<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, 1999
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
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 6, 1999 was 6,597,335.
Exhibit Index is on page 14 of this report.
Page 1 of 15
1
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three months and six
months ended June 30, 1999 and 1998. 3
Condensed Consolidated Statements of Comprehensive Income for the three
months and six months ended June 30, 1999 and 1998. 3
Condensed Consolidated Balance Sheets at June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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
</TABLE>
2
<PAGE> 3
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,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 70,145 $ 65,603 $ 127,423 $ 116,190
Cost of sales 52,053 50,013 94,861 89,006
---------- -----------
----------- -----------
Gross margin 18,092 15,590 32,562 27,184
Selling, general and administrative expenses 12,792 12,317 25,470 23,481
Plant closure costs 325 - 325 -
---------- ----------- ----------- -----------
Income from operations 4,975 3,273 6,767 3,703
Interest expense, net 1,059 830 1,973 1,495
---------- ----------- ----------- -----------
Income before taxes 3,916 2,443 4,794 2,208
Provision (benefit) for income taxes (1,194) 997 (821) 901
---------- ----------- ----------- -----------
Net income $ 5,110 $ 1,446 $ 5,615 $ 1,307
========== =========== =========== ===========
Basic earnings per common share $ .78 $ .22 $ .86 $ .20
========== =========== =========== ===========
Diluted earnings per common share $ .72 $ .22 $ .79 $ .20
========== =========== =========== ===========
Cash dividends per common share $ .05 $ .05 $ .10 $ .10
========== =========== =========== ===========
Weighted average common shares - basic 6,573 6,556 6,573 6,556
========== =========== =========== ===========
Weighted average common shares and equivalents - diluted 7,077 6,576 7,077 6,576
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
The primary and diluted earnings per share effect of the plant closure
costs is $0.03 during the three months and six months ended June 30, 1999. The
primary and diluted earnings per share effect of the non-recurring, non-cash
deferred tax benefit is $0.45 and $0.42, respectively, during the three months
and six months ended June 30, 1999.
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 5,110 $ 1,446 $ 5,615 $ 1,307
Other comprehensive income, net of tax:
Foreign currency translation (31) 30 (17) 5
---------- ----------- ----------- -----------
Comprehensive income $ 5,079 $ 1,476 $ 5,598 $ 1,312
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
TRANSPRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------------------ ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,109 $ 345
Accounts receivable (less allowances of $2,192 and $2,390) 43,241 34,173
--------- ---------
Inventories:
Raw materials 15,983 14,765
Work in process 7,776 7,124
Finished goods 50,061 37,886
--------- ---------
Total inventories 73,820 59,775
--------- ---------
Deferred income tax benefit 5,840 2,641
Other current assets 2,315 3,200
--------- ---------
Total current assets 127,325 100,134
--------- ---------
Property, plant and equipment 99,000 94,913
Less accumulated depreciation (58,922) (55,426)
--------- ----------
Net property, plant and equipment 40,078 39,487
--------- ---------
Goodwill (net of amortization of $606 and $348) 8,069 6,093
Other assets 2,707 2,813
--------- ---------
Total assets $ 178,179 $ 148,527
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,352 $ 14,797
Accrued insurance 4,437 4,404
Accrued salaries and wages 4,272 4,823
Accrued taxes 3,306 541
Accrued expenses 5,801 5,393
--------- ---------
Total current liabilities 38,168 29,958
--------- ---------
Long- term liabilities:
Long-term debt 58,633 42,197
Retirement and postretirement obligations 7,477 7,482
Deferred income taxes 768 973
Other liabilities 302 50
--------- ---------
Total liabilities 105,348 80,660
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value: Authorized 2,500,000 shares:
Issued and outstanding as follows:
Series A Junior participating preferred stock, $.01 par value -- --
Authorized 200,000 shares; none issued and outstanding at
June 30, 1999 and December 31, 1998
Series B convertible preferred stock, $.01 par value -- --
Authorized 30,000 shares; 30,000 shares issued and
outstanding at June 30, 1999 and December 31, 1998
Common stock, $.01 par value: 66 66
Authorized 17,500,000 shares; 6,669,446 shares issued at June 30, 1999
and December 31, 1998
Paid-in capital 55,074 55,074
Unearned compensation (89) (113)
Retained earnings 19,806 14,883
Accumulated other comprehensive income (2,000) (2,017)
Treasury stock at cost, (26) (26)
72,111 shares at June 30, 1999 and December 31, 1998
--------- ---------
Total stockholders' equity 72,831 67,867
--------- ---------
Total liabilities and stockholders' equity $ 178,179 $ 148,527
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,615 $ 1,307
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,704 3,152
(Gain) loss on sale of fixed assets (5) --
Deferred tax benefit (2,858) --
Provision for losses - accounts receivable 364 787
-------- --------
Total adjustments to reconcile net income to net cash provided by operating
activities 1,205 3,939
-------- --------
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (9,259) (2,978)
Inventories (13,114) (5,728)
Accounts payable 5,236 (1,226)
Accrued expenses 2,649 (598)
Other, net 539 (189)
-------- --------
Total change in operating assets and liabilities (13,949) (10,719)
-------- --------
Net cash used in operating activities (7,129) (5,473)
-------- --------
Cash flows from investing activities:
Capital expenditures (4,047) (3,903)
Sales and retirements of fixed assets, net 44 33
Acquisition of A/C Plus, net of cash acquired (2,350) --
-------- --------
Net cash used in investing activities (6,353) (3,870)
-------- --------
Cash flows from financing activities:
Dividends paid (686) (661)
Payments of long-term debt -- (2,500)
Borrowings of long-term debt 15,932 12,900
-------- --------
Net cash provided by financing activities 15,246 9,739
-------- --------
Increase in cash and cash equivalents 1,764 396
Cash and cash equivalents:
Beginning of period 345 593
-------- --------
End of period $ 2,109 $ 989
======== ========
Supplemental Cash Flow Information:
Interest paid $ 1,721 $ 1,332
Taxes paid (refunded) $ (65) $ 878
Supplemental Schedule of non-cash investing and financing activities:
The Company acquired A/C Plus, effective February 1, 1999, the details of which
are further described in note 5. In connection with this transaction,
liabilities were assumed, as follows:
Fair value of assets acquired $ 3,060
Cash paid (2,250)
--------
Liabilities assumed $ 810
========
</TABLE>
In connection with the acquisition, the Company issued a promissory note of
$250,000, payable on the second anniversary of the closing.
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
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, replacement automotive air conditioning parts,
and specialty fabricated metal products for a variety of Aftermarket and
Original Equipment Manufacturing ("OEM") automotive, truck and industrial
equipment applications, and performs vehicle conversions.
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, 1998 filed with the Securities and Exchange Commission on
March 30, 1999, 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, 1998 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 - SEGMENT AND BUSINESS INFORMATION
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131") "Disclosures about Segments of an Enterprise
and Related Information." In accordance with SFAS No. 131, prior year segment
information has been included for the comparable 1998 period to present the
Company's three reportable segments - Aftermarket Heating and Cooling Systems,
OEM Heat Transfer Systems and Specialty Metal Fabrication.
Total assets as of June 30, 1999 in the Aftermarket Heating and Cooling
Segment increased by $22.4 million from the amounts reported at December 31,
1998 resulting from the normal seasonal increases in inventory and accounts
receivable and from the acquisition of A/C Plus as of February 1, 1999. There
was no material change in the assets of the other business segments as of June
30, 1999.
Aftermarket Heating and Cooling Systems product lines include complete
radiators and radiator cores, heaters, air conditioning condensers and other air
conditioning parts. The OEM Heat Transfer Systems business provides manufactured
specialized heavy-duty equipment radiators, charge air coolers and oil coolers.
Specialty Metal Fabrication products and services include fabrication of metal
racking, enclosures and cabinetry and the fabrication and installation of
customized van interiors and vehicle conversion components.
6
<PAGE> 7
The tables below set forth information about reported segments for the
three and six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
(Unaudited) CONSOLIDATED REVENUES FROM EXTERNAL CUSTOMERS
-------------------------------------------------------------------
(Amounts in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BUSINESS SEGMENT
Aftermarket Heating and Cooling Systems $ 45,151 $ 42,393 $ 82,499 $ 72,075
OEM Heat Transfer Systems 9,519 9,177 19,086 19,952
Specialty Metal Fabrication 15,475 14,033 25,838 24,163
Inter-segment revenues:
Aftermarket Heating and Cooling Systems 1,828 1,001 2,705 1,864
OEM Heat Transfer Systems 3 10 12 38
Elimination of inter-segment revenues (1,831) (1,011) (2,717) (1,902)
--------- --------- --------- ---------
Consolidated totals $ 70,145 $ 65,603 $ 127,423 $ 116,190
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited) INCOME FROM OPERATIONS
-------------------------------------------------------------------
(Amounts in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
BUSINESS SEGMENT
Aftermarket Heating and Cooling Systems $ 5,189 $ 3,449 $ 8,204 $ 4,497
OEM Heat Transfer Systems (320) (748) (457) (1,021)
Specialty Metal Fabrication 1,255 2,181 1,326 2,987
------- ------- ------- -------
Segment totals 6,124 4,882 9,073 6,463
Corporate expenses (1,149) (1,609) (2,306) (2,760)
------- ------- ------- -------
Consolidated totals $ 4,975 $ 3,273 $ 6,767 $ 3,703
======= ======= ======= =======
</TABLE>
NOTE 4 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED
(Amounts in thousands, except per share data) JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE COMPUTATION:
Numerator:
Net income $ 5,110 $ 1,446 $ 5,615 $ 1,307
Less: preferred stock dividend (15) -- (30) --
------- ------- ------- -------
Net income available to common stockholders $ 5,095 $ 1,446 $ 5,585 $ 1,307
======= ======= ======= =======
Denominator:
Weighted average common shares 6,597 6,611 6,597 6,611
Non-vested restricted stock (24) (55) (24) (55)
------- ------- ------- -------
Denominator for basic earnings per common share -
adjusted weighted average common shares 6,573 6,556 6,573 6,556
======= ======= ======= =======
Basic earnings per common share $ .78 $ .22 $ .86 $ .20
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
DILUTED EARNINGS PER COMMON SHARE COMPUTATION:
<S> <C> <C> <C> <C>
Numerator:
Income available to common shareholders $5,095 $1,446 $5,585 $1,307
Add back: preferred stock dividend 15 -- 30 --
------ ------ ------ ------
Income available to stockholders and assumed
conversions $5,110 $1,446 $5,615 $1,307
====== ====== ====== ======
Denominator:
Adjusted weighted average common shares 6,573 6,556 6,573 6,556
Dilutive effect of Series B preferred stock 497 -- 497 --
Dilutive effect of stock options and non-vested
restricted stock 7 20 7 20
------ ------ ------ ------
Adjusted weighted average common shares and assumed
conversions 7,077 6,576 7,077 6,576
====== ====== ====== ======
Diluted earnings per common share $ .72 $ .22 $ .79 $ .20
====== ====== ====== ======
</TABLE>
Options to purchase 558,278 shares of common stock, with exercise prices ranging
from $5.88 to $11.75, were outstanding during the three months and six months
ended June 30, 1999, but were not included in the computation of diluted
earnings per share because the exercise prices of the options were greater than
the average market price for the common shares for the period.
NOTE 5 - ACQUISITION
Effective February 1, 1999, the Company purchased 100% of the outstanding stock
of A/C Plus, Inc., ("A/C Plus") an air conditioning compressor remanufacturer
located in Arlington, Texas. A/C Plus had sales of approximately $2.9 million in
fiscal 1998. The transaction was structured with a purchase price of $2.25
million in cash paid at closing and a promissory note of $0.25 million payable
on the second anniversary of the closing. Concurrent with the purchase, the
Company repaid $0.5 million in working capital debt on behalf of A/C Plus. The
purchase price and working capital repayment were financed through the Company's
Revolving Credit Agreement. The acquisition was accounted for as a purchase.
Goodwill of $2.1 million was recorded in connection with the transaction and is
being amortized over 20 years.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging contracts. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. The adoption of SFAS No. 133 does not currently apply to the
Company and accordingly will not have a material impact on its results of
operations or financial position.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED JUNE 30, 1998
Net sales for the three months ended June 30, 1999 increased by 6.9% to
$70.1 million compared with $65.6 million for the three months ended June 30,
1998. Sales in the Aftermarket Heating and Cooling Systems segment increased by
$2.8 million, or 6.5%, from the comparable 1998 period, reflecting the sales
contribution from Evap, Inc.("Evap"), acquired effective August 1, 1998 and A/C
Plus, acquired effective February 1, 1999. Sales in the OEM Heat Transfer
Systems segment increased by $0.3 million, or 3.7%, compared with the same 1998
quarter, due to an increase in volume resulting from the strong Class 8 truck
and specialty vehicle markets. Sales in the Specialty Metal Fabrication segment
increased by $1.4 million, or 10.3%, compared with the same 1998 quarter, due to
an increase in sales of specialty fabricated enclosures for telecommunications
customers. Vehicle conversion revenues were flat.
Gross margin of 25.8% for the three months ended June 30, 1999
increased from the 23.8% achieved for the three months ended June 30, 1998. The
improvement was driven by gross margin improvements in the Aftermarket Heating
and Cooling Systems segment reflecting the contribution of the newly acquired
air conditioning parts companies as well as lower material costs and improved
manufacturing efficiencies and, in the OEM Heat Transfer Systems segment, as a
result of actions the Company has taken to improve operational efficiencies.
Gross margins in the Specialty Metal Fabrication segment declined as the
capacity of the new Dallas metal fabrication facility was not fully utilized.
During the second quarter, selling, general and administrative expenses
increased by $0.5 million, or 3.9%, primarily as a result of the inclusion of
expenses associated with the Evap and A/C Plus operations, but declined as a
percentage of sales from 18.8% to 18.2%. In 1998, the Company recognized a one
time benefit of $0.6 million for a dividend from the Ohio state workers'
compensation fund, which was partially offset by the recognition of a $0.5
million reserve against the balance of a note accepted in a 1994 asset sale
transaction.
Plant closure costs of approximately $0.3 million were recognized in
the second quarter of 1999 relating to the closure of the Company's
Philadelphia, Pennsylvania and Atlanta, Georgia replacement automotive condenser
manufacturing plants and the move of that condenser manufacturing to the
Company's Los Angeles, California facility. The costs primarily reflect
severance and other personnel termination costs associated with these closures.
Net interest expense increased $0.2 million for the three months ended
June 30, 1999 compared with the three months ended June 30, 1998 due to higher
debt levels associated with the acquisition of Evap and A/C Plus and higher
seasonal working capital requirements.
During the three months ended June 30, 1999, the Company recognized a
non-recurring, non-cash deferred tax benefit of $2.9 million related to the
change in the organizational structure of its GO/DAN Industries operation from a
partnership to a corporation. The Company's effective tax rate of 42.5% for the
three months ended June 30, 1999, which does not include the impact of the
non-recurring, non-cash deferred tax benefit, 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 three months ended June 30, 1998 rate of
40.8% to reflect a higher level of non-tax deductible expenses expected in 1999.
9
<PAGE> 10
Net income for the three months ended June 30, 1999 was $5.1 million,
or $0.78 per basic common share and $0.72 per diluted common share, compared
with net income of $1.4 million, or $0.22 per basic and diluted common share for
the three months ended June 30, 1998. Excluding the effect of plant closure
costs and the non-recurring, non-cash deferred tax benefit, earnings for the
second quarter of 1999 were $2.4 million, or $0.37 per basic common share and
$0.35 per diluted common share.
SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
Net sales for the six months ended June 30, 1999 increased 9.7% to
$127.4 million compared with $116.2 million for the six months ended June 30,
1998. Sales in the Aftermarket Heating and Cooling Systems segment increased by
$10.4 million, or 14.5%, from the comparable 1998 period, reflecting the sales
contribution from Evap and A/C Plus and volume increases in the radiator and
heater product lines. Sales in the OEM Heat Transfer Systems segment declined by
$0.9 million, or 4.3%, compared with the same 1998 period, reflecting the higher
level of sales in the first quarter of 1998 related to the catch up of overdue
orders from 1997. Sales in the Specialty Metal Fabrication Business increased by
$1.7 million, or 6.9%, over the comparable 1998 period, due to an increase in
sales of specialty fabricated enclosures for telecommunications customers
coupled with an increase in vehicle conversion revenues.
Gross margin of 25.6% for the six months ended June 30, 1999 increased
from the 23.4% achieved for the six months ended June 30, 1998. The improvement
reflects the contribution of Evap and A/C Plus coupled with higher volume, lower
material costs and improved manufacturing efficiencies in the Aftermarket
Heating and Cooling Systems segment. Gross margins in the Specialty Metal
Fabrication segment declined as the capacity of the new Dallas metal fabrication
facility was not fully utilized. Actions the Company has taken to improve
operational efficiencies in the OEM Heat Transfer Systems segment generated
positive gross margins for the six months ended June 30, 1999, compared with
negative margins in the prior year period.
Selling, general and administrative expenses increased by $2.0 million,
or 8.5%, primarily as a result of the inclusion of expenses associated with Evap
and A/C Plus, but were essentially flat as a percentage of sales. In 1998, the
Company recognized a one time benefit of $0.6 million for a dividend from the
Ohio state workers' compensation fund, which was partially offset by the
recognition of a $0.5 million reserve against the balance of a note accepted in
a 1994 asset sale transaction.
Plant closure costs of approximately $0.3 million were recognized in
the first six months of 1999 related to the closure of the Company's
Philadelphia, Pennsylvania and Atlanta, Georgia replacement automotive condenser
manufacturing plants.
Net interest expense increased $0.5 million for the six months ended
June 30, 1999 compared with the second quarter of 1998 due to higher debt levels
associated with the acquisition of Evap and A/C Plus and higher seasonal working
capital requirements.
During the six months ended June 30, 1999, the Company recognized a
non-recurring, non-cash deferred tax benefit of $2.9 million related to the
change in the organizational structure of its GO/DAN Industries operation from a
partnership to a corporation. The Company's effective tax rate of 42.5% for the
six months ended June 30, 1999, which does not include the impact of the
non-recurring non-cash deferred tax benefit, 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 six months ended June 30, 1998 rate of 40.8%
to reflect a higher level of non-tax deductible expenses expected in 1999.
10
<PAGE> 11
Net income for the six months ended June 30, 1999 was $5.6 million, or
$0.86 per basic common share and $0.79 per diluted common share, compared with
net income of $1.3 million, or $0.20 per basic and diluted common share, in the
comparable period of 1998. Excluding the effect of plant closure costs and the
non-recurring, non-cash deferred tax benefit, earnings for the first six months
of 1999 were $2.9 million, or $0.45 per basic common share and $0.42 per diluted
common share.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
In July 1998, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with five banking institutions which 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 if the Company achieves certain senior debt ratings or if certain
financial ratios are met and maintained. At June 30, 1999, the Company did not
meet the financial ratios required for release of the security interest.
Available borrowings under the Revolving Credit Agreement are
determined by a borrowing base consisting of the Company's eligible (i) 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) the higher of (i) 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 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.
At June 30, 1999, borrowings were approximately $45.6 million under the
Company's Revolving Credit Agreement. 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 $17.6 million at June 30, 1999. Of the total
letters of credit outstanding, $13.4 million supported borrowings under floating
rate industrial revenue bonds.
11
<PAGE> 12
During the first six months of 1999, the Company required $7.1 million
of cash to support its operations as a result of a $13.1 million inventory build
up primarily in anticipation of the third quarter peak selling season for
Aftermarket Heating and Cooling Systems and a $9.3 million increase in accounts
receivable which reflects the higher sales during the three months ended June
30, 1999. An increase in accounts payable and accrued expenses provided $7.9
million of cash and net income plus total adjustments to reconcile net income to
net cash used in operating activities provided $6.8 million of cash.
Capital spending during the first six months of 1999 totaled $4.0
million and the acquisition of A/C Plus, including transaction costs, required
$2.4 million of cash. The Company paid two cash dividends of $0.05 per share
totaling $0.7 million during the first six months of 1999. Net borrowings under
the Revolving Credit Agreement to finance the operating and other cash
requirements of the Company increased by $15.9 million from December 31, 1998.
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. In the worst case, 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's Year 2000 initiative consists of: (i) performing an
inventory of all computer, facility and manufacturing equipment and external
business partners which may be Year 2000 sensitive; (ii) assessing that
inventory for Year 2000 compliance; (iii) developing a plan to remediate or
replace non Year 2000 compliant inventory items; and (iv) the implementation of
that plan, including remediation, replacement, testing and contingency
arrangements, as necessary.
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 during the third quarter of 1999. Hardware, software and other
capitalizable costs will be capitalized and expensed over the useful life of the
systems. 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 $1.8
million is for capitalizable hardware and software costs. To date, the Company
has spent approximately $2.2 million on this project, of which $1.7 million was
for capitalizable hardware and software costs.
During 1998, the Company initiated formal communications with its
information technology hardware and software providers, 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. The Company
believes that with the completion of its Year 2000 initiatives, as scheduled,
the possibility of
12
<PAGE> 13
significant interruptions of normal operations should be significantly reduced.
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. Contingency plans are being developed as necessary, to mitigate the
impact of non year 2000 compliant external issues which, in the worst case, may
result in source of supply issues with suppliers or the inability of customers
to order product.
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 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.
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 Company's Year 2000 project are subject
to numerous factors, including but not limited to, the availability and cost of
trained personnel, the ability to effect the timely conversion of all relevant
systems, and the effectiveness of contingency plans for non year 2000 compliant
issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in
interest rates, foreign currency exchange rates and commodities. There have been
no material changes in market risk since the filing of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
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 28,
1999, 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 5,364,714 294,305
Henry P. McHale 5,363,518 295,502
William J. Abraham, Jr 5,363,216 295,803
Philip Wm. Colburn 5,358,860 300,160
Paul R. Lederer 5,364,951 294,068
Sharon M. Oster 5,365,136 293,883
F. Alan Smith 5,364,361 294,658
</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, 1999. 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:
FOR AGAINST ABSTAIN
--- ------- -------
5,644,331 3,565 11,124
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 29, 1999, 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, 1999.
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 12, 1999 By: /s/ Henry P. McHale
--------------------------------------
Henry P. McHale
President, Chief Executive Officer
and Director
Date: August 12, 1999 By: /s/ Timothy E. Coyne
--------------------------------------
Timothy E. Coyne
Vice President, Treasurer, Secretary,
Controller and Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TRANSPRO, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,109
<SECURITIES> 0
<RECEIVABLES> 45,433
<ALLOWANCES> 2,192
<INVENTORY> 73,820
<CURRENT-ASSETS> 127,325
<PP&E> 99,000
<DEPRECIATION> 58,922
<TOTAL-ASSETS> 178,179
<CURRENT-LIABILITIES> 38,168
<BONDS> 58,633
0
0
<COMMON> 66
<OTHER-SE> 72,765
<TOTAL-LIABILITY-AND-EQUITY> 178,179
<SALES> 127,423
<TOTAL-REVENUES> 127,423
<CGS> 94,861
<TOTAL-COSTS> 94,861
<OTHER-EXPENSES> 25,431
<LOSS-PROVISION> 364
<INTEREST-EXPENSE> 1,973
<INCOME-PRETAX> 4,794
<INCOME-TAX> (821)
<INCOME-CONTINUING> 5,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,615
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.79
</TABLE>
