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UNITED STATES
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
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
of incorporation or organization)
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:
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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)
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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 and non-voting common stock held
by non-affiliates of the Registrant at March 13, 1998 was $51,652,031. On that
date, there were 6,611,460 outstanding shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to stockholders for the fiscal year ended
December 31, 1997 are incorporated by reference into Part II hereof.
Portions of the Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.
Exhibit Index is on pages 15 and 16 of this report.
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TRANSPRO, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1997
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PAGE
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results 13
of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk --
Not Yet Applicable for Transpro, Inc.
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
Signatures 17
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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, Allen
Telecom Inc. (formerly 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. 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"), 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
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 Handy & Harman
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.
DESCRIPTION OF BUSINESS
MARKETS
The automotive and heavy truck parts industries target two distinct
markets, 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
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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 OEM's 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 manufactures and installs specialized interiors
in utility trucks and vans for major commercial fleets and designs, manufactures
and assembles fabricated metal products for 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, 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.
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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 assumed liabilities of Rahn Industries, Inc., an 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 extensive line includes radiator parts, small hand tools and
equipment, and solders and fluxes. The Company is one of the largest domestic
suppliers 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.
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. During 1997 the Company, under a short-term
contract with the Ford Motor Company, upfit approximately 10,000 Aerostar and
Windstar mini vans for the U.S. Postal Service. The modifications were completed
at the Company's Lorain, Ohio and St. Charles, Missouri facilities. In December
1997, the Company acquired substantially all of the assets of a small Canadian
van upfitter to provide greater access to the Canadian market.
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The Company enjoys a reputation in the industry for offering new and
innovative products. For example, the Company introduced in the early 1990's its
exclusive Slide-Down(TM) ladder rack, which enables service technicians to
easily load and unload heavy ladders from the top of a vehicle with the reduced
risk of back injury and strain. Recently, a new, easily removable storage system
for mini-vans called Slide-Lock(TM) was introduced which offers users the
ability to switch back and forth between a passenger van and a service van
within minutes. The Company is continually seeking to capitalize on its
reputation by marketing these innovations to the automotive companies as
value-added factory programs and options.
Fabricated Metal Products. The Company designs, manufactures and
assembles over 400 different fabricated metal parts such as high tolerance
cabinets for 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 currently
ISO-9001 certified and expects to attain the automotive standard, QS-9000,
certification in the first half of 1998.
Truck Cab Conversions. Prior to December 1997 the Company produced a
four-door pickup truck cab for Ford's F-Series Truck (a "Crew Cab") and modified
rear wheel fender assemblies to accommodate a dual rear wheel axle ("DRWs"). The
Crew Cab was produced by the Company utilizing an assembly line production
process in which various stamped components were assembled using certain welding
techniques. In much the same fashion, the Company produced DRWs in order to
provide adequate space for the additional tire on each side of the rear wheel
axle assembly. Prior to December 1997 the Company was the exclusive supplier of
Crew Cabs and DRWs to Ford, and had 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. Ford moved the
manufacture of Crew Cabs and DRWs in-house in late 1997. The Company's Crew
Cab/DRW production facility in Louisville, Kentucky was closed in December 1997.
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.
Radiators. The Company custom designs, manufactures and sells
approximately 400 different models of radiators, which are specifically designed
and engineered to meet customer specifications. The Company's radiators are
specifically engineered to withstand a variety of demanding customer
applications. The Company's radiators are sold under the widely-recognized
Ultra-Fused(R) brand name 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.
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In July 1995, the Company placed a significant purchase order to obtain the
necessary equipment to add an aluminum manufacturing line to produce charge air
coolers and radiators. The new line became operational in early 1997.
G&O's traditional Class 8 truck market has become increasingly
competitive and the Company's share of this market has been reduced. The
Company believes there are opportunities to expand into the specialty vehicle
marketplace which is not as well served as our traditional Class 8 truck market.
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 1997 Annual
Report to Stockholders, certain portions of which are filed as Exhibit 13 to
this Report. All such information is incorporated herein by reference. Export
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 and
acquired a van upfitting facility in Canada in December 1997.
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 Cummins Power Generation, 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 was Ford. During 1997, 1996 and 1995,
Ford accounted for approximately 27%, 24% and 38%, respectively, of the
Company's net sales and a significantly greater portion of total 1997, 1996 and
1995 profitability on both an historical and pro forma basis. The 1997 sales
percentage includes sales to Ford of both Crew Cab/DRW components and upfitted
vans destined for the U.S. Postal Service. The Company was the exclusive
supplier of certain components of the Crew Cab and Dual Rear Wheel pickup truck
models to Ford under a five-year contract that expired on December 31, 1995. The
Company had a facility in Louisville, Kentucky dedicated solely to the
production of Crew Cab and DRW components. Ford moved production of its Crew Cab
and Dual Rear Wheel pickup truck models in-house in December 1997 and the
Kentucky production facility has been closed.
In 1997 and 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 which accounted for 11% of the Company's
net sales. The Company had net sales to Allen of approximately $0.9 million in
1997, $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.
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
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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 certain
foreign sales opportunities. For example, G&O has been supplying charge air
coolers to customers in India.
The Company's Crown Divisions employ direct salespersons dedicated to
servicing the national fleet and leasing companies and truck and van OEMs such
as Ford, GM and Chrysler and independent sales representatives to manage the
over 160 dealer/distributors nationwide. In 1997, the Company expanded direct
fleet coverage to develop its west coast opportunities and support distribution
warehousing in Los Angeles, California and Dallas, Texas. In addition, the
Company utilizes several direct salespersons and an independent sales
representative force to service the telecommunications industry and other
industrial buyers of fabricated metal products and value added assemblies.
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 heat transfer 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
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 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.
Leadership in the truck and van conversion business largely relies on
close proximity to factory assembly plants, maintenance of quality standards to
retain authorized factory ship through capability, and an ability to "flex"
capacity to meet seasonal demands and satisfy customer delivery requirements.
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
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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 1997, 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. During 1995 copper prices remained near record highs 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. Prices
continued to climb until mid-year 1997 at which time a steady decline began
which continued through the end of 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Item 7."
BACKLOG
The Company's backlog was approximately $8.1 million at December 31,
1997 as compared to approximately $18.7 million at December 31, 1996 primarily
as a result of the end of the Crew Cab/DRW program. 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 second and third quarters to be positively
impacted and the first and fourth quarters 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. GDI's seasonal impact is expected to
become more pronounced on TransPro as a whole during 1998 and beyond with the
elimination of the far less seasonal Crew Cab/DRW program.
RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $165,000,
$106,000, and $177,000 for the year ended December 31, 1997, 1996 and 1995
respectively.
EMPLOYEES
At December 31, 1997, the Company had approximately 2,300 employees. Of
these employees approximately 1,200 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) and the United
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Paperworkers International Union represent approximately 25% and 20%,
respectively, of the Company's unionized employees. In addition, a local Mexican
labor union represents approximately 47% of the Company's unionized employees.
The Company believes that its relations with its unions and employees are good.
In 1994 the Company experienced a three week work stoppage at its Jackson,
Mississippi facility. Except for the work stoppage noted above, the Company has
successfully renegotiated seven collective bargaining agreements over the last
several years, although there can be no assurance that the Company will not
experience work stoppages in the future.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New Haven,
Connecticut and conducts its operations through 12 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. 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:
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APPROXIMATE OWNED/
LOCATION SQUARE LEASED PRODUCT LINE
FOOTAGE
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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(3) 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
Mississauga, Ontario, Canada 14,616 Leased Van conversion
Philadelphia, Pennsylvania 15,300 Leased Air conditioning condensers
</TABLE>
- -------------------------
(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 attempting to lease the unoccupied manufacturing/
warehousing space to an outside party.
(3) In December 1997, the manufacturing operation was closed, the lease
commitment expires in June 1998.
10
<PAGE> 11
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 50 local branch offices and 20 independent agencies and 2
distribution 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
Various legal actions are pending against or involve the Company with
respect to such matters as product liability, casualty and employment-related
claims including one potential claim under the Americans with Disabilities Act
and one claim of sexual harassment of a group of non-exempt union employees by
another non-exempt union employee at one of the Company's manufacturing
facilities. 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
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, 1997.
11
<PAGE> 12
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 59 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 50 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 45 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 43 October 1996 Vice President and Corporate Controller,
since 1996; Vice President of Finance and
Administration and Treasurer of Keene
Corporation 1990 through 1996. (1)
Michael Hooper 52 February 1998 President of the Crown Divisions since
1996; Senior Vice-President of Findlex
Corporation from 1993-1996, various
execution positions with Rockwell
International and CMW, Inc.
</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 1998 Proxy Statement under
the heading "Proposal No. 1 -- ELECTION OF DIRECTORS" and under the heading
"EXECUTIVE COMPENSATION -- Section 16(a) Beneficial Ownership Reporting
Compliance" is incorporated herein by reference.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR 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 4, 1998, was 1,325. Information regarding market
prices and dividends declared for the Company's Common Stock is shown below for
1997 and 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, 1997
------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
Market price of common stock
---High $10 $ 8 7/8 $11 15/16 $11 1/2
---Low $ 8 5/8 $ 7 1/8 $ 8 3/8 $ 7 5/8
Dividends per share $ .05 $ .05 $ .05 $ .05
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
Dividends per share $ .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 1997 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 1997 Annual Report to
Stockholders, portions of which are filed as Exhibit 13 to this Report.
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 Statements of
Comprehensive 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 1997 Annual Report to Stockholders, portions of
which are filed as Exhibit 13 to this Report.
13
<PAGE> 14
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, 1997.
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 12 of this Report. Other information required by this item is
contained in the Company's 1998 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 1998 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 1998 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 1998 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, 1998,
are incorporated herein by reference to the Registrant's 1997 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,
1997, 1996, and 1995
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
14
<PAGE> 15
(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 20 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 1997 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.
4.3 Amendment to Credit Agreement between the Company and the First
National Bank of Boston, as agent, and other lenders named
therein.
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)
15
<PAGE> 16
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.(2)
13 Portions of the 1997 Annual Report to Stockholders incorporated
by reference herein
21.1 Subsidiaries of the Company
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule - for year ended December 31, 1997
27.2 Financial Data Schedule - for the year ended December 31, 1996
27.3 Financial Data Schedule - for the 9 months ended September 30,
1997, the 6 months ended June 30, 1997 and the 3 months ended
March 31, 1997
27.4 Financial Data Schedule - for the 9 months ended September 30,
1996, the 6 months ended June 30, 1996 and the 3 months ended
March 31, 1996
----------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-96770).
(2) Incorporated by reference to the Company's 1996 Form 10-K (File No.
1-13894).
16
<PAGE> 17
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 20, 1998
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 20, 1998
- -----------------------------------
Henry P. McHale, Director
/s/ WILLIAM J. ABRAHAM, JR. March 20, 1998
- -----------------------------------
William J. Abraham, Jr., Director
/s/ BARRY R. BANDUCCI March 20, 1998
- -----------------------------------
Barry R. Banducci, Director
/s/ PHILIP WM. COLBURN March 20, 1998
- -----------------------------------
Philip Wm. Colburn, Director
/s/ PAUL R. LEDERER March 20, 1998
- -----------------------------------
Paul R. Lederer, Director
/s/ SHARON M. OSTER March 20, 1998
- -----------------------------------
Sharon M. Oster, Director
/s/ F. ALAN SMITH March 20, 1998
- -----------------------------------
F. Alan Smith, Director
17
<PAGE> 18
/s/ JOHN C. MARTIN, III March 20, 1998
- -----------------------------------
John C. Martin, III
Vice President, Treasurer,
Secretary and Chief Financial
Officer
/s/ TIMOTHY E. COYNE March 20, 1998
- -----------------------------------
Timothy E. Coyne
Vice President and Controller
(Principal Accounting Officer)
18
<PAGE> 19
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 1997 Annual
Report to Stockholders 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 15 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, 1998
19
<PAGE> 20
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, 1997
Allowance for doubtful accounts $3,378 $1,790 $(1,727) $3,441
Allowance for obsolete inventory 4,942 1,299 (1,238) 5,003
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
</TABLE>
* Consists primarily of the acquired balance of GDI
20
<PAGE> 1
EXHIBIT 4.3
AMENDMENT AGREEMENT NO. 1
dated as of December 31, 1996
to that certain
REVOLVING CREDIT
AND TERM LOAN AGREEMENT
dated as of September 18, 1995
This AMENDMENT AGREEMENT NO. 1 (the "Amendment"), dated as of December 31,
1996, is by and among TransPro, Inc. (the "Borrower"), Allen Heat Transfer
Products, Inc. ("AHTP"), AHTP II, Inc. ("AHTP II"), GO/DAN Industries ("GDI"
and together with AHTP and AHTP II, the "Guarantors"), The First National Bank
of Boston ("FNBB"), the other lending institutions party to the Credit
Agreement (as defined below) (together with FNBB, the "Banks") and FNBB, as
agent for itself and for the Banks (in such capacity, the "Agent").
WHEREAS, the Borrower, the Guarantors, the Agent and the Banks are parties
to that certain Revolving Credit and Term Loan Agreement, dated as of September
18, 1995, (as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks, upon certain terms and conditions, have made loans
to the Borrower; and
WHEREAS, the Borrower has requested that the Agent and the Banks agree,
and the Agent and the Banks have agreed, on the terms and subject to the
conditions set forth herein, to amend certain provisions of the Credit
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms which are used herein without
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
SECTION 2. AMENDMENT OF CREDIT AGREEMENT. Subject to the satisfaction of
the conditions precedent set forth in Section 4 hereof, the Credit Agreement is
hereby amended as follows:
(a) Section 1 of the Credit Agreement is amended by deleting the
definition of Fixed Charge Ratio in its entirety and substituting therefor
the following:
"Fixed Charge Ratio. The ratio of (i) Consolidated EBITDA for any
period of four consecutive fiscal quarters, to (ii) Consolidated Debt
Service for such period."
(b) Section 5.6 of the Credit Agreement is amended by deleting such
section in its entirety and substituting therefor the following:
<PAGE> 2
-2-
5.6. Letter of Credit Fee. The Borrower shall pay a fee (in each
case, a "Letter of Credit Fee"):
(a) to the Agent, for the accounts of the Banks in accordance
with their respective Commitment Percentages, (i) with respect to
documentary Letters of Credit (exclusive of Bond Related Letters of
Credit), equal to the Applicable Margin per annum of the face amount
of such documentary Letter of Credit minus 0.25% and (ii) with respect
to all other Letters of Credit (inclusive of Bond Related Letters of
Credit), equal to the Applicable Margin, in each case payable
quarterly in arrears on the last Business Day of each calendar quarter
for such calendar quarter (all such amounts to be reported to the
Agent by the applicable Issuing Bank); and
(b) directly to the Issuing Bank for its own account, (i) equal
to 0.15% per annum of the face amount of such Letter of Credit,
payable quarterly in arrears on the last Business Day of each calendar
quarter for such calendar quarter, and (ii) equal to such Issuing
Bank's fees (as negotiated between the Borrower and such Issuing
Bank), payable upon issuance of such Letter of Credit.
(c) Sections 10.7(b) and (d) of the Credit Agreement are amended by
deleting the number "$2,600,000" contained therein and substituting therefor
the number "$3,500,000".
(d) Section 11.2 of the Credit Agreement is amended by deleting the table
contained therein and substituting therefor the following:
<TABLE>
<CAPTION>
Period Ratio
------ ------
<S> <C>
Closing Date through 06/30/96 1.75:1
7/1/96 and thereafter 2.25:1
</TABLE>
Section 3. Representations and Warranties. The Borrower hereby
represents and warrants to the Agent and the Bank as follows:
(a) The execution and delivery by the Borrower and the Guarantors of
this Amendment and the performance by the Borrower and each of the
Guarantors of its obligations and agreements under this Amendment and under
the Credit Agreement as amended hereby, are within the corporate authority
of the Borrower and such Guarantor, have been authorized by all necessary
corporate proceedings on behalf of the Borrower and such Guarantor, and do
not and will not contravene any provision of law or any of the Borrower's
or such Guarantor's charter, by-laws or any amendment thereof or of any
material indenture, agreement, instrument or undertaking binding upon the
Borrower or such Guarantor;
<PAGE> 3
-3-
(b) This Amendment and the Credit Agreement as amended hereby
constitute legal, valid and binding obligations of the Borrower and each of the
Guarantors, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights and by
general principles of equity;
(c) No approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally binding the
execution, delivery or performance by the Borrower or the Guarantors of this
Amendment or the Credit Agreement as amended hereby, or the consummation by the
Borrower or such Guarantor of the transactions among the parties contemplated
hereby and thereby or referred to herein;
(d) Each of the representations and warranties of the Borrower and
each of the Guarantors contained in the Credit Agreement, the other Loan
Documents and in all other documents or instruments delivered pursuant to or in
connection with the Credit Agreement were true as of the date as of which they
were made and continue to be true at and as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate have not been
materially adverse, and to the extent that such representations and warranties
relate expressly to an earlier date); and
(e) The Borrower and each of the Guarantors has performed and
complied in all material respects with all terms and conditions herein required
to be performed or complied with by it prior to or at the time hereof, and as
of the date hereof, after giving effect to the provisions hereof, there exists
no Default or Event of Default.
SECTION 4. EFFECTIVENESS. The effectiveness of this Amendment shall be
subject to the execution and delivery of this Amendment, in form and substance
satisfactory to the Agent and each of the Banks, by the Borrower, each of the
Guarantors, the Agent and each of the Banks.
SECTION 5. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of
the parties hereto that the Credit Agreement, as amended hereby, shall continue
in full force and effect, and that this Amendment and the Credit Agreement
shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL
AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this
<PAGE> 4
-4-
Amendment it shall not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which enforcement hereof
is sought.
(d) The Borrower hereby agrees to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by
the Agent in connection with the preparation of this Amendment (including
reasonable legal fees).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as an
agreement under seal as of the date first written above.
By: /s/
---------------------------------------
Transpro, Inc.
By: /s/
---------------------------------------
Allen Heat Transfer Products, Inc.
By: /s/
---------------------------------------
AHTP II, Inc.
By: /s/
---------------------------------------
GO/DAN Industries
By: /s/
---------------------------------------
Allen Heat Transfer Product Inc.
Its Partner
By: /s/
---------------------------------------
AHTP II, Inc.
Its Partner
By: /s/
---------------------------------------
The First National Bank of Boston
Individually and as Agent
By: /s/
---------------------------------------
Society National Bank
By: /s/
---------------------------------------
The Bank of New York
By: /s/
---------------------------------------
Harris Trust and Savings Bank
By: /s/
---------------------------------------
NBD Bank
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
(amounts in thousands except per share, current ratio and employee data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Sales $288,866 $264,095 $151,660 $118,506 $ 94,292
Gross margin 66,684 61,827 31,174 20,983 16,709
Plant and business consolidation
and closure costs 3,958 4,389 -- -- --
Income from operations 16,448 17,006 13,907 16,114 9,442
Income from joint
venture -- -- 2,495 1,368 407
Net income 7,875 8,420 9,074 9,966 4,774
Basic and diluted earnings per share* $ 1.20 $ 1.28 $ 1.39 $ 1.51 $ .72
Cash dividends per share $ .20 $ .20 $ .05 -- --
FINANCIAL CONDITION
Current ratio 2.65 2.46 2.27 2.18 1.99
Working capital $ 63,465 $ 56,161 $ 53,255 $ 17,837 $ 13,823
Capital expenditures 7,214 5,565 4,066 2,512 4,227
Depreciation expense 6,627 5,911 3,701 3,220 3,247
Net property, plant and
equipment 36,752 37,939 36,951 23,618 25,836
Total assets 144,540 140,266 139,718 87,907 82,769
Debt 37,838 38,917 40,846 13,950 14,100
Total equity 65,015 58,696 51,103 54,647 47,077
Number of employees 2,322 2,139 2,001 828 832
</TABLE>
* The basic and diluted earnings per share for years prior to 1995 are for
comparative purposes only as common shares were not issued until October 1995
and 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 (1993 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.). Prior to October 1, 1995, the
date on which the financial results of GDI were reported on a fully consolidated
basis, TransPro's 50% ownership in GDI was reported under the equity method of
accounting. Therefore the 1993 and 1994 sales, gross margin and income from
operations amounts in the table above do not include GDI and the 1995 sales,
gross margin and income from operations amounts in the table above include only
three months of GDI activity. The number of employees includes GDI for 1995.
<TABLE>
<CAPTION>
ACTUAL ACTUAL PRO FORMA
1997 1996 1995
-------- -------- --------
(Amounts in thousands, except
per share data)
PRO FORMA OPERATING RESULTS
<S> <C> <C> <C>
Sales $288,866 $264,095 $247,342
Gross margin 66,684 61,827 60,001
Plant and business consolidation
and closure costs 3,958 4,389 --
Income from operations 16,448 17,006 17,451
Net income 7,875 8,420 8,565
Basic and diluted earnings per share* $ 1.20 $ 1.28 $ 1.32
</TABLE>
Pro Forma results include 100% of the earnings of GDI, incremental overhead
costs and the additional debt associated with the GDI Redemption. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Pro Forma Financial Information for a further discussion of pro
forma operating results.
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, Controller and Assistant Secretary
Chief Accounting Officer
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
TransPro, Inc. (the "Company") is a manufacturer and supplier
of heat transfer components and systems, and fabricated metal products for a
variety of Aftermarket and OEM automotive, truck and specialty industrial
equipment applications.
On September 29, 1995, the Company completed a series of
transactions pursuant to which the Company's sole stockholder, Allen Telecom
Inc. (formerly 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. 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 "Financial Condition, Liquidity and Capital Resources"
and Note 9 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 Financial
Condition and Results of Operations includes the twelve months ended December
31, 1995, the first nine months of which the Company was owned by and operated
as the Automotive and Truck Products Business of Allen and 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 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, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Net sales for 1997 increased 9% to $288.9 million compared
with $264.1 million for 1996. Sales of Aftermarket heat transfer products
increased $7.4 million or 6% reflecting a full year's inclusion of replacement
automotive air conditioning condenser sales from the August 1996 acquisition of
Rahn Industries ("Rahn"), coupled with higher sales of other Aftermarket heat
transfer products. Sales of OEM contract fabricated metal products increased
$14.6 million or 16% reflecting the impact of a large van conversion order from
Ford Motor Company ("Ford") for the United States Postal Service delivery fleet,
slightly higher sales of Crew Cabs and Dual Rear Wheel ("DRW") components to
Ford due to higher daily shipment rates in 1997 compared with 1996 and an
increase in sales of other OEM contract fabricated metal products, primarily to
telecommunications customers. Sales of OEM
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<PAGE> 4
heat transfer products increased $2.8 million or 8% from the levels of a year
ago as a result of higher volume to off highway and specialty vehicle customers.
Gross margins of 23.1% in 1997 were lower than the 23.4%
achieved last year. The OEM heat transfer products business experienced
significant negative gross margins in 1997 as a result of continued operating
inefficiencies related to the relocation and consolidation of heavy duty
radiator manufacturing operations into the Jackson, Mississippi facility. These
operating inefficiencies have exceeded the Company's original estimates and have
persisted for a longer period of time than anticipated. As a result, the cost
savings goals related to the plant consolidations in the OEM heat transfer
products business were not realized in 1997. In the Aftermarket heat transfer
business, margins declined reflecting the impact of price competition which was
offset by lower copper costs as well as higher expenses associated with the move
of heater production to Mexico and higher repairs and maintenance expenses.
Gross margins in the OEM contract fabricated metal products business improved
due to the successful fulfillment of the Ford Postal Service order and better
manufacturing efficiencies resulting from cost reduction programs coupled with
higher overhead absorption related to higher sales of fabricated metal
components to telecommunications customers and the additional component
production volume for the Ford Postal Service order.
Selling, general and administrative expenses ("S,G&A") in 1997
increased $5.8 million or 14% over 1996 as a result of increases in Aftermarket
heat transfer business S,G&A related to the inclusion of the Rahn business for a
full year in 1997 which added approximately $1.1 million of incremental cost,
additional warehousing and freight costs of approximately $0.9 million related
to higher inventory levels, the cost of additional sales personnel in the
industrial core products and national accounts areas which amounted to
approximately $0.2 million and incremental expenses of approximately $0.3
million associated with the conversion of several agents to Company branches in
certain markets. In addition, the allowance for doubtful accounts in the
Aftermarket heat transfer business was increased by approximately $0.8 million
as the result of the bankruptcy filing of a large customer. Corporate Office
expenses increased as a result of absorbing the carrying costs of approximately
$0.3 million of unoccupied manufacturing space in New Haven as a result of the
consolidation of heavy duty radiator production into Jackson, Mississippi as
well as reflecting an adjustment of approximately $1.1 million to reduce the
accrued Workers' Compensation liability in 1996.
The Company recorded $4.0 million in plant and business
consolidation and closure costs in 1997, of which $3.2 million was associated
with the closing of the Company's Louisville, Kentucky plant as a result of the
previously announced loss of the Ford Crew Cab and DRW pickup truck components
business. See "End of Crew Cab and Dual Rear Wheel Contract" for a discussion of
this matter. In addition, in 1997, the Company recorded $1.3 million of costs
related to previously announced consolidation actions of its OEM and Aftermarket
heat transfer businesses which were offset by the reversal of previously
recorded employee termination benefits of $0.5 million also associated with
these consolidation actions. In 1996, the Company recorded costs of $4.4 million
associated with the OEM and Aftermarket heat transfer business consolidation
actions.
Net interest expense increased to $3.1 million in 1997 from
$2.9 million in 1996 as a result of higher borrowings under the Revolving Credit
and Term Loan Agreement to finance higher inventory levels.
The Company's effective tax rate of 40.8% for 1997 is
comprised of the U.S. Federal income tax rate plus the estimated aggregate
effective rate for state and local income taxes and increased from the 1996 rate
of 40.4% principally as a result of higher non-tax deductible expenses in 1997.
Net income was $7.9 million or $1.20 per basic and diluted
share in 1997 compared with $8.4 million or $1.28 per basic and diluted share in
1996. Before the impact of plant and business consolidation and closure costs,
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<PAGE> 5
corresponding net income was $10.2 million or $1.55 per basic and diluted share
in 1997 compared with $11.0 million or $1.67 per basic and diluted share in
1996.
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. Sales of OEM contract manufacturing products increased
$4.8 million or 6% primarily as a result of higher shipments of Crew Cabs to
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 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 basic and diluted
share in 1996 compared with $9.1 million or $1.39 per basic and diluted share in
1995. Excluding the effect of plant and business consolidation costs,
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<PAGE> 6
comparable 1996 net income was $11.0 million or $1.67 per basic and diluted
share versus $9.1 million or $1.39 per basic and diluted share in 1995.
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, and 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 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 Company's Credit Agreement contains financial covenants which, among
other things, require the maintenance of a minimum tangible net worth and debt
service coverage and a maximum level of debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA") and debt to net worth, as well as
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 1997, the Company generated $10.0 million of cash from
operations. Net income plus total adjustments to reconcile net income to net
cash provided by operating activities, which includes, among other things,
depreciation and amortization generated $18.4 million of operating cash flow.
The Company's investment in accounts receivable and inventory required cash of
$3.2 million and $5.5 million, respectively.
In 1996, the Company generated $14.7 million in operating cash
flows. Net income plus total adjustments to reconcile net income to net cash
provided by operating activities generated $16.1 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.
1995 operating cash flows were $18.7 million which was
primarily the result of GDI's strong cash generation in the fourth quarter.
Capital spending totaled $7.2 million, $5.6 million and $4.1
million in 1997, 1996 and 1995, respectively. In 1997, the Company acquired
substantially all of the assets and assumed certain specified liabilities of
Vehicle Management Systems Inc. ("VMS") for approximately $1.0 million, and paid
$5.5 million for certain assets and liabilities of Rahn in 1996. In 1995 the
Company completed the GDI Redemption for $23.0 million.
Cash dividends of $1.3 million were paid in 1997 and 1996. No
dividends were paid in 1995.
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In 1997, net borrowings under the Credit Agreement decreased
by $1.2 million. During 1996, net borrowings under this same 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 ordinary capital needs of the Company
in the near term are expected to be met from operations. The Company's working
capital requirements peak during the second and third quarters, reflecting the
normal seasonality of the heat transfer Aftermarket. The Company believes that
the Credit Agreement, along with cash flow from operations, will be adequate to
meet near term anticipated ordinary capital expenditure and working capital
requirements. However, the capital for major growth initiatives and seasonal
working capital requirements may exceed the aggregate amount of borrowings
available under the Credit Agreement. If this were to occur, the Company would
have to negotiate a new credit facility or seek additional sources of capital.
No assurance can be given that the Company would be successful in negotiating a
new credit facility or in securing additional sources of capital.
As discussed further in this Management's Discussion and
Analysis of Financial Condition and Results of Operations - Trends and Outlook,
the Company's earnings for 1998 and beyond will be significantly negatively
affected by the end of the Crew Cab/DRW program until the earnings generated by
this program can be replaced by a combination of cost savings measures or growth
initiatives in the core businesses. Absent significant cost savings or growth
initiatives, the Company believes that it is likely that in the second half of
1998 its EBITDA will fall below the level necessary to maintain compliance with
the financial covenants in the Credit Agreement. In such event, the Company
would seek a waiver of the financial covenants or an amendment to the Credit
Agreement. If such a waiver or amendment was not granted, the banks could
require the Company to repay all amounts owing under the Credit Agreement, which
would force the Company to seek alternate sources of capital. However, although
no assurance can be given, the Company believes that it would be successful in
either obtaining a waiver or amendment or in securing additional sources of
capital.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated
statement of income for the year ended December 31, 1995 reflects 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 statement of income for the year
ended December 31, 1995 has been prepared as if the transactions described above
occurred on January 1, 1995. The pro forma condensed consolidated statement of
income for the year ended December 31, 1995 is unaudited and is not necessarily
indicative of the results of operations of the Company had the transactions
reflected therein actually been consummated on the date assumed. The pro forma
condensed consolidated statement of income for the year ended December 31, 1995
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.
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<TABLE>
<CAPTION>
ACTUAL ACTUAL PRO FORMA
(Amounts in Thousands, Except Per Share Data) 1997 1996 1995
-------- -------- --------
PRO FORMA OPERATING RESULTS
<S> <C> <C> <C>
Sales $288,866 $264,095 $247,342
Gross margin 66,684 61,827 60,001
Plant and business consolidation
and closure costs 3,958 4,389 --
Income from operations 16,448 17,006 17,451
Net income 7,875 8,420 8,565
Basic and diluted earnings per share $ 1.20 $ 1.28 $ 1.32
</TABLE>
A discussion of the results of the year ended December 31, 1997 versus the year
ended December 31, 1996 is included above.
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.
S,G&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 S,G&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 and closure 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.
Net income was $8.4 million or $1.28 per basic and diluted
share in 1996 compared with $8.6 million or $1.32 per basic and diluted share in
1995. Excluding the effect of plant and business consolidation costs, comparable
1996 net income was $11.0 million or $1.67 per basic and diluted share versus
$8.6 million or $1.32 per basic and diluted share in 1995.
8
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ACQUISITIONS
In December, 1997 the Company acquired substantially all of
the assets and assumed certain specified liabilities of VMS for approximately
$1.0 million. VMS is located in Ontario, Canada and specializes in utility van
conversions. VMS reported fiscal year end February 1997 sales of $1.6 million.
The acquisition was accounted for as a purchase and VMS's results have been
included in the consolidated financial statements from the date of acquisition.
The Company financed the purchase of the VMS assets by borrowings under the
Credit Agreement and recorded $0.4 million of goodwill related to the
transaction, which is being amortized over 20 years.
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 $2.4 million of goodwill which is being
amortized over 20 years.
END OF CREW CAB AND DUAL REAR WHEEL CONTRACT
Until December 1997, the Company's largest customer was Ford.
The Company was the exclusive supplier of the cab portion of Ford's Crew Cab
pickup truck and the rear fender panel for Ford's DRW pickup truck under a five
year contract that expired on December 31, 1995. The Company's manufacturing
facility in Louisville, Kentucky was dedicated solely to the production of Crew
Cab and DRW components. During 1997, 1996 and 1995, Ford accounted for
approximately 27%, 24% and 38%, respectively, of the Company's net sales and a
significantly greater portion of the Company's total 1997, 1996 and 1995 profits
as a result of the higher margins and significantly lower selling, distribution
and administrative costs associated with the Ford contract compared with the
average of the Company's other businesses.
In early 1996, Ford notified the Company that it planned to
move the production of Crew Cab and DRW components in-house in late 1997.
Attempts to develop new business for the Louisville plant have been unsuccessful
and, accordingly, the Company closed the Louisville plant in December 1997. In
the third quarter of 1997, the Company recorded a one-time pre-tax charge of
approximately $3.2 million for all of the expected costs in connection with the
Louisville plant closure. These costs include approximately $1.5 million of
severance and other employee termination costs for the approximately 200
employees at the Louisville plant and approximately $1.7 million for facility
lease cancellation penalties and the abandonment of the fixed assets utilized at
the plant. Substantially all of the severance and other employee termination
costs were paid and the abandoned fixed assets written off in 1997. The
remaining employee severance and termination costs and lease cancellation
penalties are included in the December 31, 1997 balance sheet as accrued plant
and business consolidation and closure costs and are expected to be paid in
1998.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue results from computer systems using two
digit date sensitive software. Such software may not recognize a date identified
as "00" or may assume the year 1900 rather than the year 2000.
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<PAGE> 10
This may result in system failure or miscalculation causing disruption of
operations, including but not limited to, a temporary inability to process
transactions, send invoices, generate disbursement checks, or engage in similar
normal business activities.
The Company has identified an information systems platform to
which the majority of current systems employed by the Company will be converted.
The software associated with the Company's information systems strategy is Year
2000 compliant. The conversion project began in 1996 and is expected to be
completed no later than mid-year 1999. Both internal and external resources will
be utilized to execute the conversion and test it. To date, the Company has
spent approximately $0.6 million on this project. Hardware and software costs
have been capitalized and will be expensed over the useful life of the new
system. The remaining cost of the Year 2000 project is estimated at $1.5
million, a portion of which is related to hardware and software which will be
capitalized and the balance of which will be expensed as incurred over the
duration of the project.
The Company has yet to initiate formal communications with all
of its significant vendors, service providers, lenders and large customers to
determine the extent to which it is vulnerable to the Year 2000 issue
externally. There can be no guarantee that the systems of other companies on
which the Company relies will be converted on a timely basis, that a conversion
will even occur, or that a conversion that is incompatible with the Company's
systems would not have a material impact on the Company.
The costs of the Year 2000 project and the date on which all
of the Company's primary information systems are converted are based upon
management's best estimates given current available information and resource
requirements. There can be no assurance, however, that these estimates will be
achieved and actual results may differ materially from these expectations.
Uncertainties that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to affect the timely conversion of all relevant systems, and other
similar factors.
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
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<PAGE> 11
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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. The effect of using the fair value method under SFAS No. 123 is
immaterial to the Company's 1997, 1996 and 1995 net income but has been
disclosed in the footnotes to the Company's annual financial statements.
In 1997 the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128") "Earnings per Share," 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 the international standard. The
adoption of SFAS No. 128 has not had a material effect on the EPS of the
Company.
The Company has also adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130") "Reporting Comprehensive Income," which
requires an entity to report and display comprehensive income and its components
in a separate financial statement displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources and includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Comprehensive income includes revenues, expenses, gains and losses that
under generally accepted accounting principles are excluded from net income as
presented in the income statement.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131")
"Disclosures about Segments of an Enterprise and Related Information," which
requires that public business enterprises report financial and descriptive
information about reportable operating segments in annual financial statements
and interim financial reports issued to shareholders. Operating segments are
defined as those components of an enterprise about which separate financial
information is available that is regularly used internally by the chief
operating decision maker in evaluating segment performance and in deciding how
to allocate resources to segments. SFAS No. 131 requires that a public business
enterprise report a measure of segment profit or loss, certain specific revenue
and expense items, and segment assets. It requires reconciliations of total
segment revenues, total segment profit or loss, total segment assets, and other
amounts disclosed for segments to corresponding amounts in the enterprise's
general-purpose financial statements. It requires that all public business
enterprises report information about the revenues derived from the enterprise's
products or services (or groups of similar products and services), about the
countries in which the enterprise earns revenues and holds assets, and about
major customers regardless of whether that information is used in making
operating decisions. SFAS No. 131 also requires that a public business
enterprise report descriptive information about the way that the operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in
11
<PAGE> 12
reporting segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement of segment amounts from
period to period. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of adoption, comparative
information for earlier years is to be restated. SFAS No. 131 need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim period in the
second year of application. The impact on the Company of the adoption of SFAS
No. 131 has not been determined at this time.
TRENDS AND OUTLOOK
The results for 1997 in the Aftermarket and OEM heat transfer
businesses were below the Company's expectations as a result of market softness
and price competition in the heat transfer Aftermarket and the operating
inefficiencies experienced in the OEM heat transfer business. The automotive
Aftermarket is expected to remain soft and price competition is expected to
continue in 1998. Operating inefficiencies related to plant consolidations in
the OEM heat transfer business have significantly exceeded estimates and have
prevented the cost savings goals previously anticipated from being realized thus
far. No cost savings as a result of the OEM heat transfer plant consolidations
were realized in 1997. The Crew Cab/DRW program ended in December 1997. As a
result of the adverse conditions in the Aftermarket and OEM heat transfer
businesses, progress toward replacing the earnings generated by the Crew Cab/DRW
program has been slower than expected and Crew Cab/DRW related earnings
therefore constitute a more significant portion of the Company's total earnings
than previously anticipated.
As a result of the end of the Crew Cab/DRW program, the
Company's net income for 1998 and beyond will be significantly negatively
affected until the earnings generated by this program can be replaced by a
combination of cost savings measures and strategic growth initiatives in the
core businesses. In addition, the adverse factors discussed above will
exacerbate the impact of the end of the Crew Cab/DRW contract and the normal
seasonal variations in the first and fourth quarters in the Company's remaining
operations will become more pronounced.
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, the financial impact of the loss of the Ford Crew Cab and DRW
business, 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, the
effect of the Company's restructuring actions and changes in interest rates.
Improvements in manufacturing efficiencies and reduction of costs are subject to
a number of factors, including but not limited to, the ability of management to
implement improvements in workforce efficiencies and the timing of such
improvements.
12
<PAGE> 13
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales $ 288,866 $ 264,095 $ 151,660
Cost of sales 222,182 202,268 120,486
--------- --------- ---------
Gross margin 66,684 61,827 31,174
Selling, general, and
administrative expenses 46,278 40,432 17,267
Plant and business consolidation and closure costs (Note 4) 3,958 4,389 --
--------- --------- ---------
Income from operations 16,448 17,006 13,907
Equity in earnings of GDI (Note 8) -- -- 2,495
Interest expense (3,186) (2,999) (1,481)
Interest income 46 113 416
--------- --------- ---------
Income before taxes 13,308 14,120 15,337
Provision for income taxes (Note 5) 5,433 5,700 6,263
--------- --------- ---------
Net income $ 7,875 $ 8,420 $ 9,074
========= ========= =========
Basic and diluted earnings share $ 1.20 $ 1.28 $ 1.39
========= ========= =========
Weighted average common shares - basic 6,553 6,554 6,511
========= ========= =========
Weighted average common shares - diluted 6,586 6,571 6,533
========= ========= =========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(amounts in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income $ 7,875 $ 8,420 $ 9,074
Other comprehensive income, net of tax:
Foreign currency translation (26) (71) (111)
Minimum pension liability adjustment (326) 487 (398)
------- ------- -------
Other comprehensive income (352) 416 (509)
------- ------- -------
Comprehensive income $ 7,523 $ 8,836 $ 8,565
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 593 $ 920
Accounts receivable (less allowances of $3,441 and $3,378) 37,506 35,936
Inventories:
Raw materials 15,151 13,218
Work in process 7,632 8,198
Finished goods 35,752 31,513
-------- --------
Total inventories 58,535 52,929
-------- --------
Deferred income tax benefit (Note 5) 3,318 3,343
Other current assets 1,984 1,609
-------- --------
Total current assets 101,936 94,737
-------- --------
Property, plant and equipment:
Land and land improvements 784 784
Buildings 17,087 16,395
Machinery and equipment 65,949 64,820
Leasehold improvements 3,206 3,491
-------- --------
87,026 85,490
Less accumulated depreciation and amortization 50,274 47,551
-------- --------
Net property, plant and equipment 36,752 37,939
-------- --------
Deferred start-up costs 0 1,446
Goodwill (net of amortization of $170 and $50) 2,733 2,241
Other assets 3,119 3,903
-------- --------
Total assets $144,540 $140,266
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
--------- ---------
Current liabilities:
<S> <C> <C>
Accounts payable $ 13,604 $ 12,207
Notes payable and current maturities
of long-term obligations (Note 9) 5,000 5,000
Accrued insurance 5,817 6,011
Accrued salaries and wages 4,310 5,610
Accrued taxes 2,450 2,054
Accrued plant and business consolidation charges 387 1,146
Accrued expenses 6,903 6,548
--------- ---------
Total current liabilities 38,471 38,576
--------- ---------
Long-term liabilities:
Long-term debt (Note 9) 32,838 33,917
Retirement and postretirement obligations 7,050 6,470
Deferred income taxes (Note 5) 793 1,800
Other liabilities 373 807
--------- ---------
Total liabilities 79,525 81,570
--------- ---------
Commitments and contingent liabilities (Note 10) -- --
Stockholders' equity:
Common stock, $.01 par value: 66 66
Authorized 17,500,000 shares at December 31, 1997 and 1996
6,683,571 shares issued (6,661,139 in 1996)
6,611,460 shares outstanding (6,591,835 in 1996)
Preferred stock, $.01 par value: -- --
Authorized 2,500,000 shares;
none issued at December 31, 1997 and 1996
Treasury stock at cost (26) --
72,111 shares at December 31, 1997 and
69,304 at December 31, 1996
Paid-in capital 52,227 52,061
Unearned compensation (369) (346)
Retained earnings 14,584 8,030
Accumulated other comprehensive income (1,467) (1,115)
--------- ---------
Total stockholders' equity 65,015 58,696
--------- ---------
Total liabilities and stockholders' equity $ 144,540 $ 140,266
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-------- -------- --------
Cash flows from operating activities, excluding the effects of the GDI
redemption:
<S> <C> <C> <C>
Net income $ 7,875 $ 8,420 $ 9,074
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,627 5,911 3,701
Amortization of deferred start-up costs and goodwill 1,566 1,109 966
Joint venture income -- -- (2,495)
Deferred income taxes (797) (428) (210)
Provision for losses - accounts receivable 1,790 1,090 (100)
Write-off of fixed assets related to plant closure 1,379 -- --
-------- -------- --------
Total adjustments to reconcile net income to net cash provided by operating
activities 10,565 7,682 1,862
-------- -------- --------
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,217) 919 7,525
Joint venture receivable -- -- 857
Inventory (5,454) (137) (4,244)
Accounts payable 1,397 (1,455) 738
Accrued expenses (1,504) (1,813) 2,410
Other 347 1,133 524
-------- -------- --------
Total change in operating assets and liabilities, net of acquisitions (8,431) (1,353) 7,810
-------- -------- --------
Cash provided by operating activities 10,009 14,749 18,746
-------- -------- --------
Cash flows from investing activities:
Redemption of GDI -- -- (23,028)
Capital expenditures (7,214) (5,565) (4,066)
Sales and retirements of fixed assets, net 318 581 213
Acquisitions, net of cash acquired (967) (5,532) --
-------- -------- --------
Cash used in investing activities (7,863) (10,516) (26,881)
-------- -------- --------
Cash flows from financing activities:
Exercise of stock options 24 6 --
Purchase of treasury stock (26) -- --
Dividends paid (1,321) (1,319) --
Borrowings of long-term debt 3,850 4,450 37,672
Repayments of long-term debt and current maturities of long-term debt (5,000) (6,450) (23,891)
Increase in receivable from The Allen Group Inc. -- -- (11,395)
-------- -------- --------
Cash (used in) provided by financing activities (2,473) (3,313) 2,386
-------- -------- --------
(Decrease) Increase in cash and cash equivalents (327) 920 (5,749)
Cash and cash equivalents:
Beginning of year 920 -- 5,749
-------- -------- --------
End of year $ 593 $ 920 $ ----
======== ======== ========
Interest paid $ 3,209 $ 3,150 $ 1,084
Taxes paid (net of refunds) $ 5,722 $ 5,270 --
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(amounts in thousands except
share and per share amounts)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK STOCK PAID-IN RETAINED
SHARES VALUE VALUE CAPITAL EARNINGS
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994
Net distribution costs &
adjustments 6,545,605 $ 66 $ 51,611
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
----------- ----------- ----------- ----------- -----------
Net income 7,875
Cash dividends declared
($0.20 per share) (1,321)
Treasury stock issued (2,807) (26)
Restricted stock issued 18,400 142
Stock options exercised 4,032 24
Amortization of unearned
compensation
Net change in translation
adjustment
Net change in adjustment for
minimum pension liability
Other adjustments
=========== =========== =========== =========== ===========
Balance December 31, 1997 6,611,460 $ 66 $ (26) $ 52,227 $ 14,584
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
BUSINESS UNEARNED COMPREHENSIVE STOCKHOLDERS'
EQUITY COMP. INCOME EQUITY
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $55,669 $ (1,022) $ 54,647
Net distribution costs &
adjustments (55,669) (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 $---- $ (806) $ (1,531) $ 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 $---- $ (346) $ (1,115) $ 58,696
----- ----------- ----------- -----------
Net income 7,875
Cash dividends declared
($0.20 per share) (1,321)
Treasury stock issued (26)
Restricted stock issued (142) --
Stock options exercised 24
Amortization of unearned
compensation 99 99
Net change in translation
adjustment (26) (26)
Net change in adjustment for
minimum pension liability (326) (326)
Other adjustments 20 20
===== =========== =========== ===========
Balance December 31, 1997 $---- $ (369) $ (1,467) $ 65,015
===== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
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 fabricated metal products
for a variety of Aftermarket and OEM automotive, truck and industrial equipment
applications.
On September 29, 1995, the Company completed a series of
transactions pursuant to which the Company's sole stockholder, Allen Telecom
Inc. (formerly 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. 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 GDI Redemption and the
Distribution, 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 prepare such an allocation 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.
18
<PAGE> 19
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 through September 29, 1995 and do not include 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 50% of GDI
not owned by Allen. 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 VMS in 1997 and Rahn 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, 1997 other
than those reserved for as part of the Louisville plant shutdown.
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. The functional currency of the Company's
manufacturing operations in Mexico is the U.S. dollar and therefore any
adjustments related to currency translations are included in results from
operations. Conversely, adjustments from translating other foreign subsidiaries'
financial statements are excluded from the results of operations and are
reported as a separate component of stockholders' equity.
19
<PAGE> 20
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 was party to an interest
rate swap agreement which expired on December 29, 1997 involving the exchange of
fixed and floating rate interest payments. The difference to be paid or received
was accrued as interest rates changed and was 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 Share: Earnings per share are computed in
accordance with the provisions of Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128") "Earnings Per Share" whereby net earnings are divided
by the weighted average number of shares of common stock outstanding less shares
of non-vested restricted stock to arrive at basic earnings per share. Stock
options granted are included in diluted earnings per share.
Other Comprehensive Income: The Company has reported other
comprehensive income in accordance with the provisions of Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130") "Reporting Comprehensive Income".
Other comprehensive income represents the change in the equity of the business
from non-owner sources and is presented as required in a separate financial
statement.
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.
20
<PAGE> 21
NOTE 3 - SEGMENT AND BUSINESS INFORMATION
The Company operates in one segment, "automotive and truck
products."
The Company's largest customer was Ford. During 1997, 1996 and
1995, Ford accounted for approximately 27%, 24% and 38%, respectively, of the
Company's net sales and a significantly greater portion of total 1997, 1996 and
1995 profitability on both a historical and pro forma basis. The Company was the
exclusive supplier of certain components of the Crew Cab and Dual Rear Wheel
("DRW") pick up truck models to Ford under a five-year contract that expired on
December 31, 1995. The Company had a facility in Louisville, Kentucky dedicated
solely to the production of Crew Cab and DRW components. Ford moved production
of its Crew Cab and DRW pickup truck models in-house in December 1997 and the
Kentucky production facility has been closed.
In 1997 and 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 $0.9
million in 1997, $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.
Export 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 and acquired a van upfitting facility in Canada in December
1997.
21
<PAGE> 22
NOTE 4 - PLANT AND BUSINESS CONSOLIDATION AND CLOSURE COSTS
In 1997 the Company recorded approximately $4.0 million of
plant and business consolidation and closure costs. Of this amount,
approximately $3.2 million related to expenses in connection with the closing of
the Company's Louisville, Kentucky plant as a result of Ford's decision to move
the production of Crew Cab and DRW components in-house in late 1997. These costs
include approximately $1.5 million of severance and other employee termination
costs for the nearly 200 employees at the Louisville plant and approximately
$1.7 million for facility lease cancellation penalties and the abandonment of
the fixed assets utilized at the plant. In addition, the Company recorded $1.3
million in plant and business consolidation and closure costs related to the
previously announced consolidation of the OEM and Aftermarket heat transfer
organizations; the closing of the New Haven, Connecticut OEM heat transfer
product manufacturing plant and move such manufacturing to Jackson, Mississippi;
and the closing of the Peru, Illinois Aftermarket heater manufacturing plant and
movement of such manufacturing to Mexico. These charges were offset by the
reversal of previously recorded employee termination benefits of $0.5 million
related to the transfer of manufacturing operations to Jackson, Mississippi and
Mexico. At December 31, 1997, approximately $0.4 million remained on the balance
sheet related to employee termination costs and facility lease cancellation
penalties for the closing of the Company's Louisville, Kentucky plant, all of
which are expected to be paid in 1998.
The Company recorded approximately $4.4 million in plant and
business consolidation and closure costs in 1996 resulting from the actions to
consolidate the OEM and Aftermarket heat transfer organizations, close the New
Haven, Connecticut and Peru, Illinois manufacturing plants and to relocate these
manufacturing operations to Jackson, Mississippi and Mexico respectively. The
costs included 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. The balance of the 1996 plant and business consolidation
and closure costs related to the movement of equipment from New Haven,
Connecticut and Peru, Illinois to Jackson, Mississippi and Mexico, respectively.
During 1996, approximately $1.3 million was paid in connection with employee
terminations. Approximately $1.1 million in severance and termination costs
remained on the December 31, 1996 balance sheet in accrued plant and business
consolidation charges. With the exception of $0.5 million of termination
benefits which were subsequently reversed, these liabilities were paid in 1997.
22
<PAGE> 23
NOTE 5 - INCOME TAXES
Information with respect to income taxes is as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
Provision (benefit) for income taxes: 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current: Federal $ 4,929 $ 4,950 $ 5,134
State and local 1,301 1,178 1,339
-------- -------- --------
6,230 6,128 6,473
-------- -------- --------
Deferred: Federal (630) (346) (170)
State and local (167) (82) (40)
-------- -------- --------
(797) (428) (210)
-------- -------- --------
$ 5,433 $ 5,700 $ 6,263
======== ======== ========
Income before taxes $ 13,308 $ 14,120 $ 15,337
======== ======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Provision computed at the Federal statutory rate $4,657 $4,942 $5,368
State and local income taxes, net of Federal
income tax benefit 738 713 844
Other 38 45 51
------ ------ ------
$5,433 $5,700 $6,263
====== ====== ======
</TABLE>
23
<PAGE> 24
Significant components of deferred income tax assets and liabilities as of
December 31 are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory $ 354 $ 313
Pensions and deferred compensation 2,310 2,090
Postretirement benefits 588 603
Allowance for bad debts 200 206
Self insurance reserves 1,395 1,360
Warranty reserves 648 502
Accrued vacation 361 199
Plant and business consolidation reserves -- 422
Other 459 326
------- -------
Total deferred tax assets 6,315 6,021
------- -------
Deferred tax liabilities:
Depreciation (2,312) (2,345)
Investment in joint venture (902) (1,139)
Deferred start-up costs -- (431)
Deferred charges (477) (490)
Other (97) (73)
------- -------
Total deferred tax liabilities (3,788) (4,478)
------- -------
Net deferred tax assets $ 2,527 $ 1,543
======= =======
</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.
24
<PAGE> 25
NOTE 6 - EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Amounts) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net Income $ 7,875 $ 8,420 $ 9,074
======= ======= =======
Denominator:
Weighted average common shares 6,604 6,596 6,583
Non-vested restricted stock (51) (42) (72)
------- ------- -------
Denominator for basic earnings per share -
adjusted weighted average common shares 6,553 6,554 6,511
Dilutive effect of stock options 33 17 22
------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted average common shares and
assumed conversions 6,586 6,571 6,533
======= ======= =======
Basic and diluted earnings per share $ 1.20 $ 1.28 $ 1.39
======= ======= =======
</TABLE>
25
<PAGE> 26
NOTE 7 - 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 its industrial revenue bonds, certain 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 was party to an
interest rate swap agreement which effectively fixed the interest rate on a
portion of its domestic floating rate bank debt. This arrangement served 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 was charged interest at a
fixed rate by the counterparty, received credit from the counterparty for
interest at a variable rate based on the London Interbank Offered Rate ("LIBOR")
and paid or received the difference. At December 31, 1996, the Company had a
contract in place which served to fix the interest rate on $25 million of
underlying bank debt at 5.85% plus margin of between .75% and 1.25% based on the
leverage ratio of the Company. The contract expired on December 29, 1997.
Concentration of Credit Risk: The Company is subject to a
concentration of credit risk primarily with its trade and notes receivable. 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, 1997 the Company had no other significant concentrations of credit risk.
26
<PAGE> 27
The carrying amounts and fair values of the Company's
financial instruments at December 31, 1997 and 1996 are as follows:
(amounts in thousands)
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
1997
Current maturities of long-term debt $ 5,000 $ 5,000
Long-term debt 32,838 32,838
Off balance sheet financial instruments:
Letters of Credit 18,861 18,861
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
</TABLE>
27
<PAGE> 28
NOTE 8 - 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)
<TABLE>
<CAPTION>
1995
----
<S> <C>
Revenues $ 121,998
Gross margin 37,875
Net income 7,685
Current assets 62,744
Non-current assets 18,220
Current liabilities 27,414
Non-current liabilities 1,000
Equity 52,550
</TABLE>
In 1995, net income excludes a charge in the amount of
$794,000 for certain defined compensation costs absorbed by the partners.
The Company's unaudited pro forma data for 1995 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, 1995.
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:
(amounts in thousands)
<TABLE>
<CAPTION>
1995
----
<S> <C>
Automotive and Truck Products
Products purchased from $ 886
Fees received for services rendered to 63
Fees paid for services provided by 53
Fees paid for rental of facilities from 77
Handy & Harman
Fees paid for rental of facilities from 344
</TABLE>
28
<PAGE> 29
NOTE 9 - 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 1997, 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 7) to fix the
interest rate at 5.85% plus a margin of between .75% and 1.25% based on the
Company's leverage ratio. The interest swap agreement expired on December 29,
1997. The weighted average interest rate on all borrowings under the Credit
Agreement approximated 6.89% for 1997 and 7.19% for 1996 after the effect of the
interest swap agreement. The interest rate for borrowings under the Credit
Agreement at December 31, 1997 and 1996 was 6.84% and 6.92% respectively, after
the effect of the interest swap agreement.
The Company's Credit Agreement contains financial covenants which,
among other things, requires the maintenance of a minimum tangible net worth and
debt service coverage and a maximum level of debt to earnings before interest,
taxes, depreciation and amortization and to net worth, as well as 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.
Long-term debt consisted of the following:
(amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Revolver $ 11,500 $ 7,650
Term Loan 13,750 18,750
Industrial revenue bonds:
Floating rate bond due 2010 8,000 8,000
Floating rate bond due 2013 5,000 5,000
Unamortized debt expense (412) (483)
--------- ---------
37,838 38,917
Less current maturities 5,000 5,000
--------- ---------
Total long-term debt $ 32,838 $ 33,917
========= =========
</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 3.86% at December 31, 1997 and 4.05% at December 31, 1996. The
average interest rate for all industrial revenue borrowings approximated 3.82%
during 1997 and 3.52% during 1996.
29
<PAGE> 30
Long-term debt (excluding the unamortized debt expense) at December 31,
1997 matures during the following years:
(amounts in thousands)
<TABLE>
<S> <C>
1998 $ 5,000
1999 5,000
2000 15,250
2001 --
2002 --
Thereafter 13,000
</TABLE>
30
<PAGE> 31
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Leases: The Company's leases consist primarily of manufacturing and
distribution facilities and equipment and expire principally between 1998 and
2002. 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 $3,749,000 in 1997,
$3,907,000 in 1996 and $1,621,000 in 1995. Future minimum payments under
noncancelable operating leases as of December 31, 1997 were as follows:
(amounts in thousands)
<TABLE>
<S> <C>
1998 $ 3,581
1999 2,738
2000 2,250
2001 302
2002 78
---------
Total $ 8,949
=========
</TABLE>
Insurance: 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 $5.8 million to pay such claims. As a
condition of insurability, the Company has provided letters of credit totaling
$3.6 million.
Legal Proceedings: Various legal actions are pending against or involve
the Company with respect to such matters as product liability, casualty and
employment related claims including one potential claim under the Americans with
Disabilities Act and one claim of sexual harassment of a group of non-exempt
union employees by another non-exempt union employee at one of the Company's
manufacturing facilities. 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.
Severance Agreements: 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.
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 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.
Collective Bargaining Agreements: The Company had approximately 2,300
employees at December 31, 1997. Of these employees, approximately 1,200 were
covered by collective bargaining agreements which
31
<PAGE> 32
expire at different times. The Company has successfully renegotiated 7
collective bargaining agreements over the last several years and feels labor
relations are good, but there can be no assurance that work stoppages will not
occur in the future.
32
<PAGE> 33
NOTE 11 - STOCK COMPENSATION PLANS
STOCK OPTIONS
At December 31, 1997, the Company had two stock option plans under
which key employees and directors have options to purchase TransPro Common
Stock. Under the 1995 Stock Plan (the "Stock Plan") options are granted at fair
market value on the date of grant and 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. Options granted under the Stock Plan
expire 10 years from the date of the grant. Awards of restricted stock may also
be granted to key employees under the Stock Plan and may be issued in addition
to, or in lieu of stock options. 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, 1997 and
1996, 461,429 and 361,822 common shares, respectively, were reserved for stock
options and restricted shares under the Stock Plan. The Directors Stock Option
Plan (the "Directors Plan") provides for the purchase price per share of Common
Stock for which each option is exercisable to 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 the date of grant, 75% after three
years from the date of grant and 100% after four years from the date of grant.
Options granted under the Directors Plan expire 10 years from the date of grant.
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. At December 31,
1997 and 1996, 43,600 and 54,300 shares, respectively, were reserved for future
grants of stock options under the Directors Plan.
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized. Had compensation cost for the
Company's plans been determined based on the fair value at the grant dates for
awards under the plans consistent with Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation", the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income As reported $ 7,875 $ 8,420 $ 9,074
Pro forma 7,590 8,136 8,975
Basic and Diluted Earnings As reported $ 1.20 $ 1.28 $ 1.39
Per Share Pro forma $ 1.16 $ 1.24 $ 1.38
</TABLE>
The fair value of each option grant is estimated for the above
disclosure on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend yield 2.20% 2.20% 2.20%
Expected Volatility 30.20% 31.10% 32.80%
Risk-free interest rate 6.69% 5.88% 5.82%
Expected life 6 Years 6 Years 6 Years
</TABLE>
Information regarding the Stock Plan and the Directors Plan is as follows:
33
<PAGE> 34
<TABLE>
<CAPTION>
OPTION PRICE RANGE
--------------------------------------------
NUMBER OF WEIGHTED
STOCK PLAN OPTIONS LOW AVERAGE HIGH
- ---------- ------- --- ------- ----
<S> <C> <C> <C> <C>
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
Granted 95,400 $ 7.750 $ 7.750 $ 7.750
Exercised (4032) $ 5.880 $ 5.880 $ 5.880
Canceled (14,193) $ 6.240 $ 7.900 $ 8.600
----------
Outstanding at December 31, 1997 392,767 $ 3.720 $ 7.970 $ 11.750
==========
Exercisable at December 31, 1997 89,134 $ 3.720 $ 8.460 $ 11.750
========== =========== =========== ===========
Exercisable at December 31, 1996 30,911 $ 3.720 $ 6.240 $ 8.120
========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
OPTION PRICE RANGE
--------------------------------------------
NUMBER OF WEIGHTED
DIRECTORS PLAN OPTIONS LOW AVERAGE HIGH
- -------------- ------- --- ------- ----
<S> <C> <C> <C> <C>
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
Granted 10,700 $ 7.750 $ 7.750 $ 7.750
----------
Outstanding at December 31, 1997 56,400 $ 7.750 $ 9.700 $ 11.750
==========
Exercisable at December 31, 1997 17,500 $ 9.625 $ 10.700 $ 11.750
========== =========== =========== ===========
</TABLE>
RESTRICTED STOCK
Restricted stock awarded in 1997 and 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.
34
<PAGE> 35
RESTRICTED STOCK AWARDS
<TABLE>
<S> <C>
Outstanding at December 31, 1995 71,834
Awarded 9,463
Vested (2,651)
Canceled (36,411)
-------
Outstanding at December 31, 1996 42,235
Awarded 18,400
Vested (10,049)
-------
Outstanding at December 31, 1997 50,586
=======
</TABLE>
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 expense with respect to all restricted shares amounted to
$99,000 in 1997, $73,000 in 1996 and $126,000 in 1995.
35
<PAGE> 36
NOTE 12 - 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 are 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.
36
<PAGE> 37
NOTE 13 - 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,
1997 1996
---- ----
<S> <C> <C>
Additional minimum liability $ 3,194 $ 2,600
======== =========
Intangible assets $ 1,078 $ 1,032
Reduction of stockholders' equity $ 1,259 $ 933
Tax benefits $ 857 $ 635
</TABLE>
Net periodic pension cost for the Company's plans is summarized as
follows:
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 1,026 $ 941 $ 637
Interest cost on the projected benefit obligation 1,916 1,693 1,079
Return on plan assets (1,956) (2,283) (1,859)
Net amortization and deferral 88 707 989
------- ------- -------
Net periodic pension cost $ 1,074 $ 1,058 $ 846
======= ======= =======
</TABLE>
37
<PAGE> 38
The Louisville, Kentucky manufacturing facility which was dedicated
solely to the production of Crew Cab and DRW components for Ford was closed in
late 1997. There were no pension curtailment losses associated with this closing
nor were any costs incurred related to the termination of benefits. The
settlement resulting from the partial plan termination will be paid out in 1998,
and is not expected to have a material impact on the Company's results.
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 1997, 1996 and 1995 GDI contributed $22,000, $141,000 and $139,000
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 charged to the Company by Allen in 1995 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, 1997 DECEMBER 31, 1996
----------------- -----------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
(amounts in thousands) EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 12,640 $ 13,763 $ 11,769 $ 12,620
Non-vested benefit obligation 602 993 478 830
-------- -------- -------- --------
Accumulated benefit obligation 13,242 14,756 12,247 13,450
Effect of proposed compensation increases 80 943 82 873
-------- -------- -------- --------
Projected benefit obligation 13,322 15,699 12,329 14,323
Plan assets at fair value 9,622 16,063 9,092 13,584
-------- -------- -------- --------
Excess (Deficiency) of plan assets over
projected benefit obligation (3,700) 364 (3,237) (739)
Gain (Loss) due to actuarial experience varying
from actuarial assumptions 2,291 (2,983) 1,740 (1,597)
Prior service cost not yet recognized in
pension cost 1,078 (49) 1,058 (46)
Unrecognized net transition liability (106) (96) (118) (126)
Adjustment to recognize minimum liability (3,194) -- (2,600) --
-------- -------- -------- --------
Accrued pension cost recognized
in the consolidated balance sheet $ (3,631) $ (2,764) $ (3,157) $ (2,508)
======== ======== ======== ========
</TABLE>
The measurement date for each plan is December 31.
38
<PAGE> 39
The projected benefit obligation for all plans was determined using the
following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate 7.00% 7.50-7.75 %
Rate of increase in compensation levels 4.00% 4.50 %
Expected long-term rate of return on assets 9.00% 9.00 %
</TABLE>
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 $458,000 in 1997, $376,000 in
1996 and $149,000 in 1995.
39
<PAGE> 40
NOTE 14 - 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,
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost for benefits earned
during the year $ 27 $ 50 $ 71
Interest cost on accumulated
postretirement benefit obligation 85 109 146
Net amortization (32 27 (6)
----- ----- -----
Net periodic postretirement benefit
cost $ 80 $ 186 $ 211
===== ===== =====
</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 is 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,
1997 1996
------ ------
<S> <C> <C>
Retirees $ 624 $ 756
Fully eligible active plan participants 12 12
Other active plan participants 535 454
Unrecognized net gain 220 287
------ ------
Accumulated postretirement benefit obligation $1,391 $1,509
====== ======
</TABLE>
40
<PAGE> 41
The accumulated postretirement obligation was determined using the following
assumptions:
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate 7.0% 7.5%
Health care cost trend rate for next year 9.6% 9.6%
Health care trend rate decreases .4% per year 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 $ 42 $ 44
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 $ 8 $ 12
</TABLE>
41
<PAGE> 42
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
Sales $62,096 $79,303 $80,181 $67,286
Gross margin $13,914 $21,281 $19,156 $12,333
Net income $ 1,000 $ 4,639 $ 2,018 $ 218
Basic and diluted earnings per share $ 0.15 $ 0.71 $ 0.31 $ 0.03
Market price of common stock:
High $ 10 $ 8-7/8 $11-15/16 $11-1/2
Low $ 8-5/8 $ 7-1/8 $8-3/8 $7-5/8
</TABLE>
(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
Basic and diluted earnings per share $ .20 $ .44 $ .49 $ .15
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>
The above table summarizes quarterly financial information for 1997 and
1996. 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.
42
<PAGE> 43
NOTE 16 - ACQUISITIONS
In December, 1997 the Company acquired substantially all of the assets
and assumed certain specified liabilities of VMS for approximately $1.0 million.
VMS is located in Ontario, Canada and specializes in utility van conversions.
VMS reported fiscal year end February 1997 sales of $1.6 million. The
acquisition was accounted for as a purchase and VMS's results have been included
in the consolidated financial statements from the date of acquisition. The
Company financed the purchase of VMS by borrowings under the Credit Agreement
and recorded $0.4 million of goodwill related to the transaction, which is being
amortized over 20 years.
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 $2.4 million of goodwill which is being
amortized over 20 years.
NOTE 17 - COMPREHENSIVE INCOME
The following table sets forth the income tax expense or (benefit) related to
each item of other comprehensive income:
<TABLE>
<CAPTION>
TAX
PRE-TAX EXPENSE OR NET-OF-TAX
(Amounts in Thousands) AMOUNT (BENEFIT) AMOUNT
----- ----- -----
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Foreign currency translation adjustment $ (44) $ (18) $ (26)
Minimum pension liability adjustment (548) (222) (326)
----- ----- -----
Other comprehensive income (592) (240) (352)
===== ===== =====
YEAR ENDED DECEMBER 31, 1996
Foreign currency translation adjustment (119) (48) (71)
Minimum pension liability adjustment 817 330 487
----- ----- -----
Other comprehensive income 698 282 416
===== ===== =====
YEAR ENDED DECEMBER 31, 1995
Foreign currency translation adjustment (188) (77) (111)
Minimum pension liability adjustment (672) (274) (398)
----- ----- -----
Other comprehensive income $(860) $(351) $(509)
===== ===== =====
</TABLE>
43
<PAGE> 44
The following is a rollforward of the accumulated other comprehensive income
balances:
<TABLE>
<CAPTION>
MINIMUM ACCUMULATED
FOREIGN PENSION OTHER
CURRENCY LIABILITY COMPREHENSIVE
(Amounts in Thousands) TRANSLATION ADJUSTMENT INCOME
------- ------- -------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1994 $ -- (1,022) $(1,022)
Current period change (111) (398) (509)
------- ------- -------
BALANCE DECEMBER 31, 1995 (111) (1,420) (1,531)
------- ------- -------
Current period change (71) 487 416
------- ------- -------
BALANCE DECEMBER 31, 1996 (182) (933) (1,115)
------- ------- -------
Current period change (26) (326) (352)
------- ------- -------
BALANCE DECEMBER 31, 1997 $ (208) (1,259) $(1,467)
======= ======= =======
</TABLE>
44
<PAGE> 45
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, 1997 and 1996, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 13, 1998
45
<PAGE> 46
C O R P O R A T E I N F O R M A T I O N
<TABLE>
<CAPTION>
STOCK EXCHANGE LISTING ANNUAL STOCKHOLDERS' MEETING
<S> <C>
Common stock: The Annual Meeting of
New York Stock Exchange Stockholders will be held at
Ticker Symbol: TPR 11:00 AM on
April 29, 1998 at the
Omni Berkshire Place Hotel
REGISTRAR & TRANSFER AGENT 21 East 52nd Street
New York, New York
Bank 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 1997 Annual Report,
Form 10-K or other written information,
please phone 203-401-6450.
COUNSEL
Wiggin & Dana STOCKHOLDERS
New Haven, Connecticut
As of March 4, 1998, TransPro, Inc.
had 6,611,460 shares of common stock
INDEPENDENT ACCOUNTANTS outstanding owned by 1,325 holders of
record.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
CORPORATE OFFICE
ANNUAL REPORT DESIGN
TransPro, Inc.
Donaldson Makoski, Inc. 100 Gando Drive
Avon, Connecticut New Haven, Connecticut 06513
203-401-6450
INVESTOR RELATIONS
Morgen-Walke Associates, Inc.
New York, New York
</TABLE>
46
<PAGE> 47
BOARD OF DIRECTORS
William J. Abraham, Jr.
Partner
Foley & Lardner
Barry R. Banducci
Chairman of the Board
TransPro, Inc.
Philip Wm. Colburn
Chairman of the Board
Allen Telecom Inc.
Paul R. Lederer
Executive Vice President
Worldwide Aftermarket
Federal-Mogul Corporation
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
CORPORATE OFFICERS
Hank McHale
President and Chief Executive Officer
John C. Martin, III
Vice President, Treasurer, Secretary
and Chief Financial Officer
Jeffrey L. Jackson
Vice President, Human Resources
Timothy E. Coyne
Vice President, Controller
and Assistant Secretary
DIVISION PRESIDENTS
John Della Ventura, President, G&O
Manufacturing Co.
Michael Hooper, President, Crown Divisions
47
<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>
NAME JURISDICTION OF INCORPORATION OR
ORGANIZATION
<S> <C>
Allen Heat Transfer Products, Inc. Delaware
AHTP II, Inc. Delaware
Crown Crew Cab, 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
Crown-VMS Canada, Ltd. Ontario, Canada
</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
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,
1998, on our audits of the consolidated financial statements and financial
statement schedule of TransPro, Inc. as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996, and 1995, which reports are
incorporated by reference from the 1997 Annual Report to Stockholders, and
included, respectively, in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 593
<SECURITIES> 0
<RECEIVABLES> 40,947
<ALLOWANCES> 3,441
<INVENTORY> 58,535
<CURRENT-ASSETS> 101,936
<PP&E> 87,026
<DEPRECIATION> 50,274
<TOTAL-ASSETS> 144,540
<CURRENT-LIABILITIES> 33,471
<BONDS> 37,838
0
0
<COMMON> 66
<OTHER-SE> 64,949
<TOTAL-LIABILITY-AND-EQUITY> 144,540
<SALES> 288,866
<TOTAL-REVENUES> 288,866
<CGS> 222,182
<TOTAL-COSTS> 222,182
<OTHER-EXPENSES> 48,104
<LOSS-PROVISION> 2,132
<INTEREST-EXPENSE> 3,140
<INCOME-PRETAX> 13,308
<INCOME-TAX> 5,433
<INCOME-CONTINUING> 7,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,875
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 1,284 2,981 163
<SECURITIES> 0 0 0
<RECEIVABLES> 48,663 47,810 40,995
<ALLOWANCES> 2,614 3,024 2,825
<INVENTORY> 61,604 64,728 60,203
<CURRENT-ASSETS> 113,942 116,944 103,714
<PP&E> 89,686 88,652 87,572
<DEPRECIATION> 51,603 50,094 48,781
<TOTAL-ASSETS> 158,461 162,362 149,688
<CURRENT-LIABILITIES> 45,519 42,648 38,196
<BONDS> 38,970 47,802 43,434
0 0 0
0 0 0
<COMMON> 66 66 66
<OTHER-SE> 65,344 63,511 59,212
<TOTAL-LIABILITY-AND-EQUITY> 158,461 162,362 149,688
<SALES> 80,181 79,303 62,096
<TOTAL-REVENUES> 80,181 79,303 62,096
<CGS> 61,025 58,022 48,182
<TOTAL-COSTS> 61,025 58,022 48,182
<OTHER-EXPENSES> 14,593 11,839 11,809
<LOSS-PROVISION> 353 745 433
<INTEREST-EXPENSE> 819 902 725
<INCOME-PRETAX> 3,391 7,795 1,680
<INCOME-TAX> 1,373 3,156 680
<INCOME-CONTINUING> 2,018 4,369 1,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,018 4,369 1,000
<EPS-PRIMARY> 1.17 0.86 0.15
<EPS-DILUTED> 1.17 0.86 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 995 732 0
<SECURITIES> 0 0 0
<RECEIVABLES> 48,335 44,777 39,579
<ALLOWANCES> 3,545 3,070 3,180
<INVENTORY> 51,150 55,092 55,698
<CURRENT-ASSETS> 104,318 105,732 99,732
<PP&E> 85,716 83,166 81,874
<DEPRECIATION> 49,439 46,857 45,195
<TOTAL-ASSETS> 148,769 148,103 143,387
<CURRENT-LIABILITIES> 41,920 41,362 38,752
<BONDS> 38,749 41,081 40,613
0 0 0
0 0 0
<COMMON> 66 66 66
<OTHER-SE> 57,402 54,516 51,957
<TOTAL-LIABILITY-AND-EQUITY> 148,769 148,103 143,387
<SALES> 200,688 128,187 58,338
<TOTAL-REVENUES> 200,688 128,187 58,338
<CGS> 153,553 97,547 44,511
<TOTAL-COSTS> 153,553 97,547 44,511
<OTHER-EXPENSES> 31,716 21,804 10,678
<LOSS-PROVISION> 688 229 230
<INTEREST-EXPENSE> 2,315 1,597 778
<INCOME-PRETAX> 12,464 7,019 2,150
<INCOME-TAX> 5,048 2,843 860
<INCOME-CONTINUING> 7,416 4,176 1,290
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 7,416 4,176 1,290
<EPS-PRIMARY> 1.13 0.64 0.20
<EPS-DILUTED> 1.13 0.64 0.20
</TABLE>
