<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 34-180738
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of common stock, $.01 par value, outstanding as of
August 10, 1998 was 6,611,460.
Exhibit Index is on page 14 of this report.
Page 1 of 15
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INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the
three months ended June 30, 1998 and 1997 and the
six months ended June 30, 1998 and 1997. 3
Condensed Consolidated Statements of Comprehensive
Income for the three months ended June 30, 1998 and
1997 and the six months ended June 30, 1998 and 1997. 3
Condensed Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $65,603 $79,303 $116,190 $141,399
Cost of sales 50,013 58,022 89,006 106,204
------- ------- -------- --------
Gross margin 15,590 21,281 27,184 35,195
Selling, general and administrative expenses 12,317 12,487 23,481 23,199
Plant and business consolidation and closure costs -- 97 -- 907
------- ------- -------- --------
Income from operations 3,273 8,697 3,703 11,089
Net interest expense 830 902 1,495 1,615
------- ------- -------- --------
Income before taxes 2,443 7,795 2,208 9,474
Provision for income taxes 997 3,156 901 3,837
------- ------- -------- --------
Net income $ 1,446 $ 4,639 $ 1,307 $ 5,637
======= ======= ======== ========
Basic and diluted earnings per share $ 0.22 $ 0.71 $ 0.20 $ 0.86
======= ======= ======== ========
Cash dividends per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10
======= ======= ======== ========
Weighted average common shares - basic 6,556 6,550 6,556 6,546
======= ======== ======== ========
Weighted average common shares and
assumed conversions - diluted 6,576 6,568 6,576 6,574
======= ======= ======== ========
</TABLE>
The EPS effect of the plant and business consolidation and closure costs was
$0.01 during the second quarter of 1997 and $0.08 during the first six months of
1997
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,446 $4,639 $1,307 $ 5,637
Other comprehensive income, net of tax:
Foreign currency translation 30 (7) 5 (114)
------ ------ ------ -------
Comprehensive income $1,476 $4,632 $1,312 $ 5,523
====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
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TRANSPRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 989 $ 593
Accounts receivable (less allowances of $3,484 and $3,441) 40,159 37,506
Inventories:
Raw materials 14,204 15,151
Work in process 7,959 7,632
Finished goods 42,100 335,752
--------- ---------
Total inventories 64,263 58,535
--------- ---------
Deferred income tax benefit 3,606 3,318
Other current assets 1,529 1,984
--------- ---------
Total current assets 110,546 101,936
--------- ---------
Property, plant and equipment 90,124 87,026
Less accumulated depreciation 52,600 50,274
--------- ---------
Net property, plant and equipment 37,524 36,752
--------- ---------
Goodwill (net of amortization of $249 and $170) 2,682 2,733
Other assets 2,951 3,119
--------- ---------
Total assets 153,703 $ 144,540
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,378 $ 13,604
Current maturities of long-term debt 5,000 5,000
Accrued insurance 5,273 5,817
Accrued salaries and wages 5,190 4,310
Accrued taxes 2,659 2,450
Accrued plant and business consolidation and closure costs -- 387
Accrued expenses 6,147 6,903
--------- ---------
Total current liabilities 36,647 38,471
--------- ---------
Long- term liabilities:
Long-term debt 43,273 32,838
Retirement and postretirement obligations 7,086 7,050
Deferred income taxes 870 793
Other liabilities 109 373
--------- ---------
Total liabilities 87,985 79,525
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value: -- --
Authorized 2,500,000 shares; none issued at June 30, 1998 and
December 31, 1997
Common stock, $.01 par value: 66 66
Authorized 17,500,000 shares; issued 6,683,571 shares at
June 30, 1998 and December 31, 1997
Paid-in capital 52,264 52,227
Treasury stock at cost,
72,111 shares at June 30, 1998 and December 31, 1997 (26) (26)
Unearned compensation (354) (369)
Retained earnings 15,230 14,584)
Accumulated other comprehensive income (1,462) (1,467)
--------- ---------
Total stockholders' equity 65,718 65,015
--------- ---------
Total liabilities and stockholders' equity $ 153,703 $ 144,540
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,307 $ 5,637
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,152 3,483
Provision for losses - accounts receivable 787 745
-------- --------
Total adjustments to reconcile net income to net cash provided by operating
activities 3,939 4,228
Change in:
Accounts receivable (2,978) (9,595)
Inventories (5,728) (11,799)
Accounts payable (1,226) 3,470
Accrued expenses (598) 602
Other (188) (13)
-------- --------
Total change in operating assets and liabilities (10,718) (17,335)
-------- --------
Cash used in operating activities (5,472) (7,470)
-------- --------
Cash flows from investing activities:
Capital expenditures (3,903) (3,680)
Sales and retirements of fixed assets, net 33 46
-------- --------
Cash used in investing activities (3,870) (3,634)
-------- --------
Cash flows from financing activities:
Dividends paid (661) (659)
Purchase of treasury stock -- (26)
Current maturities of long-term debt (2,500) (2,500)
Borrowings of long-term debt 12,900 16,350
-------- --------
Cash provided by financing activities 9,739 13,165
-------- --------
Increase in cash and cash equivalents 396 2,061
Cash and cash equivalents:
Beginning of period 593 920
-------- --------
End of period $ 989 $ 2,981
======== ========
Interest paid $ 1,332 $ 1,533
Taxes paid (net of refunds) $ 878 $ 2,531
</TABLE>
The notes are an integral part of these statements.
5
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TRANSPRO, INC.
NOTES TO CONDENSED 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, and performs as a van upfitter.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 filed with the Securities and Exchange Commission on
March 30, 1998, including the financial statements and notes thereto included
therein.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of consolidated financial position,
consolidated results of operations and consolidated cash flows have been
included in the accompanying unaudited condensed consolidated financial
statements. All such adjustments are of a normal recurring nature. Certain items
reported in prior condensed consolidated financial statements have been
reclassified to conform with the presentation of the current condensed
consolidated financial statements. The December 31, 1997 condensed consolidated
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
NOTE 3 - PLANT AND BUSINESS CONSOLIDATION AND CLOSURE COSTS
In the second quarter and first six months of 1997, the Company recorded
approximately $0.1 million and $0.9 million, respectively, in plant and business
consolidation and closure costs resulting from actions taken to consolidate the
OEM and Aftermarket heat transfer organizations; to close the New Haven,
Connecticut OEM heat transfer product manufacturing plant and move such
manufacturing to Jackson, Mississippi; and to close the Peru, Illinois
Aftermarket heater manufacturing plant and move such manufacturing to Mexico.
6
<PAGE> 7
NOTE 4 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 1,446 $ 4,639 $ 1,307 $ 5,637
Denominator:
Weighted average common shares 6,611 6,603 6,611 6,599
Non-vested restricted stock (55) (53) (55) (53)
------- ------- ------- -------
Denominator for basic earnings per share-
adjusted weighted average common shares 6,556 6,550 6,556 6,546
Dilutive effect of stock options and non-
vested restricted stock 20 18 20 28
------- ------- ------- -------
Denominator for diluted earnings per share-
adjusted weighted average common
shares and assumed conversions 6,576 6,568 6,576 6,574
======= ======= ======= =======
Basic earnings per share $ 0.22 $ 0.71 $ 0.20 $ 0.86
======= ======= ======= =======
Diluted earnings per share $ 0.22 $ 0.71 $ 0.20 $ 0.86
======= ======= ======= =======
</TABLE>
NOTE 5 - TREASURY STOCK
As part of the spin-off transaction from Allen Telecom Inc. in 1995,
the Company acquired 69,304 shares of its Common Stock at zero cost. In 1997,
the Company repurchased 2,807 shares of its Common Stock at a cost of
approximately $26,000. All of the foregoing shares of Common Stock are held by
the Company as treasury stock.
NOTE 6 - ACQUISITION
The Company acquired 100% of the outstanding stock of Evap, Inc.
("Evap") of Arlington, Texas effective July 31, 1998. Evap is a manufacturer and
distributor of replacement automotive air conditioning parts. Evap's fiscal 1997
sales were $6.6 million. The acquisition will be accounted for as a purchase.
The transaction was structured with an initial purchase price of $6.0 million at
closing, consisting of $3.0 million cash and 30,000 shares of TransPro, Inc.
Series B Convertible Redeemable Preferred Stock (the "Series B Preferred
Stock"), with an opportunity for a maximum additional payout of $3.75 million
based upon the future earnings performance of the Evap business. The Series B
Preferred Stock has an initial liquidation preference of $3.0 million. The
potential additional payout will take the form of an increase in the liquidation
preference of the Series B Preferred Stock. The Series B Preferred Stock is
non-transferable; is entitled to cumulative dividends of 2% per annum during the
first year after acquisition, 3.5% per annum during the second year and 5.0% per
annum thereafter; is convertible into TransPro common stock at the rate of 50%
on the third anniversary of the acquisition, an additional 25% on the fourth
anniversary and an additional 25% on the fifth anniversary; and is redeemable
after the fifth anniversary at the liquidation preference at the time of
redemption. The Series B Preferred Stock is convertible into TransPro common
stock based upon the liquidation preference of the Series B Preferred Stock and
the market value of TransPro common stock
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<PAGE> 8
at the time of conversion. The aggregate number of shares of TransPro common
stock to be issued upon conversion of all the Series B Preferred Stock may not
exceed 7% of the total number of shares of TransPro common stock outstanding
after giving effect to the conversion. The market value of the TransPro common
stock in excess of the 7% limitation, if any, will be paid in cash.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
QUARTER ENDED JUNE 30, 1998 VERSUS QUARTER ENDED JUNE 30, 1997
Net sales for the second quarter of 1998 declined 17% to $65.6 million
compared with $79.3 million in the second quarter of 1997. This decline reflects
the completion in the fourth quarter of 1997 of the Ford Crew Cab/Dual Rear
Wheel program and the Ford order to convert vans for the U.S. Postal Service.
Excluding Crew Cab/Dual Rear Wheel sales from the 1997 second quarter results,
total net sales increased $4.0 million or 7%, due to a $4.0 million or 11%
increase in Aftermarket heat transfer product sales resulting from unit volume
gains in the radiator and condenser product lines. Excluding Crew Cab/Dual Rear
Wheel sales in 1997, sales of OEM products were essentially flat. A 15% increase
in fabricated metal product sales was basically offset by a 5% decline in OEM
heat transfer product sales. Reported van conversion for the second quarter
revenues declined 2% compared with the prior year second quarter. However,
excluding the impact of the Ford order for the U. S. Postal Service in 1997, van
conversion revenues increased 162%, effectively offsetting the revenue loss from
the Postal Service program and reflecting, in part, the benefits of the
acquisition in December 1997 of VMS, a Canadian van upfitter.
Gross margins of 23.8% for the second quarter of 1998 declined from the
26.8% achieved in the second quarter of 1997, as the end of the Crew Cab/Dual
Rear Wheel and U.S. Postal Service programs negatively impacted gross margins.
In addition, the Aftermarket heat transfer business experienced lower margins
compared with last year's second quarter due to a higher proportion of sales to
lower margin customers. Margins in the metal fabrication operation improved
based on higher manufacturing volumes and better operating efficiencies. Gross
margins in the OEM heat transfer business, which remained negative, were
essentially even with the prior year second quarter but have improved
significantly compared with the third and fourth quarters of 1997.
Selling, general and administrative expenses declined $0.2 million or
1% reflecting the one time benefit of a $0.6 million dividend from the Ohio
state workers' compensation fund, partially offset by the recognition of a $0.5
million reserve against the balance of a note accepted in a 1994 asset sale
transaction and an increase in selling and distribution expenses related to the
higher volume levels experienced in the Aftermarket heat transfer business
during the quarter. In the second quarter of 1997, the Company recorded pre-tax
plant and business consolidation and closure costs of $0.1 million related to
consolidation actions in its OEM and Aftermarket heat transfer businesses.
Net interest expense declined $0.1 million in the second quarter of
1998 compared with the second quarter of 1997 as a function of lower debt levels
in the second quarter of 1998 compared with the comparable period in 1997.
The Company's effective tax rate of 40.8% for the second quarter of
1998 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
second quarter 1997 rate of 40.5% to reflect a higher level of non-tax
deductible expenses.
Net income for the second quarter of 1998 was $1.4 million, or $0.22
per share on a basic and diluted basis, compared with net income of $4.6
million, or $0.71 per share on a basic and diluted basis, in the second quarter
of 1997. Before the impact of plant and business consolidation and closure
costs, second quarter 1997 net income was $4.7 million, or $0.72 per share on a
basic and diluted basis.
9
<PAGE> 10
SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997
Net sales for the first six months of 1998 were $116.2 million versus
$141.4 million for the comparable period in 1997, a decrease of 18%. This
decrease reflects the completion in the fourth quarter of 1997 of the Ford Crew
Cab/Dual Rear Wheel program and the Ford order to convert vans for the U. S.
Postal Service. Excluding Crew Cab/Dual Rear Wheel sales from the 1997 six month
results, total net sales increased $9.8 million or 9%. Sales of Aftermarket heat
transfer products increased $5.3 million or 8% primarily as a result of higher
unit volume coupled with higher pricing in the radiator product line. Excluding
Crew Cab/Dual Rear Wheel sales in 1997, OEM product sales increased $4.4 million
or 11%. Reported van conversion revenues increased 17%. Excluding the impact of
the Ford order for the U.S. Postal Service in 1997, van conversion revenues
increased 153%, effectively offsetting the revenue loss from the Postal Service
program and reflecting, in part, the benefits of the acquisition in December
1997 of VMS, a Canadian van upfitter. Sales of OEM heat transfer products
increased 3%. OEM fabricated metal products sales to telecommunications
customers increased 21%.
Gross margins in the first half of 1998 were 23.4% versus 24.9% for the
first six months of 1997. The end of the Crew Cab/Dual Rear Wheel and U. S.
Postal Service programs also negatively impacted gross margins for the first six
months. In the Aftermarket heat transfer business, gross margins were
essentially flat compared with the first six months a year ago. In the OEM
fabricated metal products business, gross margins improved due to higher volumes
and improved operating efficiencies. Although gross margins in the OEM heat
transfer business during the first six months of 1998 remained negative due to
continuing operating inefficiencies related to the relocation and consolidation
of manufacturing operations into the Company's Jackson, Mississippi facility,
they improved modestly compared with the first six months of 1997 but
significantly when compared with the last half of 1997.
Selling, general and administrative expenses for the first six months
of 1998 were $23.5 million versus $23.2 million for the same period in 1997. The
increase of $0.3 million or 1% resulted from the recognition of a $0.5 million
reserve against the balance of a note accepted in a 1994 asset sale transaction
and an increase in selling and distribution expenses related to the higher
volume levels experienced in the Aftermarket heat transfer business partially
offset by the one time benefit of a $0.6 million dividend from the Ohio state
workers' compensation fund.
The Company recorded $0.9 million of pre-tax plant and business
consolidation costs in the first half of 1997.
Net interest expense was $1.5 million for the first six months of 1998
compared with $1.6 million in the first six months of 1997, reflecting lower
borrowings under the Company's credit facility during the first six months of
1998 compared with the comparable year ago period.
The Company's year to date effective tax rate of 40.8% 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 rate of 40.5% for the
comparable year ago period to reflect a higher level of non-tax deductible
expenses.
Net income for the first six months of 1998 was $1.3 million, or $0.20
per share on a basic and diluted basis, compared with net income of $5.6
million, or $0.86 per share on a basic and diluted basis, in the first six
months of 1997. Before the impact of plant and business consolidation and
closure costs, net income for the first six months of 1997 was $6.2 million, or
$0.94 per share on a basic and diluted basis.
10
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
In June 1994, the Company accepted a secured subordinated note (the
"Note") in payment for the sale of certain assets. The Company did not receive
the scheduled January 1998 and February 1998 payments required by the Note and,
in March 1998, in accordance with the provisions of the Note, declared the Note
in default and called the remaining balance of the Note. Subsequent to calling
the Note, the Company received a notice from the bank to which the Note is
subordinated blocking the Company's call. The Company has been attempting to
resolve this matter. However, the Company has been unable to obtain a commitment
from the payer to cure the amounts in arrears and recommence the monthly
payments required by the Note or, because of the Company's subordinated
position, to liquidate the collateral securing the Note. Accordingly, in the
second quarter of 1998, the Company established a $0.5 million reserve for the
remaining balance of the Note and recorded a corresponding bad debt expense.
In September 1995, the Company entered into a Revolving Credit and Term
Loan Agreement with a group of five banking institutions. The Revolving Credit
and Term Loan Agreement provides for unsecured borrowings or the issuance of
letters of credit in an aggregate amount not to exceed $75 million. The
Revolving Credit and Term Loan Agreement expires in October 2000, and is
comprised of a $50 million Revolving Credit Loan and a $25 million Term Loan.
The Term Loan is payable in 20 equal quarterly installments over five years
commencing December 31, 1995. As a result of the normal repayment of the Term
Loan, at June 30, 1998, the bank facility totaled $61.25 million.
At June 30, 1998, borrowings were approximately $11.3 million under the
Term Loan and $24.4 million under the Revolving Credit Loan. The Company also
has $13 million of borrowings under floating rate industrial revenue bonds, of
which $8.0 million matures in the year 2010 and $5.0 million matures in the year
2013. The bonds bear interest based upon a short-term tax-exempt bond index.
Outstanding letters of credit totaled approximately $18.8 million at June 30,
1998. Of the total letters of credit outstanding, $13.0 million supported
borrowings under floating rate industrial revenue bonds.
During the first six months of 1998, the Company required $5.5 million
of cash primarily for working capital to support its operations. Inventory
increased $5.7 million to support the second and third quarter peak selling
season for Aftermarket heat transfer products. Accounts receivable increased
$3.0 million reflecting the higher sales volumes during the second quarter. Cash
was used to reduce accounts payable and accrued expenses by $1.8 million. Net
income plus total adjustments to reconcile net income to net cash used in
operating activities generated $5.2 million of cash.
Capital spending during the first six months of 1998 totaled $3.9
million. The Company paid two cash dividends of $0.05 per share totaling $0.7
million during the first six months of 1998. Borrowings under the Revolving
Credit and Term Loan Agreement to finance the operating and other cash
requirements of the Company increased by $10.4 million from December 31, 1997.
In July 1998, the Company entered into a Revolving Credit Agreement
with five banking institutions to replace the existing Revolving Credit and Term
Loan Agreement in order to increase the amount of and extend the commitment
period for bank financing. The Revolving Credit Agreement provides for secured
borrowings or the issuance of letters of credit in an aggregate amount not to
exceed $75 million. The Revolving Credit Agreement is secured by a blanket first
perfected security interest in substantially all of the Company's assets plus a
pledge of the stock of the Company's subsidiaries. The Revolving Credit
Agreement expires on July 1, 2003. The security interest in the Company's assets
and the pledge of the Company's subsidiaries' stock are eligible for release
commencing March 31, 1999 if the Company achieves certain senior debt ratings or
if certain financial ratios are met and maintained.
11
<PAGE> 12
Available borrowings under the Revolving Credit Agreement are determined by a
borrowing base consisting of the Company's (i) eligible accounts receivable,
(ii) inventory and (iii) fixed assets, as adjusted by an advance rate. The
aggregate amount of borrowings under the Revolving Credit Agreement is
automatically reduced by $0.5 million at the end of each calendar quarter
through June 30, 1999; by $1.25 million at the end of each calendar quarter
through June 30, 2000; and by $1.5 million at the end of each calendar quarter
through June 30, 2003. The Revolving Credit Agreement bears interest at variable
rates based, at the Company's option, on either (a) 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 ("EBITDA"), or
(b) (i) the higher of the BankBoston, N. A. base lending rate and (ii) one-half
of one percent above the Federal Funds Effective Rate, as defined, plus an
applicable margin based upon the ratio of the Company's total funded debt to
EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's
total funded debt to EBITDA on the average daily unused portion of the Revolving
Credit Agreement is payable quarterly, in arrears. The Revolving 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 EBITDA and debt to net worth, as well as covenants
which place limits on dividend payments in excess of $2.0 million per year and
capital expenditures in excess of 140% of such year's depreciation expense.
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
Revolving Credit Agreement, along with cash flow from operations, will be
adequate to meet near term anticipated ordinary capital expenditure and working
capital requirements as well as seasonal working capital requirements. However,
the capital for major growth initiatives may exceed the aggregate amount of
borrowings available under the Revolving Credit Agreement. If this were to
occur, the Company would have to seek additional sources of capital. However, no
assurance can be given that the Company would be successful in securing
additional sources of capital.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue results from computer system software using only
two digits rather than four digits to define the applicable year for a
transaction. Such software may not recognize a date identified as "00" or may
assume the year 1900 instead of 2000. 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 which is
Year 2000 compliant and to which the majority of current systems employed by the
Company will be converted. The conversion project began in 1996 and is expected
to be completed by mid-year 1999. Hardware, software and other capitalizable
costs will be capitalized and expensed over the useful life of the system. All
other project costs will be expensed as incurred. The total cost of the Year
2000 project is currently estimated to be $2.5 million, of which $1.3 million is
for capitalizable hardware and software costs. To date, the Company has spent
approximately $0.8 million on this project, of which $0.6 million was for
capitalizable hardware and software costs.
During 1998, the Company will be initiating 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. However, no assurance can be given that the systems of other
companies on which the Company relies will be Year 2000 compliant on a timely
basis, that the Year 2000 systems of other companies will be compatible with the
Company's system or that external Year 2000 issues would not have a material
impact on the Company's operations.
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<PAGE> 13
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board (the "FASB")
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 is effective for financial
statements for periods beginning after December 15, 1997 but need not be applied
to interim financial statements in the initial year of its application. The
adoption of SFAS No. 131 will not have a material impact on the financial
position of the Company.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 ("SFAS No. 132"), "Employers' Disclosures about Pensions and
Other Postretirement Benefits," which revises employers' disclosure requirements
for pension and other postretirement benefit plans. SFAS No. 132 does not change
the measurement or recognition of those plans. The impact of the adoption of
SFAS No. 132 has not been determined at this time.
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. The Company's Annual Report on Form 10-K contains certain
detailed factors that could cause the Company's actual results to materially
differ from the forward-looking statements made by the Company. In particular,
statements relating to the future financial performance of the Company,
including the replacement automotive air conditioning parts business, are
subject to business conditions and growth in the general economy and automotive
and truck business, the impact of competitive products and pricing, changes in
customer product mix, failure to obtain new customers or retain old customers or
changes in the financial stability of customers, changes in the cost of raw
materials, components or finished products and changes in interest rates.
Statements regarding the outlook for the OEM Heat Transfer business,
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. Statements regarding the ultimate collectibility of the Note are
subject to several factors, including but not limited to, the payer's financial
condition. Statements regarding the Company's Year 2000 project are subject to
numerous factors, including but not limited to, the availability and cost of
trained personnel and the ability to effect the timely conversion of all
relevant systems.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on April 29,
1998, two proposals were voted upon by the Company's stockholders. A brief
discussion of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and withheld, as well as the number of abstentions to
each proposal are set forth below. There were no broker non-votes with regard to
these proposals.
A vote was taken at the Annual Meeting for the election of seven
Directors of the Company to hold office until the next Annual Meeting of
Stockholders of the Company and until their respective successors shall have
been duly elected. The aggregate numbers of shares of Common Stock voted in
person or by proxy for each nominee were as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Barry R. Banducci 6,088,815 158,864
Henry P. McHale 6,087,745 159,934
William J. Abraham, Jr. 6,087,315 160,364
Philip Wm. Colburn 5,709,337 538,342
Paul R. Lederer 6,088,850 158,829
Sharon M. Oster 5,710,377 537,302
F. Alan Smith 6,085,669 162,010
</TABLE>
A vote was taken at the Annual Meeting on the proposal to ratify the
appointment of PricewaterhouseCoopers LLP. (formerly Coopers & Lybrand L.L.P.)
as auditors for the Company for the fiscal year ending December 31, 1998. The
aggregate numbers of shares of Common Stock in person or by proxy which: (a)
voted for, (b) voted against or (c) abstained from the vote upon such proposal
were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
6,206,814 31,240 9,625
</TABLE>
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 26, 1998, filed with the Securities and
Exchange Commission pursuant to Section 14(a) of the Securities Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(27) Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June 30, 1998.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: August 13, 1998 By: /s/ Henry P. McHale
-------------------------------------
Henry P. McHale
President, Chief Executive Officer
and Director
Date: August 13, 1998 By: /s/ John C. Martin, III
-------------------------------------
John C. Martin, III
Vice President, Treasurer, Secretary,
and Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1998 By: /s/ Timothy E. Coyne
-------------------------------------
Timothy E. Coyne
Vice President and Controller
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 989
<SECURITIES> 0
<RECEIVABLES> 43,643
<ALLOWANCES> 3,484
<INVENTORY> 64,263
<CURRENT-ASSETS> 110,546
<PP&E> 90,124
<DEPRECIATION> 52,600
<TOTAL-ASSETS> 153,703
<CURRENT-LIABILITIES> 36,647
<BONDS> 43,273
0
0
<COMMON> 66
<OTHER-SE> 65,652
<TOTAL-LIABILITY-AND-EQUITY> 153,703
<SALES> 65,603
<TOTAL-REVENUES> 65,603
<CGS> 50,013
<TOTAL-COSTS> 50,013
<OTHER-EXPENSES> 11,975
<LOSS-PROVISION> 342
<INTEREST-EXPENSE> 830
<INCOME-PRETAX> 2,443
<INCOME-TAX> 997
<INCOME-CONTINUING> 1,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,446
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
