company, from a contract
manufacturer through a preferred supplier relationship. In July 1995, the
Company placed a significant purchase order to obtain the necessary production
equipment in order to produce such charge air coolers in-house. The Company
began internal production of charge air coolers in early 1997 and intends to use
such equipment in the production of G&O designed aluminum radiators.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, FOREIGN OPERATIONS AND EXPORT
SALES
The Company operates principally in one segment, "automotive and truck
products." Applicable segment information appears in Note 3 of the Notes to
Consolidated Financial Statements contained in the Registrant's 1996 Annual
Report to Stockholders, certain portions of which are filed as Exhibit 13 to
this Report. All such information is incorporated herein by reference.
CUSTOMERS
The Company sells its products and services to a wide variety and large
number of industrial and other commercial customers. The Company supplies
radiators, charge air coolers and cooling modules to OEMs of heavy duty trucks,
such as PACCAR and Mack, and OEMs of industrial and off-highway equipment, such
as Onan Corporation, a subsidiary of the Cummins Engine Company, AM General and
Oshkosh Truck Corporation. Principal customers of the Company's van conversion
products and services include operators of large commercial fleets such as
Sears, General Electric and Airborne Express. The Company sells its replacement
radiators and other heat transfer products to national retailers of aftermarket
automotive products, such as AutoZone and Pep Boys, and warehouse distributors,
radiator shops, parts jobbers and, to a lesser extent, OEMs.
The Company's largest customer is Ford. The Company is the exclusive
supplier of Crew Cabs and DRWs to Ford and has a manufacturing facility located
near Louisville, Kentucky dedicated to such production. The Company had a
five-year contract with Ford regarding such products that expired on December
31, 1995. In early 1996, the company was notified by Ford that it plans to move
production of Crew Cabs and DRWs in-house, which is expected to occur in late
1997. TransPro anticipates maintaining its position as the exclusive supplier of
these products to Ford until that time. However, any decisions relating to the
move of Crew Cabs and DRW production in-house is solely at Ford's discretion and
outside the control of the Company. Accordingly, no assurance can be given that
the Company will continue to supply these products until late 1997. Sales of
Crew Cabs and DRWs accounted for 24% and 38% of 1996 and 1995 sales,
respectively and a significantly greater percentage of 1996 and 1995 profits.
In 1996, the Company had no other customers who individually accounted
for greater than 10% of the Company's net sales. In 1995 other significant
customers included PACCAR who accounted for 11% of the Company's net sales. The
Company had net sales to Allen of approximately $.7 million in 1996 and $2.9
million in 1995 for fabricated metal products used by Allen in its
telecommunications and automotive emissions test businesses. The
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Company believes that the terms of such sales were no less favorable than what
could have been achieved through arms-length negotiations. The Company expects
such sales to Allen to continue in the foreseeable future.
SALES AND MARKETING
The Company maintains a separate sales and marketing department at each
of its principal operating units. By focusing its sales effort at the operating
unit level, the Company enables its sales staff to develop a thorough
understanding of such unit's technical and production capabilities and of the
overall market in which such unit operates. The Company has approximately 280
individuals involved in sales and marketing efforts.
At G&O, the Company has an in-house sales management staff who are
responsible for growing the business, servicing existing customers and
identifying new marketing opportunities. These individuals and in-house
engineering specialists, work in close consultation with its customers'
engineering staff in order to provide the technical expertise and advice needed
in the development stage of new customer products. In addition, G&O's engineers
work closely with truck engine OEMs, such as Cummins Engine and Detroit Diesel,
during the early stages of new product development and design. G&O has
historically focused on sales of its products to domestic OEMs of heavy duty
trucks and industrial equipment. In recent years, G&O has expanded its focus to
include foreign sales opportunities. For example, G&O has been supplying charge
air coolers to customers in India.
The Company's Crown divisions have salespersons dedicated to servicing
Ford and several other salespersons who are responsible for servicing the
Company's industrial customers for fabricated metal products as well as its
national van conversion accounts. In addition, the Company hired a sales manager
based in Wooster, Ohio to focus on marketing the Company's products to the
aftermarket portion of the van conversion industry. To further this goal, this
sales manager has retained several independent sales representatives and has
established over 150 distributor arrangements to market and sell the Company's
van conversion products in such market.
GDI's sales and marketing efforts are under the direction of GDI's
Senior Vice President of Sales and Marketing, who oversees four regional sales
managers. Each regional sales manager is responsible for the Company's branches
and agencies located in his assigned region. GDI also employs several marketing
specialists who report to a Vice President of Marketing and develop, implement
and monitor GDI's various marketing and advertising programs. As part of its
current marketing efforts, GDI is focusing on increasing its sales to the
fastest growing segments of the automotive aftermarket. In addition, a Vice
President of Special Market Sales reports to the Senior Vice President of Sales
and Marketing and is responsible for sales to retailers and auto parts
warehouses. A Vice President of Heavy Duty Sales and Marketing specializes in
sales of products to the fleet and industrial markets and reports to the Senior
Vice President of Sales and Marketing.
COMPETITION
The Company faces significant competition within each of the markets in
which it operates. In each of its product lines, the Company believes that it is
among the major manufacturers and that competition is widely distributed. The
Company's principal methods of competition include product design, performance,
price, service, warranty, product availability and timely delivery. In both its
original equipment and replacement radiator product lines, the Company competes
with the national producers of heat transfer products, such as Modine
Manufacturing Company and Valeo Engine Cooling Systems, the internal operations
of OEMs and, to a lesser extent, local and regional manufacturers.
With respect to its OEM radiator business, the Company principally
competes for new business both at the beginning of the development phase of a
totally new model or offering and upon the redesign of existing models used by
its major customers. New model development generally begins two to three years
prior to the marketing of the
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vehicle to the public. Once a producer has been designated to supply components
to a new program, an OEM will generally continue to purchase those components
from the designated producer for the life of the program.
INTELLECTUAL PROPERTY
The Company owns a number of foreign and U.S. patents and trademarks.
The patents expire on various dates from 2009 to 2013. In general, the Company's
patents cover certain of its radiator manufacturing processes. The Company has
entered into licensing and other agreements with respect to certain patents,
trademarks and manufacturing processes it uses in the operation of its business.
The Company believes that it owns or has rights to all patents and other
technology necessary for the operation of its business. The Company does not
consider any single patent or trademark or group of patents or trademarks to be
material to its business as a whole.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company in its original
equipment and replacement radiator product lines are copper and brass. Although
these materials are available from a number of vendors, the Company has chosen
to concentrate its sources with a limited number of long-term suppliers. The
Company believes this strategy results in purchasing and operating economies.
Outokumpu, a Swedish corporation, supplied the Company with approximately 90% of
its copper and brass requirements in 1996 and 1995. With respect to the
Company's other manufacturing operations, the primary raw material used by the
Company is steel, which is generally available from a number of suppliers. The
Company believes its sources for raw materials are very reliable and adequate
for its needs. The Company has not experienced any significant supply problems
in its operations and does not anticipate any significant supply problems in the
foreseeable future.
The Company typically executes purchase orders for its anticipated
copper and brass requirements approximately three to six months prior to the
actual delivery date. The purchase price for such copper and brass is
established at the time orders are placed by the Company and not at the time of
delivery. The market price of copper had steadily increased during 1994 to reach
a 5 year high at the end of that year. During 1995 copper prices remained near
the record price for the entire year. In mid-July 1996 copper prices declined
significantly; however by year end 1996, the copper market had firmed and prices
were trending higher. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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BACKLOG
The Company's backlog was approximately $18.7 million at December 31,
1996 as compared to approximately $21.7 million at December 31, 1995. Backlog
consists of product orders for which a customer purchase order has been received
and is scheduled for shipment within 12 months. Since orders may be rescheduled
or canceled, backlog does not necessarily reflect future sales levels.
SEASONALITY
Historically, G&O and Crown have experienced a slight decrease in
revenues and operating income during the third and fourth calendar quarters as
compared to the first and second quarters. Third quarter results are affected by
scheduled plant shut-downs for vacations and model year changeovers while fourth
quarter results are affected by scheduled plant shut-downs for the holiday
season. The Company expects the third quarter to be positively impacted and the
first quarter to be negatively impacted by the operating results of GDI, which
typically experiences higher sales during the summer months as the demand for
replacement radiators tends to increase and lower sales during the winter
months.
RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $106,000 for the
year ended December 31, 1996, $177,000 for the year ended December 31, 1995, and
$117,000 for the year ended December 31, 1994.
EMPLOYEES
At December 31, 1996, the Company had approximately 2,100 employees. Of
these employees approximately 1,100 were covered by collective bargaining
agreements. The Company's collective bargaining agreements are independently
negotiated at each manufacturing facility and expire on a staggered basis.
Locals affiliated with the International Union of Electronic, Electrical,
Technical, Salaried and Machine Workers (AFL-CIO), United Paperworkers
International Union and The International Association of Machinists and
Aerospace Workers represent approximately 21%, 17% and 17%, respectively, of the
Company's unionized employees. In addition, a local Mexican labor union
represents approximately 37% of the Company's unionized employees. The Company
believes that its relations with its unions and employees are good. In 1992 the
Company experienced a two week work stoppage at its Peru, Illinois facility and
in 1994, a three-week work stoppage at its Jackson, Mississippi facility. Except
for the work stoppages noted above, the Company has successfully renegotiated 20
collective bargaining agreements over the last six years without work stoppages;
however, there can be no assurance that work stoppages will not occur in the
future.
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ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New Haven,
Connecticut and conducts its operations through 13 principal manufacturing and
assembly facilities. The Company believes its property and equipment are in good
condition and suitable for its needs. The Company estimates that its plants
operate at between 40% and 95% of capacity on a six-day basis, with its truck
cab and dual rear wheel assembly plant in Louisville, Kentucky currently
operating at the highest level (80%-95%) of capacity since its opening in 1993.
The Company has sufficient capacity to increase production with respect to its
original equipment and replacement radiator product lines as well as its van
conversion and fabricated metal products operations. The Company's principal
manufacturing and assembly facilities are as follows:
<TABLE>
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APPROXIMATE OWNED/
LOCATION SQUARE FOOTAGE LEASED PRODUCT LINE
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<S> <C> <C> <C>
New Haven, Connecticut 158,800 Owned (1) Corporate headquarters, GDI
headquarters, tubes for original
equipment radiators (2)
Jackson, Mississippi 135,885 Owned Original equipment radiators
Wooster, Ohio 216,000 Owned (1) Fabricated metal products, van
conversion
Lorain, Ohio 79,846 Owned Van Conversion
Thomaston, Georgia 30,000 Owned Fabricated metal products
Baltimore, Maryland 10,000 Leased Van conversion
Bridgeton (St. Louis), Missouri 16,900 Leased Van Conversion
Louisville, Kentucky 129,000 Leased Truck cab & dual rear wheel assembly
Dallas, Texas 50,050 Leased Replacement radiators (radiator cores)
Nuevo Laredo, Mexico 109,055 Leased Replacement radiators (radiator cores)
Maquoketa, Iowa 38,000 Leased Parts and tooling for replacement
radiators
Los Angeles, California 32,900 Leased Air conditioning condensers
Atlanta, Georgia 14,000 Leased Air conditioning condensers
</TABLE>
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(1) Subject to IRB financing arrangements.
(2) In December 1996, most of the manufacturing operation was moved to Jackson,
Mississippi. A small tube mill operation remains. The Company is currently
exploring the options of either leasing or utilizing the currently
unoccupied space.
As part of its replacement radiator business, the Company maintains a
nationwide network of manufacturing and distribution facilities which enables
the Company to provide its customers generally with same day delivery service.
In addition to the three manufacturing facilities for replacement radiators
described above, the Company also operates 12 fully equipped, regional
manufacturing facilities. These twelve facilities are all leased, average
approximately 11,000 square feet in size and are strategically located to
generally provide same-day service to virtually the entire United States. The
Company also has 48 local branch offices and 20 independent agencies and 3
distribution
11
<PAGE> 12
centers that comprise its nationwide local distribution network. All of the
Company-owned local distribution facilities are leased and are approximately
6,000 square feet in size.
ENVIRONMENTAL MATTERS
As is the case with manufacturers of similar products, the Company uses
certain hazardous substances in its operations, including certain solvents,
lubricants, acids, paints and lead, and is subject to a variety of environmental
laws and regulations governing discharges to air and water, the handling,
storage and disposal of hazardous or solid waste materials and the remediation
of contamination associated with releases of hazardous substances. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended), the Clean Water Act of 1990 (as amended) and the Comprehensive
Environmental Response, Compensation and Liability Act (as amended). The Company
believes that, as a general matter, its policies, practices and procedures are
properly designed to reasonably prevent risk of environmental damage and
financial liability to the Company. The Company believes it is reasonably
possible that environmental related liabilities may exist with respect to one
industrial site formerly occupied by the Company. Based upon environmental site
assessments, the Company believes that the cost of any potential remediation for
which the Company may ultimately be responsible will not have a material adverse
effect on the consolidated financial position, results of operation or liquidity
of the Company. The Company has an environmental policy that confirms its
commitment to compliance with existing environmental regulations and planning to
reduce the level of pollutants in the manufacturing process.
The Company currently does not anticipate any material adverse effect
on its consolidated results of operations, financial condition or competitive
position as a result of compliance with federal, state, local or foreign
environmental laws or regulations. However, risk of environmental liability and
charges associated with maintaining compliance with environmental laws is
inherent in the nature of the Company's business and there is no assurance that
material environmental liabilities and compliance charges will not arise. The
Company has assumed all environmental liabilities, if any, associated with the
former Allen Automotive and Truck Products Business and GDI.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not a party to any pending legal
proceedings in which an adverse decision, in the opinion of the Company, would
have a material adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1996.
12
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT*
<TABLE>
<CAPTION>
SERVED AS
OFFICER POSITION OR OFFICE WITH THE COMPANY & BUSINESS
NAME AGE SINCE EXPERIENCE DURING PAST FIVE (5) YEAR PERIOD
- ----------------------- --- ------------- -------------------------------------------
<S> <C> <C> <C>
Henry P. McHale 58 July 1995 President, Chief Executive Officer and Director, since 1995;
President and Chief Executive Officer of GDI, 1992 through
1995. Prior thereto, various executive positions with Ladish
Corporation and Rockwell Automotive.
Jeffrey L. Jackson 49 August 1995 Vice President of Human Resources, since 1995; Vice President
of Human Resources of GDI, 1992 through 1995. Prior thereto,
Managing Director of Resources of IMCOR since 1990.
John C. Martin, III 44 July 1995 Vice President, Treasurer, Secretary and Chief Financial Officer,
since 1995; Vice President and Treasurer of The Allen Group, 1991
through 1995.
Timothy E. Coyne 42 October 1996 Vice President and Corporate Controller, since 1996; Vice
President of Finance and Administration and Treasurer of Keene
Corporation 1990 through 1996. (1)
</TABLE>
(1) On December 3, 1993 Keene Corporation filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code as a direct result of
asbestos-related lawsuits which named Keene as a defendant. Keene emerged from
Chapter 11 pursuant to a plan of reorganization effective July 31, 1996.
* All officers are elected by the Board of Directors.
The information contained in the Company's 1997 Proxy Statement under
the heading "Proposal No. 1 -- ELECTION OF DIRECTORS" and under the heading
"EXECUTIVE COMPENSATION - Compliance with Section 16(a) of The Securities
Exchange Act of 1934" is incorporated herein by reference.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange.
The number of stockholders of record of the Company's Common Stock as of the
close of business on March 3, 1997, was 1,496. The Company's Common Stock began
"regular way" trading on October 11, 1995. Information regarding market prices
and dividends declared for the Company's Common Stock is shown below for 1996.
Market prices are closing prices quoted on the New York Stock Exchange, the
principal exchange market for the Company's Common Stock. The Company currently
expects that comparable dividends will continue to be paid in the future,
although there can be no assurance of this.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
1995 -------------------------------------------------
4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Market price of common stock
---High $11 3/4 $11 $ 8 3/4 $ 8 3/8 $ 9 1/4
---Low $ 8 7/8 $ 6 1/4 $ 6 3/4 $ 5 1/2 $ 6 3/4
Dividends per share $.05 $.05 $.05 $.05 $.05
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to "Financial Highlights" contained in the Registrant's 1996 Annual
Report to Stockholders, portions of which are filed as Exhibit 13 to this
report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Registrant's 1996 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 to this Report.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings
per Share" which must be adopted by the Company no later than calendar year
1997. The statement, whose objective is to simplify the computation of earnings
per share ("EPS") and to make the U.S. standard of computing EPS more compatible
with international EPS standards, specifies the computation, presentation and
disclosure requirements for EPS for entities with publicly held common stock or
potential common stock. The impact of the adoption of SFAS No. 128 on the
Company has not been determined at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to the Consolidated Statements of Income, Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Equity, to the Notes to Consolidated Financial Statements and to
"Report of Independent Accountants" contained in the Registrant's 1996 Annual
Report to Stockholders, portions of which are filed as Exhibit 13 to this
Report.
14
<PAGE> 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Registrant and its independent
accountants on accounting and financial disclosure during the year ended
December 31, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Portions of the information required by this item are included in Part
I hereof, on page 13 of this Report. Other information required by this item is
contained in the Company's 1997 Proxy Statement under the heading, "Proposal No.
1 - Election of Directors" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's 1997 Proxy Statement under
the heading "EXECUTIVE COMPENSATION" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's 1997 Proxy Statement under
the headings "STOCK OWNERSHIP-Principal Stockholders and Directors and Officers"
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's 1997 Proxy Statement, under
the heading "CERTAIN TRANSACTIONS" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Registrant
The Consolidated Financial Statements of the Registrant listed below,
together with the Report of Independent Accountants, dated February 13, 1997,
are incorporated herein by reference to the Registrant's 1996 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 to this Report.
Consolidated Statements of Income for the Years Ended December 31,
1996, 1995, and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
15
<PAGE> 16
(a) (2) Financial Statement Schedules
The following additional information should be read in conjunction with
the Consolidated Financial Statements of the Registrant described in Item 14 (a)
(1) above:
Schedule II - Valuation and Qualifying Accounts, on page 21 of this
Report
Schedules other than the schedule listed above are omitted because they
are not applicable, or because the information is furnished elsewhere in the
Consolidated Financial Statements or the Notes thereto.
(a) (3) Exhibits
The information required by this Item relating to Exhibits to this
Report is included in the Exhibit Index in (c) below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the 1996 fiscal
year.
(c) Exhibits -The following exhibits are filed as part of this report:
2.1 Agreement, dated June 15, 1995, between Allen Heat Transfer
Products, Inc., AHTP II, Inc., GO/DAN Industries and Handy
& Harman Radiator Corporation. (1)
3.1 (i) Restated Certificate of Incorporation of TransPro, Inc. (1)
3.1 (ii) By-laws of TransPro, Inc. (1)
4.1 Form of Rights Agreement between the Company and the First
National Bank of Boston, as Rights Agent (including form of
Certificate of Designations of Series A Junior
Participating preferred Stock and form of Rights
Certificate). (1)
4.2 Form of Credit Agreement between the Company and the First
National Bank of Boston, as agent, and the other lenders
named therein. (1)
The Company is a party to certain other long-term debt
agreements each of which does not exceed 10 percent of the
total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to file such
agreements upon request from the Securities and Exchange
Commission.
10.1 TransPro, Inc. 1995 Stock Plan. (1)
10.2 Form of Stock Option Agreement under the 1995 Stock Option
Plan (1)
10.3 Form of Restricted Stock Agreements between the Company and
Messrs. Scanlon and Martin (two agreements). (1)
10.4 Form of TransPro, Inc. 1995 Nonemployee Directors Stock
Option Plan. (1)
10.5 Form of Stock Option Agreement under the 1995 Nonemployee
Directors Stock Option Plan. (1)
16
<PAGE> 17
10.6 Form of Contribution Agreement between Allen and the
Company. (1)
10.7 Form of Instrument of Assumption of the Company. (1)
10.8 Form of Interim Services Agreement between Allen and the
Company. (1)
10.9 Form of Consulting Agreement between Allen and the Company.
(1)
10.10 Form of Indemnification Agreement. (1)
10.11 Form of Employment Agreement between the Company and Henry
P. McHale. (1)
10.12 Form of Employment Agreement between the Company and John
C. Martin, III. (1)
10.13 Form of Employment Agreement between the Company and
Raymond M. Scanlon. (1)
10.14 Form of Key Employee Severance Policy. (1)
10.15 Letter Agreement, dated July 21, 1993 between Andrew J.
Mazzarella and GO/DAN Industries. (1)
10.16 Letter Agreement, dated December 15, 1992 between Jeffrey
J. Jackson and GO/DAN Industries. (1)
10.17 Letter Agreement, dated September 24, 1996 between Timothy
E. Coyne and TransPro, Inc.
11 Statement Re: Computation of Earnings per Common Share
13 Portions of the 1996 Annual Report to Stockholders
incorporated by reference herein
21.1 Subsidiaries of the Company
23.2 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
- -----------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-96770).
17
<PAGE> 18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TransPro, Inc.
By /s/ Henry P. McHale
------------------------------------------------
Henry P. McHale
President, Chief Executive Officer, and Director
Date: March 14, 1997
POWER OF ATTORNEY
Each of the undersigned hereby appoints Barry R. Banducci and Henry P.
McHale, and each of them severally, his or her true and lawful attorneys to
execute on behalf of the undersigned any and all amendments to this annual
report on Form 10-K and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.
Each such attorney will have the power to act hereunder with or without the
others. Each of the undersigned hereby ratifies and confirms all such attorneys,
or any of them may lawfully do or cause to be done by virtue thereof.
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BOARD OF DIRECTORS
/s/ HENRY P. MCHALE March 14, 1997
- ---------------------------------------------------
Henry P. McHale, Director
/s/ WILLIAM J. ABRAHAM, JR. March 14, 1997
- ---------------------------------------------------
William J. Abraham, Jr., Director
/s/ BARRY R. BANDUCCI March 14, 1997
- ---------------------------------------------------
Barry R. Banducci, Director
/s/ PHILIP WM. COLBURN March 14, 1997
- ---------------------------------------------------
Philip Wm. Colburn, Director
/s/ PAUL R. LEDERER March 14, 1997
- ---------------------------------------------------
Paul R. Lederer, Director
/s/ SHARON M. OSTER March 14, 1997
- ---------------------------------------------------
Sharon M. Oster, Director
/s/ F. Alan Smith, March 14, 1997
- ---------------------------------------------------
F. Alan Smith, Director
18
<PAGE> 19
/s/ JOHN C. MARTIN, III March 14, 1997
- ---------------------------------------------------
John C. Martin, III.,
Vice President, Treasurer, Secretary and Chief
Financial Officer
/s/ TIMOTHY E. COYNE, March 14, 1997
- ---------------------------------------------------
Timothy E. Coyne
Vice President and Controller
(Principal Accounting Officer)
19
<PAGE> 20
REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of TransPro, Inc.:
Our report on the consolidated financial statements of TransPro, Inc. has been
incorporated by reference in this Form 10-K from page 45 of the 1996 Annual
Report to Shareholders of TransPro, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 16 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 13, 1997
20
<PAGE> 21
SCHEDULE II
TRANSPRO, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
PERIOD BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITTEN OFF END OF
(DOLLARS IN THOUSANDS) OF PERIOD EXPENSES AND OTHER PERIOD
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful accounts $3,059 $1,090 $ (771) $3,378
Allowance for obsolete inventory 5,731 1,114 (1,903) 4,942
Year Ended December 31, 1995
Allowance for doubtful accounts 538 (100) 2,621* 3,059
Allowance for obsolete inventory 800 598 4,333* 5,731
Year Ended December 31, 1994
Allowance for doubtful accounts 403 150 (15) 538
Allowance for obsolete inventory 1,000 180 (380) 800
</TABLE>
* Consists primarily of the acquired balance of GDI
21
<PAGE> 1
EXHIBIT 10.17
[TRANSPRO, INC. PRECISION TRANSPORTATION PRODUCTS LETTERHEAD]
September 24, 1996
Mr. Timothy E. Coyne
51 Hunter Ridge Road
Monroe, CT 06468
Dear Tim:
I am pleased to offer you the position of Vice President & Corporate Controller
for TransPro, Inc. starting October 7, 1996. You will work directly for me out
of our New Haven office.
Your base compensation will start at $125,000 per year, paid bi-weekly. Your
next review will be in the December 1997-January 1998 time frame. In 1997 you
will participate in the TransPro annual incentive plan which provides you with a
target bonus of 30% of your base salary, with a maximum award of 60% based on
performance. We have recommended to the Personnel & Nominating Committee of the
Board that you participate in the TransPro Long Term Incentive Plan (LTIP). Our
recommendation is that at the next meeting of that Committee that they grant you
4,395 stock options and a grant of 660 restricted stock which represent one-half
of a full year's grant of stock. The annual granting of options occurs in April
and it is anticipated that you will receive a full year's grant in April of
1998. These stock option/restricted stock award numbers were calculated using
the formula applied to other participants in the LTIP. In addition, you will be
provided a leased automobile or automobile allowance (4% of base pay).
TransPro offers a full benefit program which includes medical, dental, basic
life, supplemental life, and supplemental disability insurances. In helping you
make plans for your future financial security, we have a pension plan and a 401k
savings plan. All of these will be made available to you in accordance with the
various plans provisions. You will have four weeks of vacation available for
your use starting in 1997. Additionally, as a member of the Senior Staff of
TransPro you will be provided with a severance agreement which will provide you
with twelve months of severance should you lose your position for any reason
other than for cause. The Severance Agreement is attached for your review and
signature.
I am excited about your joining TransPro. We have both a great challenge and
opportunity ahead of us as we grow TransPro into a larger, more successful
business.
<PAGE> 2
You may indicate your "yes" by signing and dating this offer letter as provided
below and returning it to me. This employment offer is contingent upon your
successful passing of our drug/alcohol screening which is completed on all new
hires. I'll be in touch regarding arrangements for your drug/alcohol screening.
Sincerely,
/s/ John Martin
John Martin
Chief Financial Officer
I accept this employment offer from TransPro, Inc.
/s/ Timothy E. Coyne 9/26/96
- -------------------- -------
Timothy E. Coyne Date
cc: Jeff Jackson
<PAGE> 3
SEVERANCE AGREEMENT
"If you should lose your position at TransPro, Inc. as Vice President
and Corporate Controller, (except for termination for "cause" as defined below);
or, should there be a material change in ownership, or the sale of a portion of
the business, which results in your not having a position similar to the
Corporate Controller including similar pay and benefits, then your bi-weekly
salary shall continue to be paid until you either secure other full-time
employment, or for one year, whichever occurs first. Based on this agreement,
you and TransPro mutually agree that the employment relationship which exists
between TransPro and yourself may be terminated at will at any time.
This agreement shall constitute the entire agreement between you and
TransPro, Inc. with respect to the subject matter hereof, including, without
limitation, the terms of any severance payments to be made to you upon your
termination of employment with TransPro, and shall supersede and replace all
provisions, negotiations, commitments and writings with respect to such matter,
without limitation.
Termination by TransPro, Inc. of your employment for "Cause" shall mean
termination (a) upon the willful or continued failure by you to substantially
perform your duties with the Company, (b) the willful engaging by you in an act
or acts of dishonesty constituting a felony and resulting or intended to result
in gain or personal enrichment at the expense of the company, or your conviction
of a felony, or (c) the willful engaging by you in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise."
If you understand and agree to these terms and conditions, please sign and date
this agreement as provided below and return one original copy to me.
/s/ Hank P. McHale
- -------------------------------
Hank P. McHale, President & CEO
I accept these terms and conditions and agree to them this 26th day of
September, 1996.
/s/ Timothy E. Coyne
- -------------------------------
Timothy E. Coyne
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------ ------
<S> <C> <C>
Primary Earnings Per Share:
Income Applicable to Common Stock $8,420 $9,074
Shares:
Weighted average shares outstanding 6,596 6,583
Dilutive effect of stock options computed by use of treasury stock method 12 47
------ ------
Average common and common equivalent shares outstanding 6,608 6,630
------ ------
Earnings Per Share $ 1.27(a) $ 1.37(a)
====== ======
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%
1994 data is not presented above as there were no shares issued prior to
October 1995.
There is no difference between Primary Earnings Per Share and Fully
Diluted Earnings Per Share.
<PAGE> 1
FINANCIAL HIGHLIGHTS
(amounts in thousands except per share and employee data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales $264,095 $151,660 $118,506 $94,292 $84,024
Gross margin 61,827 31,174 20,983 16,709 11,216
Consolidation costs 4,389 -- -- -- --
Income from operations 17,006 13,907 16,114 9,442 5,045
Income (loss) from joint
venture -- 2,495 1,368 407 (3,646)
Net income (loss) 8,420 9,074 9,966 4,774 (1,875)
Net earnings (loss) per share* $ 1.28 $ 1.38 $ 1.51 $ .72 $ (.28)
Cash dividends per share $ .20 $ .05 -- -- --
FINANCIAL CONDITION
Current ratio 2.46 2.27 2.18 1.99 1.88
Working capital $ 56,161 $ 53,255 $ 17,837 $13,823 $10,737
Capital expenditures 5,565 4,066 2,512 4,227 1,657
Net property, plant and
equipment 37,939 36,951 23,618 25,836 25,877
Total assets 140,266 139,718 87,907 82,769 76,244
Debt 38,917 40,846 13,950 14,100 14,250
Total equity 58,696 51,103 54,647 47,077 44,314
Number of employees 2,139 2,001 828 832 751
</TABLE>
* The net earnings (loss) per share for years prior to 1995 are for comparative
purposes only as common shares were not issued until October 1995. Prior year
data assumes average shares outstanding of 6,621,000.
See Note 1 to Consolidated Financial Statements for a description of
the transactions that occurred to form TransPro, Inc. The above table sets forth
certain selected historical (1992 through 1995) financial data for the Crown and
G&O divisions of the Company (formerly the Automotive and Truck Products
Business of The Allen Group Inc.). Effective October 1, 1995, the financial
results of GDI were reported on a fully consolidated basis. Prior to that date,
TransPro's 50% ownership in GDI was reported under the equity method of
accounting. Therefore the 1995 sales, gross margin and income from operations
amounts in the table above include three months of GDI activity.
The number of employees includes GDI for 1995.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA PRO FORMA
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRO FORMA OPERATING RESULTS
Sales $264,095 $247,342 $243,672
Gross margin 61,827 60,001 58,617
Consolidation costs 4,389 -- --
Income from operations 17,006 17,451 18,885
Net income 8,420 8,565 9,588
Net earnings per share* $ 1.28 $ 1.30 $ 1.45
</TABLE>
Pro Forma results include 100% of the earnings of GDI, incremental overhead
costs and the additional debt associated with the GDI Redemption.
1
<PAGE> 2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements of TransPro, Inc. and its
subsidiaries, and all other information presented herein are the responsibility
of the management of the Company. The financial statements have been prepared in
accordance with generally accepted accounting principles.
Management is responsible for the integrity and objectivity of the
financial statements, including estimates and judgments reflected in them. It
fulfills this responsibility primarily by establishing and maintaining
accounting systems and practices adequately supported by internal accounting
controls. These controls include the selection and training of management and
supervisory personnel; maintenance of an organizational structure providing for
delegation of authority and establishment of responsibilities; communication of
requirements for compliance with approved accounting, control and business
practices throughout the organization and business planning and review. However,
an effective internal control system, no matter how well designed, has inherent
limitations -- including the possibility of the circumvention or overriding of
controls -- and, therefore, can provide only reasonable assurance with respect
to financial statement preparation and such safeguarding of assets. Further,
because of changes in conditions, internal control system effectiveness may vary
over time. Management believes the internal accounting controls in use provide
reasonable assurance that the Company's assets are safeguarded, that
transactions are executed in accordance with management's authorizations, and
that the financial records are reliable for the purpose of preparing financial
statements.
The Audit Committee will recommend the selection of the independent
public accountants who are then appointed by the Board of Directors. The
independent public accountants are engaged to perform an audit of the
consolidated financial statements in accordance with generally accepted auditing
standards. Their report appears herein.
The Audit Committee of the Board of Directors is comprised entirely of
individuals who are not employees of the Company. This Committee meets
periodically with management and the independent public accountants to review
audit results.
Hank McHale
President and Chief Executive Officer
John C. Martin, III
Vice President, Treasurer, Secretary and Chief Financial Officer
Timothy E. Coyne
Vice President and Controller, Chief Accounting Officer
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
On September 29, 1995, TransPro, Inc., (the "Company") completed a
series of transactions pursuant to which the Company's sole stockholder, The
Allen Group Inc. ("Allen") contributed (the "Allen Contribution") to the Company
substantially all of the assets and liabilities of Allen's original equipment
radiator and fabricated metal products business (the "Automotive and Truck
Products Business"), as well as Allen's 50% ownership interest in GO/DAN
Industries ("GDI"), a 50/50 joint venture partnership between affiliates of
Allen and Handy & Harman ("H&H"). Immediately thereafter, the Company made a
capital contribution (the "TransPro Contribution") to GDI in the aggregate
amount of approximately $23 million. Together with approximately $2 million of
borrowings made by GDI, the TransPro Contribution was used to redeem the
outstanding ownership in GDI not already owned by Allen (the "GDI Redemption"),
thereby making GDI a wholly owned partnership of the Company.
In connection with the foregoing transactions, the Company also entered
into a Revolving Credit and Term Loan Agreement with The First National Bank of
Boston, as agent, and certain lenders named therein (the "Credit Agreement").
(See Note 8 to the consolidated financial statements for additional
information.) The Company borrowed $23 million under the Credit Agreement to
finance the TransPro Contribution.
In addition, Allen effected the distribution (the "Distribution") of
100% of the outstanding shares of the Company's common stock to the holders of
record of Allen's common stock as of the close of business on September 29, 1995
on the basis of one share of the Company's common stock for every four shares of
Allen's common stock. As a result of the Distribution, the Company became an
independent publicly-traded company.
This Management's Discussion and Analysis of Results of Operations and
Financial Condition includes the twelve months ended December 31, 1994 and the
nine months ended September 30, 1995 when the Company was owned by and operated
as the Automotive and Truck Products Business of Allen. During those periods,
the Company's 50% ownership interest in GDI was accounted for under the equity
method. Under this method, the Company's share of net earnings (losses) of GDI
was included as a separate item in the consolidated statements of income of the
Company. As a result of the GDI Redemption, which was accounted for under the
purchase method of accounting, the financial results of GDI were reported on a
fully consolidated basis with those of the Company effective October 1, 1995.
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Net sales for 1996 were $264.1 million versus $151.7 million for 1995,
an increase of $112.4 million or 74%. GDI was not included in the sales for the
first nine months of 1995 and contributed $109.5 million of the additional sales
in 1996 including $4.1 million of replacement automotive air conditioning
condenser sales resulting from the acquisition of certain assets and liabilities
of Rahn Industries, Inc. ("Rahn"). Sales of OEM contract manufacturing products
increased $4.8 million or 6% primarily as a result of higher shipments of Crew
Cabs to Ford Motor Company ("Ford"). Sales of OEM heat transfer products
declined $1.9 million reflecting lower sales of heat transfer products to heavy
duty truck manufacturers consistent with continued weakness in that market.
Gross margins of 23.4% in 1996 were up from the 20.6% reported in 1995.
The increase was primarily the result of the inclusion of GDI's Aftermarket
sales which generally yield higher gross margins than OEM sales in order to
support GDI's national Aftermarket distribution system. Margins in the OEM
contract manufacturing business improved as a result of higher Crew Cab
production rates. Margins in the OEM heat
3
<PAGE> 4
transfer business declined due to operating inefficiencies resulting from the
relocation of the New Haven, Connecticut manufacturing to Jackson, Mississippi,
coupled with costs associated with the start-up of aluminum heat transfer
production in Jackson, Mississippi.
Selling, general and administrative expenses totaled $40.4 million in
1996 versus $17.3 million in 1995. The majority of the increase is due to the
inclusion in 1996 of GDI on a fully consolidated basis as well as a full twelve
months of corporate office expenses in 1996 necessary to support the operation
of the Company as an independent publicly-traded company. GDI's nationwide
distribution system and related marketing expenses produce substantially higher
selling expenses than those incurred in the OEM business.
As more fully discussed in Note 4 to the consolidated financial
statements, plant and business consolidation costs of $4.4 million were
recognized in 1996. The costs result from the previously announced actions to
consolidate the OEM and Aftermarket heat transfer organizations in order to
increase competitiveness and profitability, close the New Haven, Connecticut OEM
heat transfer plant and move such manufacturing to Jackson, Mississippi, and
close the Peru, Illinois Aftermarket heat transfer plant and move such
manufacturing to Mexico. The costs reflect severance and other personnel
termination costs, costs to move equipment and other costs directly associated
with these consolidations. The total cost of these actions is anticipated to be
approximately $5.5 million on a pre-tax basis. Once completed, the ongoing
annual pre-tax cost benefit of these actions is expected to be approximately
$5.0 million. See "Forward-Looking Statements - Cautionary Factors" for a
discussion of certain factors to consider in connection with the foregoing
forward-looking statements.
Net interest expense rose $1.8 million to $2.9 million in 1996 versus
$1.1 million in 1995 due to the approximately $25.0 million in additional debt
incurred for the GDI Redemption. Interest costs in 1995 were comprised of both
interest on outstanding industrial revenue bonds and an allocation of interest
costs from Allen, which are not necessarily indicative of the interest costs
which would have been incurred if TransPro was financed independently.
The Company's effective tax rate is comprised of the U.S. Federal
income tax rate plus the estimated aggregate effective rate for state and local
income taxes and was 40.4% in 1996 compared with 40.8% in 1995.
Net income was $8.4 million or $1.28 per share in 1996 compared with
$9.1 million or $1.38 per share in 1995. Excluding the effect of plant and
business consolidation costs, comparable 1996 net income was $11.0 million or
$1.67 per share versus $9.1 million or $1.38 per share in 1995.
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
In 1995, TransPro generated sales of $151.7 million, an increase of
28.0% over 1994. The inclusion of GDI on a fully consolidated basis due to the
GDI Redemption resulted in incremental sales of $26.3 million during the fourth
quarter of 1995. Sales excluding GDI increased 5.8% in 1995. The rate of truck
production by OEMs has a direct impact on sales volume. Sales increases in 1995
in the Company's truck cab, van conversion and metal fabrication product lines
are principally attributable to increased unit sales of Crew Cabs and Dual Rear
Wheel assemblies ("DRWs"), which are sold to Ford as part of its family of
pickup trucks, which continue to experience broad retail market acceptance. OEM
heavy duty truck heat transfer product sales were lower in 1995. Refer to Note 3
to the consolidated financial statements for more information relating to
business with Ford.
Gross margins increased in 1995 from 17.7% to 20.6%, primarily as a
result of the inclusion in the fourth quarter of GDI's aftermarket sales which
yielded substantially higher gross margins. Offsetting this were
4
<PAGE> 5
price increases for copper and brass. Increased sales were offset by the rising
costs of materials, primarily in metal commodity costs. Due to competitive
pressures, price increases did not fully offset the higher costs.
Selling, general and administrative expenses totaled $17.3 million in
1995 compared to $4.9 million in 1994. The majority of the increase is due to
the inclusion of GDI in the fourth quarter of 1995. GDI's substantially higher
expenses relate to its nationwide distribution system and additional marketing
expenses not incurred in the OEM market. Also included in 1995 expenses are
additional costs associated with TransPro becoming an independent company and
establishing a corporate office.
The equity in earnings from GDI represents the Company's 50% ownership
in GDI for the nine months ended September 30, 1995. As a result of the GDI
Redemption on September 29, 1995, GDI's earnings were consolidated with TransPro
for the fourth quarter of the year. The equity in earnings through September 30,
1995 and the full year of 1994 were $2.5 million and $1.4 million, respectively.
In 1995 and 1994, a deferred compensation program for GDI management reduced the
equity in earnings by $.4 million and $1.1 million, respectively. Inventory
write downs of $1.0 million in 1994 also negatively impacted the equity in
earnings. The increase in earnings in 1995 and 1994 is attributable to increased
sales and continued emphasis on cost reduction and manufacturing efficiencies.
Interest expense rose to $1.5 million in 1995 compared to $1.0 million
in 1994, due to the GDI Redemption which resulted in approximately $25.0 million
of additional debt. Prior to the GDI Redemption, financing was through
intercompany loans and advances from Allen. Interest expense was comprised of
both interest on the outstanding Industrial Revenue Bonds ("IRBs") and an
allocation of interest costs from Allen, which is not necessarily indicative of
the interest costs incurred if the Company were financed independently.
Interest income in 1995 reflects an increase in investment income from
operations, including a former Canadian operation. Interest income in 1994
represents income on cash investments of the former Canadian operation.
TransPro's effective tax rate was 40.8% in 1995, up 0.4% from 1994. The
increase is due to higher state and local income taxes in 1995, as 1994
benefited from certain prior net loss carryforwards. Prior to 1995, the Company
had been included in the Federal, state and local income tax returns of Allen.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Prior to the GDI Redemption, the financial position of the Company and
its cash flow and financial needs were intertwined with those of Allen for the
periods presented. With the exception of certain industrial revenue bonds, the
Company's cash flow and financial requirements had been funded to or from Allen
through daily intercompany transactions.
Immediately prior to the Distribution, the Company entered into the
Credit Agreement with a group of five banking institutions. The Credit Agreement
provides for unsecured borrowings or the issuance of letters of credit in an
aggregate amount not to exceed $75 million. The Credit Agreement is comprised of
a $50 million Revolving Credit Facility and a $25 million Term Loan. The Term
Loan is payable in 20 equal quarterly installments over five years commencing
December 31, 1995. The Revolving Credit Facility and Term Loan each bear
interest at variable rates based on either (i) a Eurodollar loan rate, plus an
applicable margin based upon the ratio of the Company's total funded debt to
earnings before interest, taxes, depreciation and amortization, or (ii) the
prime lending rate, at the Company's option. The Company incurred approximately
$25 million of borrowings under the Term Loan in connection with the GDI
Redemption and to refinance
5
<PAGE> 6
approximately $2 million of existing GDI indebtedness. Approximately $13 million
of borrowings were incurred under the Revolving Credit Facility to refinance the
remaining existing indebtedness of GDI. The Credit Agreement contains certain
financial covenants which place limits on dividend payments in excess of $3.6
million per annum and capital expenditures in excess of 140% of the prior fiscal
year's depreciation expense unless certain financial ratios are attained.
During 1996, the Company generated $14.2 million in operating cash
flows. Net income plus depreciation and amortization totaled $15.4 million. In
addition, cash was generated from the collection of trade accounts receivable of
$0.9 million, the repayment of miscellaneous notes receivable of $0.8 million,
and the return of $0.4 million of federal tax deposits. Cash was used to reduce
accounts payable and accrued expenses by $3.3 million.
In 1995, the Company generated $18.7 million in operating cash flow
primarily as a result of GDI's strong cash generation in the fourth quarter.
Capital spending totaled $5.6 million, $4.1 million and $2.5 million in
1996, 1995 and 1994, respectively. In 1996, the Company paid $5.5 million to
acquire certain assets and liabilities of Rahn. In 1995, the Company completed
the GDI redemption for $23 million.
In 1996, the Company paid dividends of $1.3 million. No dividends were
paid in 1995 and 1994.
In 1996, borrowings under the Credit Agreement declined by $1.8 million
and other borrowings declined $0.2 million. During 1995, $37.7 million of
borrowings were incurred under the Credit Agreement to complete the GDI
Redemption and refinance approximately $15.0 million of existing GDI
indebtedness.
The future liquidity and capital needs of the Company in the near term
are expected to be met from operations. The Company believes that the Credit
Agreement, along with cash flow from operations, will be adequate to meet its
anticipated capital expenditure and working capital requirements for the
foreseeable future. The Company estimates that capital expenditures in 1997 will
be above the level of depreciation.
FORWARD - LOOKING STATEMENTS - CAUTIONARY FACTORS
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical in nature
are forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements regarding the Company's future
business prospects, revenues, orders, sales and liquidity are subject to certain
risks, uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including but not limited to: business conditions and growth in the general
economy and automotive and truck business, the impact of competitive products
and pricing, changes in customer and product mix, failure to obtain new
customers, retain existing customers or changes in the financial stability of
customers, changes in the cost of raw materials, components or finished
products, and changes in interest rates. In particular, statements regarding the
cost of the Company's recent plant and business consolidation actions are
subject to: changes in moving costs, severance costs or other logistical costs,
delays in terminating production at certain plants and moving machinery and
equipment to new locations and greater than anticipated manufacturing
inefficiencies during the transition period. Statements regarding the expected
savings from the Company's recent plant and business consolidation actions are
subject to: the actual termination of the expected number of employees, the
ability to achieve expected manufacturing rates at expected levels of cost at
the plants to which manufacturing has been moved and the realization of cost
reductions resulting from the shut down or other disposition of vacated
6
<PAGE> 7
facilities. In addition, statements relating to when Ford moves the production
of Crew Cabs and DRWs in-house are subject to decisions by Ford that are outside
the control of the Company.
7
<PAGE> 8
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statements of
income for the years ended December 31, 1995 and 1994 reflect the effects on the
historical results of the Automotive and Truck Products Business of (i) the GDI
Redemption and the incurrence of approximately $25 million of indebtedness in
connection therewith, (ii) the distribution of the shares of Company stock to
Allen stockholders, and (iii) the addition of expenses to be incurred by the
Company when operating as an independent, publicly traded business. The
following pro forma condensed consolidated statements of income for the years
ended December 31, 1995 and 1994 have been prepared as if the transactions
described above occurred on January 1, 1994. The pro forma condensed
consolidated statements of income for the years ended December 31, 1995 and 1994
are unaudited and are not necessarily indicative of the results of operations of
the Company had the transactions reflected therein actually been consummated on
the dates assumed and are not necessarily indicative of the results of
operations that would have been obtained had the Company operated as an
independent company or of the Company's future performance as an independent
entity. The pro forma condensed consolidated statements of income for the years
ended December 31, 1995 and 1994, and the following discussion are presented for
informational purposes only. This information should be read in conjunction with
the historical consolidated financial statements and the notes thereto included
elsewhere in this report. This presentation is consistent with the pro forma
financial information in the S-1 Registration Statement, dated September 28,
1995 relating to the spin-off of the Company.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PRO FORMA PRO FORMA
ACTUAL 1995 1994
1996 (UNAUDITED) (UNAUDITED)
------- --------- --------
<S> <C> <C> <C>
Original equipment sales $128,254 $125,344 $118,506
Aftermarket sales 135,841 121,998 125,166
-------- -------- --------
Net sales 264,095 247,342 243,672
Cost of sales 202,268 187,341 185,055
-------- -------- --------
Gross margin 61,827 60,001 58,617
Selling, general, and
administrative expenses 40,432 42,550 39,732
Plant and business consolidation costs 4,389 -- --
-------- -------- --------
Income from operations 17,006 17,451 18,885
Net interest expense 2,886 2,983 3,038
-------- -------- --------
Income before taxes 14,120 14,468 15,847
Provision for income taxes 5,700 5,903 6,259
-------- -------- --------
Net income $ 8,420 $ 8,565 $ 9,588
======== ======== ========
Earnings per common share $ 1.28 $ 1.30 $ 1.45
======== ======== ========
Average common shares
outstanding 6,596 6,583 6,621
======== ======== ========
</TABLE>
8
<PAGE> 9
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Net sales for 1996 were $264.1 million, an increase of $16.8 million or
6.8 % over 1995 sales of $247.3 million. Sales of Aftermarket heat transfer
products increased $13.8 million, including $4.1 million of sales of replacement
air conditioner condensers arising from the Rahn acquisition. OEM contract
manufacturing sales increased $4.8 million as a result of higher shipments of
Crew Cabs to Ford. Sales of OEM heat transfer products declined $1.9 million
reflecting lower sales to heavy duty truck manufacturers consistent with
continued weakness in that market.
Gross margins of 23.4 % declined from the 24.3% achieved in 1995.
Margins in the Aftermarket heat transfer business declined as a result of a
sales channel mix change and price competition. Margins in the OEM heat transfer
business were lower due to inefficiencies associated with the move of the New
Haven, Connecticut manufacturing to Jackson, Mississippi and the start up of
aluminum heat transfer production in Jackson, Mississippi. Margins in the OEM
contract manufacturing business improved as a result of higher Crew Cab
production rates.
Selling, general and administrative ("SG&A") expenses for the year
ended December 31, 1996 were $40.4 million, a decrease of $2.1 million or 5%
compared with 1995. The improvement reflects unusually high SG&A costs in the
third quarter of 1995 immediately preceding the spin off of the Company from
Allen and in the fourth quarter of 1995 related to certain workers' compensation
benefit expenses as well as more favorable experience in 1996 related to certain
workers' compensation and medical benefits expenses.
As previously discussed, the Company recorded pre-tax plant and
business consolidation costs of approximately $4.4 million in 1996.
Net interest expense was $2.9 million in 1996 compared with $3.0
million in 1995.
The company's effective tax rate is comprised of the U.S. Federal
income tax rate plus estimated state and local taxes and was 40.4% in 1996
compared with 40.8% in 1995.
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Net sales of $247.3 million for 1995 increased $3.7 million or 1.5%
over 1994. Strong sales related to truck Crew Cabs, van conversions and metal
fabrications were partially offset by softness in sales of OEM heavy duty truck
radiators as well as automotive and truck Aftermarket radiators.
Gross margins increased slightly to 24.3% in 1995 on higher sales of
Crew Cabs and van conversions which were offset in part by increases in the cost
of copper and brass in the OEM heat transfer business. The Aftermarket heat
transfer products gross margins were largely unchanged year to year excluding
one time charges in 1994.
Selling, general and administrative expenses increased in 1995 to $42.6
million compared to $39.7 million in 1994 primarily as 1994 benefited from the
reduction of certain postretirement benefit obligations and the sale of a
fiberglass business, which amounted to $2.4 million.
9
<PAGE> 10
INFLATION
The overall impact of the low rate of inflation in recent years has
resulted in no significant impact on labor costs and general services utilized
by the Company. Certain raw materials, such as copper, brass and other primary
metals, used in the Company's business are generally subject to commodity
pricing and variations in the market prices for such materials. The principal
raw materials used by the Company in its original equipment and replacement
radiator product lines are copper and brass. Although these materials are
available from a number of vendors, the Company has chosen to concentrate its
sources with a limited number of long-term suppliers. The Company typically
executes purchase orders for its copper and brass requirements approximately
three to six months prior to the actual delivery date. The purchase price for
such copper and brass is established at the time such orders are placed by the
Company and not at the time of delivery.
The Company manages its metals commodity pricing by attempting to pass
through any cost increases to its customers. Although the Company has been
successful in passing through price increases to its customers to offset a
portion of past cost increases of copper and brass, there is no assurance that
the Company will continue to be successful in raising prices in the future. The
Company does not use hedging transactions with respect to its metals
consumption.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws designed to
protect the environment and believes that, as a general matter, its policies,
practices, and procedures are properly designed to reasonably prevent risk of
environmental damage and financial liability to the Company. The Company
believes it is reasonably possible that environmental related liabilities may
exist with respect to an industrial site formerly occupied by the Company. Based
upon environmental site assessments, the Company believes that the cost of any
potential remediation for which the Company may ultimately be responsible will
not have a material adverse effect on the consolidated financial position,
results of operations, or liquidity of the Company.
ACQUISITIONS
In August 1996, the Company acquired substantially all of the assets
and assumed certain specified liabilities of Rahn. Rahn is a manufacturer of
replacement automotive air conditioner condensers and evaporators for the
Aftermarket as well as tube and fin heat exchangers for industrial applications.
Rahn reported sales of $12.3 million for the twelve months ended December 31,
1995. The acquisition was accounted for as a purchase and Rahn's results of
operations have been included in the consolidated financial statements from the
date of acquisition. The transaction was structured with an initial purchase
price of $5.3 million paid in cash at closing, with an opportunity for a maximum
additional payout of $2.5 million based upon the future earnings performance of
the business. In addition, approximately $0.2 million was capitalized for
transaction costs incurred to complete the acquisition. The initial purchase
price was financed by borrowings under the Credit Agreement. In connection with
this transaction, the Company recorded $2.3 million of goodwill which is being
amortized over 20 years.
OTHER MATTERS
The Company's largest customer is Ford. The Company is the exclusive
supplier of Crew Cabs and DRWs to Ford under a contract that expired on December
31, 1995. These products are manufactured at the Company's Louisville, Kentucky
manufacturing facility which is dedicated solely to their production. In
February 1996, Ford notified the Company that Ford plans to move production of
Crew Cabs and DRWs in-house in late 1997. The Company anticipates maintaining
its position as the exclusive supplier of these
10
<PAGE> 11
products to Ford until that time. However, any decisions relating to the move of
Crew Cab and DRW production in-house is solely at Ford's discretion and outside
the control of the Company. Accordingly, no assurance can be given that the
Company will continue to supply these products until late 1997. Sales of Crew
Cabs and DRWs accounted for 24% and 38% of 1996 and 1995 sales, respectively,
and a significantly greater percentage of 1996 and 1995 profits.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123") "Accounting for Stock-Based Compensation."
SFAS No. 123 defines a fair value based method of accounting for stock options
and similar equity instruments (together "Stock Compensation Plans") and allows
an entity to measure compensation cost for Stock Compensation Plans under the
fair value method or to continue using the intrinsic value method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25")
"Accounting for Stock Issued to Employees". The Company applies APB No. 25 and
related interpretations in accounting for its Stock Compensation Plans.
Accordingly, no compensation expense has been recognized for stock options. SFAS
No. 123 requires the disclosure, if material, of pro forma compensation expense
for Stock Compensation Plans, pro forma net income and pro forma earnings per
share as if the fair value based method of accounting for Stock Compensation
Plans was used as well as the disclosure of the method and significant
assumptions used to estimate the fair value of options and similar equity
instruments issued under Stock Compensation Plans. The effect of using the fair
value method under SFAS No. 123 is immaterial to the Company's 1996 and 1995 net
income.
11
<PAGE> 12
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SALES $264,095 $151,660 $118,506
COST OF SALES 202,268 120,486 97,523
-------- -------- --------
GROSS MARGIN 61,827 31,174 20,983
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 40,432 17,267 4,869
PLANT AND BUSINESS CONSOLIDATION COSTS (NOTE 4) 4,389 -- --
-------- -------- --------
INCOME FROM OPERATIONS 17,006 13,907 16,114
EQUITY IN EARNINGS OF GDI (NOTE 7) -- 2,495 1,368
INTEREST EXPENSE (2,999) (1,481) (972)
INTEREST INCOME 113 416 217
-------- -------- --------
INCOME BEFORE TAXES 14,120 15,337 16,727
PROVISION FOR INCOME TAXES (NOTE 5) 5,700 6,263 6,761
-------- -------- --------
NET INCOME $ 8,420 $ 9,074 $ 9,966
======== ======== ========
EARNINGS PER COMMON SHARE $ 1.28 $ 1.38 $ 1.51
======== ======== ========
AVERAGE COMMON SHARES
OUTSTANDING 6,596 6,583 6,621
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
The EPS presented for 1994 is for comparative purposes only as common shares
were not issued until October 1995. The amount of shares issued in the spin-off
were assumed to be outstanding for 1994.
12
<PAGE> 13
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 920 $ --
Accounts receivable (less allowances of $3,378 and $3,059) 35,936 35,692
Inventories:
Raw materials 13,218 11,943
Work in process 8,198 8,512
Finished goods 31,513 31,086
-------- --------
Total inventories 52,929 51,541
-------- --------
Deferred income tax benefit (Note 5) 3,343 6,338
Other current assets 1,609 1,588
-------- --------
Total current assets 94,737 95,159
-------- --------
Property, plant and equipment:
Land and land improvements 784 737
Buildings 16,395 16,861
Machinery and equipment 64,820 59,799
Leasehold improvements 3,491 3,157
-------- --------
85,490 80,554
Less accumulated depreciation and amortization 47,551 43,603
-------- --------
Net property, plant and equipment 37,939 36,951
-------- --------
Deferred start-up costs 1,446 2,505
Goodwill (net of amortization of $50) 2,241 --
Other assets 3,903 5,103
-------- --------
Total assets $140,266 $139,718
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,207 $ 12,573
Notes payable and current maturities
of long-term obligations (Note 8) 5,000 6,450
Accrued insurance 6,011 6,820
Accrued salaries and wages 5,610 5,688
Accrued taxes 2,054 2,667
Accrued plant and business consolidation charges 1,146 --
Accrued expenses 6,548 7,706
-------- --------
Total current liabilities 38,576 41,904
-------- --------
Long-term liabilities:
Long-term debt (Note 8) 33,917 34,396
Retirement and postretirement obligations 6,470 7,155
Deferred income taxes (Note 5) 1,800 3,718
Other liabilities 807 1,442
-------- --------
Total liabilities 81,570 88,615
-------- --------
Commitments and contingent liabilities (Note 9) -- --
Stockholders' equity:
Common stock, $.01 par value: 66 67
Authorized 17,500,000 shares at December 31, 1996 and 1995
6,661,139 shares issued (6,686,743 in 1995)
6,591,835 shares outstanding (6,617,439 in 1995)
Preferred stock, $.01 par value: -- --
Authorized 2,500,000 shares;
none issued at December 31, 1996 and 1995
Paid-in capital 52,061 52,445
Unearned compensation (346) (806)
Retained earnings 8,030 928
Translation adjustment (182) (111)
Adjustment for minimum pension liability (933) (1,420)
-------- --------
Total stockholders' equity 58,696 51,103
-------- --------
Total liabilities and stockholders' equity $140,266 $139,718
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities, excluding the effects of the GDI
redemption:
Net income $ 8,420 $ 9,074 $ 9,966
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,911 3,701 3,220
Amortization of deferred start-up costs and goodwill 1,109 966 756
Joint venture income -- (2,495) (1,368)
Deferred income taxes (429) (210) (1,182)
Provision for losses - accounts receivable 1,090 (100) 150
Settlement of postretirement benefit obligations -- -- (1,365)
Change, excluding the effects of acquisitions, in:
Accounts receivable 919 7,525 (2,901)
Joint venture receivable -- 857 --
Inventory (137) (4,244) (95)
Accounts payable (1,455) 738 2,081
Accrued expenses (1,813) 2,410 (855)
Other 1,140 524 (109)
-------- -------- -------
Cash provided by operating activities 14,755 18,746 8,298
-------- -------- -------
Cash flows from investing activities:
Redemption of GDI -- (23,028) --
Capital expenditures (5,565) (4,066) (2,512)
Sales and retirements of fixed assets, net 581 213 1,510
Start-up of manufacturing facility -- -- (1,828)
Acquisition of Rahn Industries, Inc., net of cash acquired (5,532) -- --
-------- -------- -------
Cash used in investing activities (10,516) (26,881) (2,830)
-------- -------- -------
Cash flows from financing activities:
Dividends paid (1,319) -- --
Borrowings of long-term debt 4,450 37,672 --
Repayments of long-term debt and current maturities of long-term debt (6,450) (23,891) (150)
Increase in receivable from The Allen Group Inc. -- (11,395) (3,107)
-------- -------- -------
Cash provided by (used in) financing activities (3,319) 2,386 (3,257)
-------- -------- -------
Increase (decrease) in cash and cash equivalents 920 (5,749) 2,211
Cash and cash equivalents:
Beginning of year -- 5,749 3,538
-------- -------- -------
End of year $ 920 $ -- $ 5,749
======== ======== =======
Interest paid $ 3,150 $ 1,084 $ 553
Taxes paid (net of refunds) 5,270 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT
SHARE AND PER SHARE AMOUNTS)
COMMON STOCK PAID-IN RETAINED BUSINESS
SHARES VALUE CAPITAL EARNINGS EQUITY
-------------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 -- -- -- -- $ 48,810
Net income 9,966
Net change in amounts due from
The Allen Group Inc. (3,107)
Net change in adjustment for
minimum pension liability
--------- --- ------- ------- --------
Balance December 31, 1994 -- -- -- -- $ 55,669
--------- --- ------- ------- --------
Net distribution costs & adjustments 6,545,605 $66 $51,611 (55,669)
Net income after spin-off $ 1,259
Cash dividends declared ($.05 per
share) (331)
Replacement restricted stock issued 71,834 1 834
Amortization of unearned
compensation
Net change in translation adjustment
Net change in adjustment for
minimum pension liability
--------- --- ------- ------- --------
Balance December 31, 1995 6,617,439 $67 $52,445 $ 928 $ --
--------- --- ------- ------- --------
Net Income 8,420
Cash dividends declared ($.20 per
share) (1,318)
Restricted stock issued 9,463 72
Restricted stock canceled (36,411) (416)
Stock options exercised 1,344 6
Amortization of unearned
compensation
Net change in translation adjustment
Net change in adjustment for
minimum pension liability
Other adjustments (1) (46)
--------- --- ------- ------- --------
Balance December 31, 1996 6,591,835 $66 $52,061 $ 8,030 $ --
========= === ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT UNEARNED ADJUSTMENT
SHARE AND PER SHARE AMOUNTS) COMP. FOR
AND MINIMUM TOTAL
TRANSLATION PENSION STOCKHOLDERS'
ADJUSTMENT LIABILITY EQUITY
----------- --------- ------------
<S> <C> <C> <C>
Balance December 31, 1993 -- $(1,733) $47,077
Net income 9,966
Net change in amounts due from
The Allen Group Inc. (3,107)
Net change in adjustment for
minimum pension liability 711 711
----- ------- -------
Balance December 31, 1994 $(1,022) $54,647
----- ------- -------
Net distribution costs & adjustments (3,992)
Net income after spin-off 1,259
Cash dividends declared ($.05 per
share) -- (331)
Replacement restricted stock issued $(835) --
Amortization of unearned
compensation 29 29
Net change in translation adjustment (111) (111)
Net change in adjustment for
minimum pension liability (398) (398)
----- ------- -------
Balance December 31, 1995 $(917) $(1,420) $51,103
----- ------- -------
Net Income 8,420
Cash dividends declared ($.20 per
share) (1,318)
Restricted stock issued (72) --
Restricted stock canceled 416 --
Stock options exercised 6
Amortization of unearned
compensation 65 65
Net change in translation adjustment (71) (71)
Net change in adjustment for
minimum pension liability 487 487
Other adjustments 51 4
----- ------- -------
Balance December 31, 1996 $(528) $ (933) $58,696
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
TRANSPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
TransPro, Inc. (the "Company") is a manufacturer and supplier of heat
transfer components and systems, and specialty metal fabrication products for a
variety of aftermarket and OEM automotive, truck and off-highway equipment
applications.
On September 29, 1995, the "Company" completed a series of transactions
pursuant to which the Company's sole stockholder, The Allen Group Inc.
("Allen"), contributed (the "Contribution") to the Company substantially all of
the assets and liabilities of Allen's original equipment radiator and fabricated
metal products business (the "Automotive and Truck Products Business"), as well
as Allen's 50% ownership interest in GO/DAN Industries ("GDI"), a 50/50 joint
venture partnership between affiliates of Allen and Handy & Harman ("H&H").
Immediately thereafter, Allen caused GDI to redeem the outstanding ownership
interest in GDI not already owned by Allen (the "GDI Redemption"), thereby
making GDI an indirect wholly owned partnership of the Company. GDI produces
replacement radiators and other heat transfer products for the automotive and
truck aftermarkets. The GDI Redemption was accounted for under the purchase
method of accounting.
In addition, Allen effected the distribution (the "Distribution") of 100%
of the outstanding shares of the Company's common stock to the holders of record
of Allen's common stock as of the close of business on September 29, 1995 (the
"Record Date"). The Distribution was made on the basis of one share of the
Company's common stock for every four shares of Allen's common stock outstanding
on the Record Date, which resulted in the distribution of an aggregate of
6,621,349 shares of TransPro common stock.
In connection with the foregoing transactions, the Company also entered
into a Revolving Credit and Term Loan Agreement with The First National Bank of
Boston, as agent, and certain lenders named therein (the "Credit Agreement").
As a result of the Contribution, the Distribution, and the GDI Redemption,
TransPro now owns the Automotive and Truck Products Business and 100% of GDI,
and is an independent publicly-traded company.
Operating results up to the date of the Distribution as presented herein
include all costs directly associated with the Automotive and Truck Products
Business operations, including all facilities and data processing costs, and an
allocation of Allen's compensation, insurance, interest and pension plans.
Results of operations do not include residual costs for certain general
corporate management and public reporting functions since there is no reasonable
basis to do so and any such allocation would be arbitrary. As such, these
statements may not necessarily reflect the combined income (loss) that would
have resulted if the Company had operated as an independent stand-alone company
prior to the Distribution. As part of the Distribution, TransPro entered into
agreements with Allen relating to interim administrative services, certain
employee matters and other miscellaneous matters. Any agreements entered into as
part of or following the Distribution are on an arm's length basis.
17
<PAGE> 18
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The Company's consolidated financial statements
include the accounts of all subsidiaries. Intercompany balances and transactions
have been eliminated.
The consolidated statements of income reflect the earnings of Allen's
Automotive and Truck Products Business and its 50% equity interest in GDI for
each respective period. The redemption of the remaining 50% of GDI not owned by
Allen was not concluded until September 29, 1995 and, therefore, GDI was
reported under the equity method of accounting through that date. The reported
earnings through September 29, 1995 do not include the other 50% of GDI's
income, the incremental costs for TransPro to perform the necessary functions of
a public company and the incremental cost of borrowings to accomplish the
redemption of the other 50% of GDI. Effective October 1, 1995, the financial
results of GDI were reported on a fully consolidated basis.
Cash Equivalents: The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be cash
equivalents.
Inventories: Inventories are valued at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment: Property, plant and equipment is recorded
at cost. Ordinary maintenance and repairs are expensed, replacements and
betterments are capitalized. Land improvements, buildings and machinery are
depreciated over their estimated useful lives under the straight-line method.
The provision for amortization of leasehold improvements is based on the term of
the lease or the estimated useful lives of the improvements, whichever is
shorter. Upon retirement or disposition of plant and equipment, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in income.
Deferred Start-Up Costs: During the initial phase of major new programs or
development of significant new plant facilities for which prospective sales and
cost recovery are based upon long-term commitments from customers, start-up
costs are deferred and amortized over the contract period.
Goodwill: Goodwill represents the excess of cost over the fair value of
assets acquired and is being amortized using the straight-line method over 20
years. On a periodic basis the Company estimates the future undiscounted cash
flows of the businesses to which goodwill relates to ensure that the carrying
value of such goodwill has not been impaired. The Company's existing goodwill
relates to the acquisition of certain assets and liabilities of Rahn Industries
in 1996.
Impairment of Long-Lived Assets: The Company, in the event that
circumstances arise that indicate that its fixed assets may be impaired, would
perform an evaluation of recoverability of the assets in accordance with
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The assets' carrying value would be compared to the estimated
future undiscounted cash flows of the assets to determine if a writedown is
required. There were no impaired long-lived assets at December 31, 1996.
Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the current rate of
exchange, while revenues and expenses are translated at the average exchange
rate during the year. Adjustments from translating foreign subsidiaries'
financial statements are excluded from the results of operations and are
reported as a separate component of stockholders' equity.
18
<PAGE> 19
Revenue Recognition: The Company recognizes revenues from product sales
upon shipment to its customers.
Research and Development: Research and development costs are charged to
income as incurred.
Financial Instruments: The Company is party to an interest rate swap
agreement which involves the exchange of fixed and floating rate interest
payments. The difference to be paid or received is accrued as interest rates
change and is recognized over the life of the agreement as an adjustment to
interest expense.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), "Accounting for Income Taxes," under which deferred income taxes are
recorded to reflect the tax consequences on future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year-end.
Earnings Per Common Share: Earnings per common share are computed by
dividing net earnings by the average number of shares of common stock
outstanding during the period. Stock options granted and shares to be issued
under restricted stock plans would result in no material dilution of earnings.
Use of Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
19
<PAGE> 20
NOTE 3 - SEGMENT AND BUSINESS INFORMATION
The Company operates in one segment, "automotive and truck products."
The Company's largest customer is Ford. During 1996 and 1995, Ford
accounted for approximately 24% and 38%, respectively, of the Company's net
sales and a significantly greater portion of total 1996 and 1995 profitability
on both a historical and pro forma basis. The Company is the exclusive supplier
of Crew Cabs and DRWs to Ford and has a manufacturing facility located near
Louisville, Kentucky dedicated to such production. The Company had a five-year
contract with Ford regarding such products that expired on December 31, 1995. In
early 1996, the Company was notified by Ford that it plans to move production of
its Crew Cab pick up truck models in-house, which is expected to occur in late
1997.
In 1996, the Company had no other customers who individually accounted for
greater than 10% of the Company's net sales. In 1995 other significant customers
included PACCAR who accounted for 11% of the Company's net sales. The Company
had net sales to Allen of approximately $0.7 million in 1996 and $2.9 million in
1995 for fabricated metal products used by Allen in its telecommunications and
automotive emissions test businesses. The Company believes that the terms of
such sales were no less favorable than what could have been achieved through
arms-length negotiations. The Company expects such sales to Allen to continue in
the foreseeable future.
Exports sales from North America were below 10% in each of the years
reported. The Company has a manufacturing facility in Mexico which has no sales
in Mexico. Previously the Company operated a facility in Canada, which was
closed in 1994.
20
<PAGE> 21
NOTE 4 - PLANT AND BUSINESS CONSOLIDATION COSTS
The Company recorded approximately $4.4 million in plant and business
consolidation costs in 1996 resulting from the actions to consolidate the OEM
and Aftermarket heat transfer organizations, close the New Haven, Connecticut
OEM heat transfer product manufacturing plant and move such manufacturing to
Jackson, Mississippi, and close the Peru, Illinois Aftermarket heater
manufacturing plant and move such manufacturing to Mexico. The costs include
severance and other personnel termination costs of approximately $2.4 million
for approximately 80 employees in New Haven and for approximately 130 employees
in Peru. During 1996, approximately $1.3 million was paid in connection with
employee terminations and certain adjustments were made to increase severance
and termination costs in the fourth quarter. Approximately $1.1 million of
severance and termination costs remain on the December 31, 1996 balance sheet in
accrued plant and business consolidation charges. The majority of these
liabilities are expected to be paid during 1997. In addition, approximately $2.0
million was charged to plant and business consolidation costs related primarily
to the movement of equipment from New Haven, Connecticut and Peru, Illinois to
Jackson, Mississippi and Mexico, respectively.
21
<PAGE> 22
NOTE 5 - INCOME TAXES
Information with respect to income taxes is as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Provision (benefit) for income taxes: 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current: Federal $ 4,950 $ 5,134 $ 6,790
Foreign -- -- (158)
State and local 1,178 1,339 1,311
------- ------- -------
6,128 6,473 7,943
------- ------- -------
Deferred: Federal (346) (170) (1,110)
Foreign -- -- 172
State and local (82) (40) (244)
------- ------- -------
(428) (210) (1,182)
------- ------- -------
$ 5,700 $ 6,263 $ 6,761
======= ======= =======
Income before taxes:
Domestic $14,120 $15,337 $16,692
Foreign -- -- 35
------- ------- -------
$14,120 $15,337 $16,727
======= ======= =======
</TABLE>
22
<PAGE> 23
A reconciliation of the provision for income taxes at the Federal
statutory rate of 35% to the reported tax provisions is as follows:
(amounts in thousands)
1996 1995 1994
------ ------ ------
Provision computed at the Federal
statutory rate $4,942 $5,368 $5,854
State and local income taxes, net of
Federal income tax benefit 713 844 694
Other 45 51 213
------ ------ ------
$5,700 $6,263 $6,761
====== ====== ======
Significant components of deferred income tax assets and liabilities as of
December 31 are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory $ 313 $ 1,691
Pensions and deferred compensation 2,090 3,096
Postretirement benefits 603 630
Allowance for bad debts 206 1,224
Self insurance reserves 1,360 1,967
Warranty reserves 502 327
Plant and business consolidation reserves 422 --
Other 525 2,239
-------- --------
Total deferred tax assets 6,021 11,174
-------- --------
Deferred tax liabilities:
Depreciation (2,345) (269)
Investment in joint venture (1,139) (5,759)
Deferred start-up costs (431) (871)
Deferred charges (490) (490)
Other (73) (1,165)
-------- --------
Total deferred tax liabilities (4,478) (8,554)
-------- --------
Net deferred tax assets $ 1,543 $ 2,620
======== ========
</TABLE>
For Federal income tax purposes, the Contribution and Distribution (as
described in Note 1) should qualify as a tax-free spin-off under Sections
368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended. In
connection with the spin-off, it is intended that Allen will be responsible for
all Federal, state and local income and franchise tax liabilities prior to the
effective date of the spin-off.
23
<PAGE> 24
NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") Statements No. 107,
"Disclosure about Fair Value of Financial Instruments" and No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments,"
are part of a continuing process by the FASB to improve information regarding
financial instruments. The following methods and assumptions were used by the
Company in estimating the fair value of each class of financial instruments:
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Current Maturities of Long-Term Debt: The carrying amounts are a
reasonable approximation of fair value due to the short-term maturity of these
instruments.
Long-Term Debt: The carrying amounts of the Company's long-term debt
either approximate fair value or are estimated using discounted cash flow
analyses based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Letters of Credit: The Company utilizes letters of credit to back certain
industrial revenue bonds, insurance policies and certain trade purchases. The
letters of credit reflect fair value as a condition of their underlying purpose.
Interest Rate Swap Agreements: The Company has entered into an interest
rate swap agreement which has effectively fixed the interest rate on a portion
of its domestic floating rate bank debt. This arrangement serves the purpose of
reducing the volatility of reported results due to fluctuating short-term U.S.
interest rates and of effectively providing long-term financing at costs
favorable to alternative forms of fixed rate borrowings.
Under this agreement, the Company is charged interest at a fixed rate by
the counterparty, receives credit from the counterparty for interest at a
variable rate based on the London Interbank Offered Rate ("LIBOR") and pays or
receives the difference. At December 31, 1996 and 1995, the Company had a
contract in place which served to fix the interest rate on $25 million of
underlying bank debt at 6.85% to December 29, 1997. The Company's current
intention is to maintain this contract through its termination date of December
29, 1997. The fair value of the swap agreement is based on market quotations.
The counterparty to the Company's interest rate swap agreement is a major
international financial institution. The Company monitors its position with, and
the credit quality of, this institution and does not anticipate any losses as a
result of counterparty nonperformance. Accordingly, the Company's exposure
related to the interest rate swap agreement is limited to fluctuations in LIBOR.
Concentration of Credit Risk: The Company is subject to a concentration of
credit risk primarily with its trade and notes receivables. The Company grants
credit to certain customers who meet pre-established credit requirements, and
generally requires no collateral from its customers. Credit losses are provided
for in the Company's consolidated financial statements and are well within
management's expectations and industry averages. As of December 31, 1996 the
Company had no other significant concentrations of credit risk.
24
<PAGE> 25
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
1996
Current maturities of long-term debt $ 5,000 $ 5,000
Long-term debt 33,917 33,917
Off balance sheet financial instruments
Letters of Credit 18,245 18,245
Interest rate swap (notional amount) 25,000 25,043
1995
Current maturities of long-term debt $ 6,450 $ 6,450
Long-term debt 34,396 34,396
Off balance sheet financial instruments
Letters of Credit 18,896 18,896
Interest rate swap (notional amount) 25,000 25,000
</TABLE>
25
<PAGE> 26
NOTE 7 - INVESTMENT IN GDI
Prior to September 29, 1995, the Company had a 50% investment in GDI which
was reported under the equity method of accounting. As a result of the GDI
Redemption, the financial results of GDI were reported on a fully consolidated
basis after September 29, 1995.
Summarized financial data for GDI is as follows:
(amounts in thousands)
1995 1994
---- ----
Revenues $121,998 $125,332
Gross margin 37,875 39,493
Net income 7,685 6,963
Current assets 62,744 64,954
Non-current assets 18,220 18,870
Current liabilities 27,414 25,059
Non-current liabilities 1,000 10,877
Equity 52,550 47,888
In 1994, net income includes the reimbursement of certain inventory price
adjustments by the partners in the amount of $2,000,000. Further, in 1995 and
1994, net income excludes a charge in the amount of $794,000 and $2,206,000,
respectively, for certain deferred compensation costs absorbed by the partners.
The Company's unaudited pro forma data for 1995 and 1994 presented in
Management's Discussion and Analysis of Financial Condition and Results of
Operations assumes that the GDI Redemption had taken place at January 1, 1994.
The pro forma data also includes estimates of related costs associated with
TransPro becoming a stand alone, publicly traded business.
GDI had the following transactions with the Automotive and Truck Products
Business and Handy & Harman during 1995 and 1994.
(amounts in thousands)
1995 1994
---- ----
Automotive and Truck Products
Products purchased from $ 886 $ 1,043
Fees received for services rendered to 63 75
Fees paid for services provided by 53 18
Fees paid for rental of facilities from 77 103
Handy & Harman
Fees paid for rental of facilities from 344 535
26
<PAGE> 27
NOTE 8 - FINANCING
In September 1995, the Company entered into the Credit Agreement with a
group of five banking institutions. The Credit Agreement provides for unsecured
borrowings or the issuance of letters of credit in an aggregate amount not to
exceed $75 million. The Credit Agreement expires in October, 2000, and is
comprised of a $50 million five year revolving credit facility (the "Revolver")
and a $25 million term loan facility (the "Term Loan"). The Term Loan is payable
in 20 equal quarterly installments over five years commencing December 31, 1995.
The Revolver and Term Loan each bear interest at variable rates based on either
(i) a Eurodollar loan rate, plus an applicable margin based upon the ratio of
the Company's total funded debt to earnings before interest, taxes, depreciation
and amortization, or (ii) the prime lending rate, at the Company's option. The
Credit Agreement calls for a commitment fee payable quarterly, in arrears, of
.25% per annum on the average daily unused portion. During 1996 and the fourth
quarter of 1995, $25 million of the total borrowings under the Credit Agreement
were subject to the interest swap agreement (see Note 6) to fix the interest
rate at 6.85%. The weighted average interest rate on all borrowings under the
Credit Agreement approximated 7.19% for 1996 and 6.96% for 1995 after the effect
of the interest swap agreement. The interest rate for borrowings under the
Credit Agreement at December 31, 1996 and 1995 was 6.92% and 7.04%,
respectively, after the effect of the interest swap agreement.
The Company's Credit Agreement contains financial covenants which unless
certain financial ratios are attained, place limits on dividend payments in
excess of $3.6 million per annum and capital expenditures in excess of 140% of
the prior fiscal year's depreciation expense.
Long-term debt consisted of the following:
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Revolver $ 7,650 $ 3,200
Term Loan 18,750 25,000
Industrial revenue bonds:
Floating rate bond due 2010 8,000 8,000
Floating rate bond due 2013 5,000 5,000
Other -- 200
Unamortized debt expense (483) (554)
-------- --------
38,917 40,846
Less current maturities 5,000 6,450
======== ========
Total long-term debt $ 33,917 $ 34,396
======== ========
</TABLE>
The floating rate industrial revenue bonds bear interest at a rate based
on a short-term tax-exempt bonds index, as defined in the bonds, and which
approximated 4.05% at December 31, 1996 and 4.55% at December 31, 1995. The
average interest rate for all industrial revenue borrowings approximated 3.52%
during 1996 and 3.81% during 1995.
27
<PAGE> 28
Long-term debt (excluding the unamortized debt expense) at December 31,
1996 matures during the following years:
(amounts in thousands)
1997 $ 5,000
1998 5,000
1999 5,000
2000 11,400
2001 --
Thereafter 13,000
28
<PAGE> 29
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company's leases consist primarily of manufacturing and distribution
facilities and equipment and expire principally between 1997 and 2001. A number
of leases require that the Company pay certain executory costs (taxes,
insurance, and maintenance) and contain renewal and purchase options. Annual
rental expense for operating leases approximated $3,907,000 in 1996, $1,621,000
in 1995 and $883,000 in 1994. Future minimum payments under noncancelable leases
as of December 31, 1996 were as follows:
(amounts in thousands)
1997 $ 3,666
1998 2,828
1999 2,020
2000 1,584
2001 142
-------
Total $10,240
=======
The Company is self-insured for health care, workers compensation, general
liability and product liability up to predetermined amounts above which third
party insurance applies. The Company is contingently liable to insurance
carriers under its workers compensation and liability policies and has reserved
approximately $6.0 million to pay such claims. As a condition of insurability,
the Company has provided letters of credit totaling $3.6 million.
Various legal actions are pending against or involve the Company with
respect to such matters as product liability, casualty claims and employment
related claims. In the opinion of management, after review and consultation with
counsel, the aggregate liability, if any, that ultimately may be incurred in
excess of amounts already provided should not have a material adverse effect on
the consolidated financial position, results of operations, or liquidity of the
Company.
The Company has a Key Employee Severance Policy and has entered into
severance agreements with senior key employees in order to provide financial
assistance if employment with the Company is terminated under the circumstances
set forth in the policy and the agreements. The policy and agreements provide
for formalized severance benefits in the event of non-voluntary termination.
The Company is subject to Federal, state and local laws designed to
protect the environment and believes that, as a general matter, its policies,
practices and procedures are properly designed to reasonably prevent risk of
environmental damage and financial liability to the Company. The Company
believes it is reasonably possible that environmental related liabilities may
exist with respect to one industrial site formerly occupied by the Company.
Based upon environmental site assessments, the Company believes that the cost of
any potential remediation for which the Company may ultimately be responsible
will not have a material adverse effect on the consolidated financial position,
results of operations, or liquidity of the Company.
The Company had approximately 2,100 employees at December 31, 1996. Of
these employees, approximately 1,100 were covered by collective bargaining
agreements which expire at different times. The Company has successfully
renegotiated 20 collective bargaining agreements over the last six years with
only two work stoppages - a two week stoppage in 1992 and a three week stoppage
in 1994. The Company feels labor relations are good, but there can be no
assurance that work stoppages will not occur in the future.
29
<PAGE> 30
NOTE 10 - STOCK COMPENSATION PLANS
The Company's 1995 Stock Plan (the "Stock Plan") provides for the granting
of stock options and restricted shares of Common Stock to key employees. Awards
of restricted shares may be in lieu of or in addition to grants of stock options
under the Stock Plan. The total number of shares of Common Stock with respect to
which stock options may be granted and restricted shares may be awarded under
the Stock Plan shall not exceed 600,000. At December 31, 1996, 361,822 common
shares were reserved for stock options and restricted shares under the Stock
Plan.
STOCK OPTIONS
Options have been granted for periods of ten years at prices equal to the
market price on the date of grant. Options are exercisable cumulatively at the
rate of 50% two years from the date of grant, 75% three years from the date of
grant, and 100% four years from the date of grant. Information regarding
transactions under the stock option section of the Stock Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE RANGE
---------------------------------------
NUMBER OF WEIGHTED
EMPLOYEE STOCK OPTIONS OPTIONS LOW AVERAGE HIGH
- ---------------------- ------- --- ------- ----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 -- -- -- --
Replacement options granted 163,147 $3.730 $ 7.430 $ 8.610
New options granted 56,250 $9.750 $10.889 $11.750
-------
Outstanding at December 31, 1995 219,397 $3.730 $ 8.320 $11.750
Granted 166,225 $7.500 $ 7.556 $ 8.125
Exercised (1,344) $4.680 $ 4.680 $ 4.680
Canceled (68,686) $4.680 $ 7.377 $ 8.610
-------
Outstanding at December 31, 1996 315,592 $3.730 $ 8.137 $11.750
======== ======= ======= =======
Exercisable at December 31, 1996 30,911 $5.870 $ 6.165 $ 8.150
======== ======= ======= =======
</TABLE>
Options for 163,147 shares were granted in 1995 as replacement options for
former Allen employees currently employed by TransPro. These options are
exercisable cumulatively at the rate of 50% two years from the date of the
original Allen grant, 75% three years from the date of the original grant and
100% four years from the date of the original grant. The prices were calculated
based on the exercise price of the canceled Allen stock options.
There were no options exercised during 1995 and there were no options
exercisable at December 31, 1995.
RESTRICTED STOCK AWARDS
Restricted stock awarded in 1996 vests four years from the date of the
award. Restricted stock awarded in 1995 and outstanding at December 31, 1995
represents replacement restricted shares for former Allen employees currently
employed by TransPro. These replacement shares vest over time in accordance with
original Allen vesting schedules. The vesting of some of these replacement
shares may be accelerated when the Company's average earnings per common share
over three consecutive fiscal years equal or exceed specified target levels.
30
<PAGE> 31
RESTRICTED STOCK AWARDS
Outstanding at December 31, 1994 --
Replacement shares awarded 71,834
-------
Outstanding at December 31. 1995 71,834
Awarded 9,463
Vested (2,651
Canceled (36,411)
-------
Outstanding at December 31, 1996 42,235
=======
Unearned compensation, representing the fair value of the restricted
shares at the date of the award, is charged to income over a four year period
beginning when the stock is issued, or over the period of actual vesting of such
shares, whichever period is shorter.
Compensation expenses with respect to all restricted shares amounted to
$73,000 in 1996 and $126,000 in 1995.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board of Directors of the Company adopted the Directors Plan on
September 14, 1995. The purpose of the Directors Plan is to attract, retain and
compensate highly qualified individuals who are not current employees of the
Company as members of the Board of Directors of the Company and to enable them
to increase their ownership of shares of Common Stock.
The total number of shares of Common Stock with respect to which options
may be granted under the Directors Plan may not exceed 100,000 shares.
The purchase price per share of Common Stock for which each option is
exercisable will be equal to 100% of the fair market value of the Common Stock
covered thereby on the date of grant. Subject to certain acceleration
provisions, each option granted under the Directors Plan will be exercisable 50%
after two years from date of grant, 75% after three years from date of grant and
100% after four years from date of grant. Options granted under the Directors
Plan will expire 10 years from the date of grant.
Information regarding transactions under the Directors Stock Option Plan is as
follows:
<TABLE>
<CAPTION>
OPTION PRICE RANGE
--------------------------------------
NUMBER OF WEIGHTED
DIRECTOR STOCK OPTIONS OPTIONS LOW AVERAGE HIGH
- ---------------------- ------- --- ------- ----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 -- -- -- --
Granted 35,000 $9.625 $10.700 $11.750
------
Outstanding at December 31, 1995 35,000 $9.625 $10.700 $11.750
Granted 10,700 $8.375 $ 8.375 $ 8.375
------
Outstanding at December 31, 1996 45,700 $8.375 $10.156 $11.750
====== ======= ======= =======
</TABLE>
At December 31, 1996 and 1995, the Company had 54,300 and 65,000 shares,
respectively, reserved for future grants of stock options under the Directors
Plan. There were no options exercised during 1996 and 1995 and there were no
options exercisable at December 31, 1996 and December 31, 1995.
31
<PAGE> 32
ACCOUNTING CHANGES - STOCK-BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123") "Accounting for Stock-Based Compensation."
SFAS No. 123 defines a fair value based method of accounting for stock options
and similar equity instruments (together "Stock Compensation Plans") and allows
an entity to measure compensation cost for Stock Compensation Plans under the
fair value method or to continue using the intrinsic value method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25")
"Accounting for Stock Issued to Employees." The Company applies APB No. 25 and
related interpretations in accounting for its Stock Compensation Plans.
Accordingly, no compensation expense has been recognized for stock options. SFAS
No. 123 requires the disclosure, if material, of pro forma compensation expense
for Stock Compensation Plans, pro forma net income and pro forma earnings per
share as if the fair value based method of accounting for Stock Compensation
Plans was used as well as the disclosure of the method and significant
assumptions used to estimate the fair value of options and similar equity
instruments issued under Stock Compensation Plans. The effect of using the fair
value method under SFAS No. 123 is immaterial to the Company's 1996 and 1995 net
income.
32
<PAGE> 33
NOTE 11 - STOCKHOLDER RIGHTS PLAN
On September 14, 1995, the Board of Directors adopted a stockholder rights
plan (the "Rights Plan"), under which one Right was issued and distributed for
each share of Common Stock. The Rights Plan is intended to protect shareholders
against unsolicited attempts to acquire control of the Company that do not offer
what the Company believes to be an adequate price to all shareholders. Each
Right will entitle the registered holder to purchase from the Company one
one-hundredth of a share of Series A Preferred Stock at a price of $60.00 per
one one-hundredth of a share of Series A Preferred Stock subject to adjustment.
The description and terms of the Rights is set forth in a Rights Agreement
between the Company and The First National Bank of Boston, as Rights Agent.
The Rights will become exercisable only if a person or group acquires or
obtains the right to acquire beneficial ownership of 20% or more of the
outstanding shares of Common Stock (an "Acquiring Person") or 10 days (or such
later date as the Company's Board of Directors may determine) following the
commencement by a person or group of a tender or exchange offer which would
result in such person or group becoming an Acquiring Person. The earlier of such
dates is called the "Rights Distribution Date." Until the Rights Distribution
Date, the Rights will be evidenced by the certificates for shares of Common
Stock. In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights that are or were owned beneficially by the
Acquiring Person (which, from and after the later of the Rights Distribution
Date and the date of the earliest of any such events, will be void), will
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the Right, that number of shares of Common Stock having a
market value of two times the exercise price of the Right.
33
<PAGE> 34
NOTE 12 - RETIREMENT PLANS
The Company has noncontributory defined benefit pension plans covering the
majority of its full-time U.S. employees. Salaried employees at the Company's
Crown and G&O operations and hourly employees at the Company's Kentucky plant,
participated in Allen's non-contributory Corporate Retirement Plan (the "Allen
Plan") which provided benefits based on years of service and compensation during
the ten-year period prior to retirement. The Company has established a mirror
plan (the "Mirror Plan") and the assets and liabilities attributable to the
TransPro employees have been transferred into the Mirror Plan from the Allen
Plan. Other plans covering hourly employees provide benefits of specified
amounts for each year of service. Non-Union employees at the Company's GDI
operations are covered by a cash balance defined benefit plan. The Company
maintains a nonqualified retirement plan to supplement benefits for designated
employees whose pension plan benefits are limited by the provisions of the
Internal Revenue Code. It is the Company's policy to make contributions to
qualified retirement plans sufficient to meet the minimum funding requirements
of applicable laws and regulations.
The assets of the plans consist principally of equity securities, fixed
income instruments and investment contracts with insurance companies.
The Company has recorded an additional minimum liability at the end of
each year representing the excess of the accumulated benefit obligations over
the fair value of plan assets and accrued pension liabilities. To the extent
possible, the liabilities have been offset by intangible assets representing
unrecognized prior service costs. The balance of the liability at the end of the
period is reported as a separate reduction of stockholders' equity, net of tax
benefits.
Amounts are summarized as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Additional minimum liability $2,600 $3,295
====== ======
Intangible assets $1,032 $ 929
Reduction of stockholders' equity $ 933 $1,420
Tax benefits $ 635 $ 946
</TABLE>
Net periodic pension cost for the Company's plans is summarized as
follows: (amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 941 $ 637 $ 300
Interest cost on the projected benefit 1,693 1,079 709
obligation
Actual (return) on plan assets (2,283) (1,859) (246)
Settlement costs -- -- 35
Net amortization and deferral 707 989 (223)
------- ------- -------
Net periodic pension cost $ 1,058 $ 846 $ 575
======= ======= =======
</TABLE>
34
<PAGE> 35
In 1996, the Company closed its G&O New Haven, Connecticut manufacturing
operation and moved the work to G&O's manufacturing operation in Jackson,
Mississippi. As a result of this action, pension curtailment losses and costs
for the termination of benefits of $270,000 were recorded in 1996. This amount
was recorded as part of the 1996 plant and business consolidation costs and is
not included in the 1996 amounts above.
The 1995 net periodic pension cost includes three months of expense when
the Company maintained the Mirror Plan. The 1995 amounts above also include the
GDI Plan for the full year although only GDI's fourth quarter pension expense of
$89,000 was included in the Company's operating expenses.
In 1996, 1995, and 1994 GDI contributed $141,000, $139,000, and $171,000,
respectively, to multi-employer pension plans covering certain union employees
based on a stated amount per hour. These contributions are deposited directly to
the trustee and are not included in the net periodic pension cost amounts
presented above. In addition, the net periodic pension costs presented above do
not include approximately $29,000 and $93,000 charged to the Company by Allen in
1995 and 1994 respectively, for participation in the Allen Plan.
The following table sets forth the Company's plans' combined funded status
and amounts recognized in the Company's consolidated balance sheet.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFIT ACCUMULATED
(amounts in thousands) EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 11,769 $ 12,620 $ 11,796 $ 9,941
Non-vested benefit obligation 478 830 157 671
-------- -------- -------- --------
Accumulated benefit obligation 12,247 13,450 11,953 10,612
Effect of proposed compensation increases 82 873 -- 1,318
-------- -------- -------- --------
Projected benefit obligation 12,329 14,323 11,953 11,930
Plan assets at fair value 9,092 13,584 8,571 11,140
-------- -------- -------- --------
Deficiency of plan assets over
projected benefit obligation (3,237) (739) (3,382) (790)
Loss due to actuarial experience varying
from actuarial assumptions 1,740 (1,597) 2,597 (1,243)
Prior service cost not yet recognized
in pension cost 1,058 (46) 571 (44)
Unrecognized net transition (asset) liability (118) (126) 127 (150)
Adjustment to recognize minimum liability (2,600) -- (3,295) --
-------- -------- -------- --------
Prepaid (accrued) pension cost
recognized in the consolidated balance sheet $ (3,157) $ (2,508) $ (3,382) $ (2,227)
======== ======== ======== ========
</TABLE>
The measurement date for each plan is December 31, except for the GDI
hourly defined benefit plan whose measurement date is November 30.
35
<PAGE> 36
The projected benefit obligation for all plans was determined using the
following assumptions:
DECEMBER 31,
1996 1995
---- ----
Weighted average discount rate 7.50-7.75% 7.00-7.25%
Rate of increase in compensation levels 4.50% 4.50%
Expected long-term rate of return on assets 9.00% 7.50-9.00%
401 (k) INVESTMENT PLANS
Under the Company's 401(k) Plans, substantially all of the Company's
non-union employees are eligible to save, by payroll deductions, a portion of
their salaries. Effective January 1, 1996, the amount saved may be invested in
the Company's Common Stock. Depending upon the Plan, the Company matches certain
percentages of the amounts saved by the employees. The Company's matching
contribution to the 401(k) Plans was approximately $376,000 in 1996, $149,000 in
1995 and $62,000 in 1994.
36
<PAGE> 37
NOTE 13 - POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides health care and life insurance benefits for certain
retired employees who reach retirement age while working for the Company.
The Company accounts for the cost of its postretirement health care and
life insurance benefits in accordance with Statement of Financial Accounting
Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for Postretirement
Benefits Other Than Pensions," which requires that the Company accrue for such
postretirement benefits based on actuarially determined costs recognized over
the period from the date of hire to the full eligibility date of employees who
are expected to qualify for these benefits.
The components of the expense for postretirement health care and life
insurance benefits are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned
during the year $ 50 $ 71 $ 166
Interest cost on accumulated
postretirement benefit obligation 109 146 235
Net amortization 27 (6) 50
----- ----- -----
Net periodic postretirement benefit
cost $ 186 $ 211 $ 451
===== ===== =====
</TABLE>
In 1996, the Company closed its G&O New Haven, Connecticut manufacturing
operation and moved the work to the G&O manufacturing operation in Jackson,
Mississippi. As a result of this action, curtailment gains of $181,000 were
recorded in 1996. This amount was recorded as part of the 1996 plant and
business consolidation costs and are not included in the 1996 amounts above.
The components of the accumulated postretirement benefit obligation (all
of which are unfunded) are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Retirees $ 756 $ 822
Fully eligible active plan participants 12 93
Other active plan participants 454 1,606
Unrecognized net gain (loss) 287 (945)
------- -------
Accumulated postretirement benefit obligation $ 1,509 $ 1,576
======= =======
</TABLE>
37
<PAGE> 38
The accumulated postretirement obligation was determined using the
following assumptions:
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate 7.5% 7.0%
Health care cost trend rate for next year 9.6% 10.0%
Health care trend rate decreases .4% per
year (1996 and 1995) until ultimate rate
achieved in year 2010 2010
Ultimate health care cost trend rate 5.0% 5.0%
Effect of a 1% increase in the assumed
health care cost trend rate on the
accumulated postretirement benefit obligation
at year end $44 $181
Effect of a 1% increase in the assumed
health care cost trend rate on the
aggregate of service and interest cost
components of the net periodic
postretirement benefit cost during the year $12 $ 19
</TABLE>
38
<PAGE> 39
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $58,338 $69,849 $72,501 $63,407
Gross margin $13,827 $16,889 $16,419 $14,692
Net income $ 1,290 $ 2,886 $ 3,240 $ 1,004
Net earnings per common share $ .20 $ .43 $ .49 $ .16
Market price of common stock:
High $ 11 $ 8 3/4 $ 8 3/8 $ 9 1/4
Low $ 6 1/4 $ 6 3/4 $ 5 1/2 $ 6 3/4
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $33,495 $33,145 $28,690 $56,330
Gross margin $ 6,364 $ 6,370 $ 3,969 $14,471
Net income $ 2,580 $ 3,311 $ 1,924 $ 1,259
Net earnings per common share $ .39 $ .50 $ .29 $ .20
Market price of common stock:
High $11 3/4
Low $ 8 7/8
</TABLE>
The EPS presented are for comparative purposes only as common shares were
not issued until October 1995.
The above table summarizes quarterly financial information for 1996 and
1995. In management's opinion, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the information for such
quarters have been reflected above.
39
<PAGE> 40
NOTE 15 - ACQUISITIONS
In August 1996, the Company acquired substantially all of the assets and
assumed certain specified liabilities of Rahn. Rahn is a manufacturer of
replacement automotive air conditioner condensers and evaporators for the
Aftermarket as well as tube and fin heat exchangers for industrial applications.
Rahn reported sales of $12.3 million for the twelve months ended December 31,
1995. The acquisition was accounted for as a purchase and Rahn's results of
operations have been included in the consolidated financial statements from the
date of acquisition. The transaction was structured with an initial purchase
price of $5.3 million paid in cash at closing, with an opportunity for a maximum
additional payout of $2.5 million based upon the future earnings performance of
the business. In addition, approximately $0.2 million was capitalized for
transaction costs incurred to complete the acquisition. The initial purchase
price was financed by borrowings under the Credit Agreement. In connection with
this transaction, the Company recorded $2.3 million of goodwill which is being
amortized over 20 years.
40
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of TransPro, Inc.
We have audited the accompanying consolidated balance sheets of TransPro,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TransPro, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 13, 1997
41
<PAGE> 42
C O R P O R A T E I N F O R M A T I O N
STOCK EXCHANGE LISTING ANNUAL STOCKHOLDERS' MEETING
Common stock: The Annual Meeting of
New York Stock Exchange Stockholders will be held at
Ticker Symbol: TPR 11:00 AM on
April 23, 1997 at the
Omni Berkshire Place Hotel
REGISTRAR & TRANSFER AGENT 21 East 52nd Street
New York, New York
Bank of Boston
c/o Boston EquiServe
PO Box 8040 FORM 10-K OR ADDITIONAL INFORMATION
Boston, Massachusetts
02266-8040
1-800-733-5001 If you are requesting the 1996 Annual
Report, Form 10-K or other written
information, please phone 203-401-6450.
COUNSEL
Wiggin & Dana STOCKHOLDERS
New Haven, Connecticut
As of March 3, 1997, TransPro, Inc.
had 6,591,835 shares of common stock
INDEPENDENT ACCOUNTANTS outstanding owned by 1,496 holders of
record.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
CORPORATE OFFICE
ANNUAL REPORT DESIGN
TransPro, Inc.
Donaldson Makoski, Inc. 100 Gando Drive
Farmington, Connecticut New Haven, Connecticut 06513
203-401-6450
INVESTOR RELATIONS FIRM
Morgen-Walke Associates, Inc.
New York, New York
42
<PAGE> 43
BOARD OF DIRECTORS CORPORATE OFFICERS
William J. Abraham, Jr. Hank McHale
Partner President and Chief Executive
Foley & Lardner
John C. Martin, III
Barry R. Banducci Vice President, Treasurer, Secretary
Chairman of the Board and Chief Financial Officer
TransPro, Inc.
Jeffrey L. Jackson
Philip Wm. Colburn Vice President, Human Resources
Chairman of the Board
Allen Telecom Inc. Timothy E. Coyne
Vice President, Controller
Paul R. Lederer and Assistant Secretary
President and Chief Operating Officer
Fel-Pro, Inc.
Hank McHale
President and Chief Executive Officer
TransPro, Inc.
Sharon M. Oster
Frederic D. Wolfe Professor of
Management and Entrepreneurship
Yale University School of Management
F. Alan Smith
Former Executive Vice President
General Motors Corporation
43
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF TRANSPRO, INC.
The following sets forth a list of all the subsidiaries of TransPro,
Inc., a Delaware corporation (the "Company"), and the State or other
jurisdiction of incorporation or organization of each
<TABLE>
<CAPTION>
JURISDICTION OF INCORPORATION OR
NAME ORGANIZATION
---- ------------
<S> <C>
Allen Heat Transfer Products, Inc. Delaware
AHTP II, Inc. Delaware
GO/DAN Industries (1) New York
GO/DAN de Mexico, SA de C.V. (2) Mexico
Radiadores GDI, SA de C.V. (2) Mexico
TransPro Indus Ltd. Mauritius
</TABLE>
- ----------
(1) GO/DAN Industries, a New York general partnership, is jointly owned by
Allen Heat Transfer Products Inc. and AHTP II, Inc.
(2) A wholly-owned subsidiary of GO/DAN Industries.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
TransPro, Inc. on Form S-8 (File No. 33-80871) of our reports dated February 13,
1997, on our audits of the consolidated financial statements and financial
statement schedule of TransPro, Inc. as of December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995, and 1994, which reports are
incorporated by reference and included respectively in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 920
<SECURITIES> 0
<RECEIVABLES> 39,314
<ALLOWANCES> 3,378
<INVENTORY> 52,929
<CURRENT-ASSETS> 94,737
<PP&E> 85,490
<DEPRECIATION> 47,551
<TOTAL-ASSETS> 140,266
<CURRENT-LIABILITIES> 38,576
<BONDS> 33,917
0
0
<COMMON> 66
<OTHER-SE> 58,630
<TOTAL-LIABILITY-AND-EQUITY> 140,266
<SALES> 264,095
<TOTAL-REVENUES> 264,095
<CGS> 202,268
<TOTAL-COSTS> 202,268
<OTHER-EXPENSES> 43,731
<LOSS-PROVISION> 1,090
<INTEREST-EXPENSE> 2,999
<INCOME-PRETAX> 14,120
<INCOME-TAX> 5,700
<INCOME-CONTINUING> 8,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,420
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
