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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, 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 (IRS 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
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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 1, 2000 was $36,697,676. On that date,
there were 6,597,335 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, 1999 are incorporated by reference into Part II hereof.
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders
are incorporated by reference into Part III of this report.
Exhibit Index is on pages 17 through 19 of this report.
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TRANSPRO, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
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PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder 14
Matters
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting 16
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 17
Signatures 20
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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. ("Allen", formerly The Allen Group Inc.) 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"), then a 50/50 joint venture partnership
between affiliates of Allen and Handy & Harman that produces replacement
radiators and other heat transfer products for the automotive and truck
aftermarkets. 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.
Effective April 1, 1999, GDI changed its organizational structure from a
partnership to a corporation.
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 operates in three business segments, Aftermarket Heating and
Cooling Systems, Original Equipment Manufacturer ("OEM") Heat Transfer Systems
and Specialty Metal Fabrication. The Company is comprised of five operating
divisions that supply products and services to the automotive and truck
aftermarkets and original equipment manufacturers of trucks, vans,
telecommunications equipment and other industrial products. The Aftermarket
Heating and Cooling Systems segment includes the Company's GO/DAN INDUSTRIES
division ("GDI"), a producer of replacement radiators and other heat transfer
products for the automotive and truck aftermarkets; the Company's EVAP, Inc.
("EVAP") division, a manufacturer and distributor of replacement automotive air
conditioning parts for the automotive aftermarket; and the Company's A/C Plus,
Inc. ("A/C Plus") division, a re-manufacturer of air conditioning compressors
primarily for import applications in the automotive aftermarket. The OEM Heat
Transfer Systems segment includes the Company's G&O Manufacturing Company
division ("G&O") which produces and supplies radiators, charge air coolers, and
engine cooling system components for OEMs of heavy duty trucks and industrial
and off-highway equipment. The Specialty Metal Fabrication segment includes the
Company's Crown divisions ("Crown") which install specialized interiors in
utility trucks and vans for major commercial fleets and designs, manufactures
and assembles fabricated metal parts for light truck, telecommunications and
other industrial customers.
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 Motor Company ("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 US Auto Radiator Manufacturing Corporation, to form a 50/50
joint venture partnership. The Company added replacement automotive air
conditioning condensers to its aftermarket product line with the acquisition of
substantially all of the assets, and the assumption of certain liabilities, of
Rahn Industries effective August 1996. In December 1997, the Company acquired
substantially all of the assets and assumed certain liabilities of Vehicle
Management Systems Inc. ("VMS"), a small Canadian van upfitter, to extend its
geographic coverage for vehicle conversions into Canada. The Company added
replacement automotive air conditioning parts to its aftermarket product line
with the acquisition of
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the outstanding stock of EVAP in a purchase transaction effective August 1,
1998. The Company added re-manufactured automotive air conditioning compressors
to its aftermarket product line with the acquisition of the outstanding stock of
A/C Plus in a purchase transaction effective February 1, 1999.
The Company is concentrating on exploring strategic alternatives for our
Specialty Metal Fabrication business. As a result of the significant
improvements over the past three years at this business, we believe that now is
an opportune time to evaluate our options for this business and improve our
ability to fund the growth in the Aftermarket Heating and Cooling Systems
segment.
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DESCRIPTION OF BUSINESS
MARKETS
The automotive and heavy truck parts industries target two distinct markets,
the aftermarket and the OEM market. The products and services used to maintain
and repair automobiles, vans, light trucks and heavy trucks, as well as
accessories not supplied with such vehicles when manufactured, form the
respective automotive and heavy truck aftermarkets. The 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
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
automotive and heavy truck aftermarkets, as well as the heavy truck OEM market.
The Company also sells its automotive products to OEM's of off-highway and
transportation equipment and other industrial customers. The Company also
manufactures fabricated enclosures and cabinetry for the OEM telecommunications
industry.
PRINCIPAL PRODUCTS AND SERVICES
The Company designs, manufactures and markets radiators, heater cores, air
conditioning parts (including condensers, compressors, accumulators and
evaporators) and other heat transfer products for the automotive aftermarket. In
addition, the Company manufactures and distributes radiators, automotive air
conditioning compressors and replacement parts and other specialty heat
exchangers for OEMs of heavy trucks and industrial and off-highway equipment and
the heavy truck aftermarket. The Company also manufactures and installs
specialized interiors for utility trucks and vehicles 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 in
each of its market segments is set forth below.
AFTERMARKET HEATING AND COOLING SYSTEMS.
GDI
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. The Company's primary
radiator and heater manufacturing facility in Nuevo Laredo, Mexico is ISO-9002
certified, which is an internationally recognized verification system for
quality management. In addition to its standard models, the Company can produce
and deliver 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 consists of: 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
re-circulated through the engine.
Complete Radiators. The Company's lines of complete radiators are produced
for automobile and 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
with adaptable fittings has become 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.
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The Company introduced its Ready Rad(R) Heatbuster ("Heatbuster") line of
complete radiators in 1994. This line of replacement radiators is specially
designed to provide approximately 20% more cooling capability than a standard
radiator. The Heatbuster line is an 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 market of
the automotive fleet.
Radiator Cores. A radiator core is 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 12,
strategically positioned, regional manufacturing plants.
Industrial cores are heavy-duty units, which are constructed of extremely
durable components 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
three to four times the price 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 then
propelled into the vehicle's passenger compartment 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 folded metal cellular construction 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.
Radiator 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, 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.
Air Conditioning Condensers. Automotive air conditioning condensers were
added to the GDI product line in 1996 through the acquisition of Rahn
Industries, Inc., an aftermarket manufacturer and supplier of automotive air
conditioning condensers. Air conditioning condensers are a component of a
vehicle's air conditioning system designed to convert the air conditioner
refrigerant from a high-pressure gas to a high-pressure liquid by passing it
through the air-cooled condenser. GDI distributes this product under the
Ready-Aire(R) brand and has fully integrated this product into its distribution
network. GDI catalogs more than 1,000 condenser part numbers.
EVAP AND A/C PLUS
Through EVAP and A/C Plus, the Company provides one of the most extensive
catalogs of replacement automotive air conditioning parts and compressors to the
automotive and truck aftermarkets.
Compressors. Through its A/C Plus division, the Company re-manufactures
replacement air conditioning compressors for import applications in the
automotive and truck aftermarkets. The Company also sells air conditioning
compressors for replacement in both domestic and import automotive and truck
aftermarkets. The compressor is designed to compress low-pressure vapor
refrigerant, which it draws from the evaporator into a high-pressure gas.
This gas is then pumped to the condenser.
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Accumulators. Accumulators act as a reservoir that prevents liquid
refrigerant from reaching the compressor. The accumulator uses a drying agent to
remove moisture from the system and a filter screen to trap any solid
contaminants.
Evaporators. Automotive air conditioning evaporators are designed to remove
heat from the passenger compartment. The core is generally located under the
dash or adjacent to the fire wall and functions as a heat exchanger by passing
low pressure liquid refrigerant through its passageways and forcing warm air
from the passenger compartment over the core. The refrigerant becomes a
low-pressure vapor and is then re-compressed by the compressor and
re-circulated.
Air Conditioning Parts and Supplies. The Company sells an extensive line of
other air conditioning parts and supplies through EVAP. These other component
parts include driers, hose and tube assemblies, blowers and fan clutches.
SPECIALTY METAL FABRICATION
The Company's Specialty Metal Fabrication segment, through its Crown
Divisions, is currently comprised of two interrelated operations. The principal
products produced and services performed by each of these operations are set
forth below. Prior to December 1997, the Specialty Metal Fabrication segment
also performed truck cab conversions for Ford.
Vehicle Conversions. The Company is one of the leaders in the installation of
vehicle conversions in utility trucks and vans for major commercial fleets such
as AT&T, Broadband, ADT, Airborne Express, General Electric and the regional
telephone companies. The Company's vehicle conversion installation facilities
are strategically located near each of the major production facilities for
utility trucks and vans of Ford, Chrysler and GM. 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 Ford, up-fit
approximately 10,000 Aerostar and Windstar mini vans for the US 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 up-fitter to provide a strategic location in
proximity to Ford's Missassauga, Ontario, Canada plant and greater access to the
Canadian market.
The Company enjoys a reputation in the industry for offering new and
innovative high quality products and on-time delivery. 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. In 1997, the
Company introduced a new, easily removable storage system for mini-vans called
Slide-Lock(TM), which offers users the ability to switch back and forth between
a passenger van and a service van within minutes. In 1999, the Company
introduced the vehicle conversion system (patent pending) for law enforcement
vehicles. 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. Certain of the fabricated metal products
manufactured by the Company are used in its own vehicle conversion business. In
addition to vehicle 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 designs, manufactures and assembles over 400 different fabricated metal
parts, including vehicle conversion parts and high tolerance cabinets for
telecommunications and other industrial customers such as, Lucent Technologies,
Alcatel and East Penn. During 1998, the Company opened a state-of-the-art metal
fabrication facility in Plano, Texas to service the rapidly growing
telecommunications industry in that area. The Plano, Texas facility is ISO-9002
certified. The Company's metal fabrication business is principally
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conducted out of its Wooster, Ohio, Thomaston, Georgia and Plano, Texas
manufacturing facilities. 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 and QS-9000
certified.
Truck Cab Conversions. Prior to December 1997, the Company produced a
four-door pickup truck cab for Ford's F-Series Truck (the "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 and DRW production facility in Louisville, Kentucky was closed in
December 1997.
OEM HEAT TRANSFER SYSTEMS
Through its G&O Division, the Company designs, manufactures and markets
radiators and charge air coolers to OEMs of heavy duty trucks, buses, as well
as, industrial and off-highway equipment such as generator sets, construction
vehicles, railroad locomotives and military equipment. The Company's Jackson,
Mississippi production facility is ISO 9002 certified and expects to attain
QS-9000 quality certification in 2000.
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 construction and
are specifically engineered to meet customer specifications to withstand a
variety of demanding customer applications.
Charge Air Coolers. The Company offers its OEM 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 turbo that is used by the engine
in its combustion process, which in turn improves the operating efficiency of
the engine and lowers its emission levels. The Company believes that the demand
for charge air coolers will continue to increase as the Company's customers face
increasing pressure to produce vehicles and equipment that are more fuel
efficient and less polluting. In 1999, the Company obtained a U.S. Patent
relating to its proprietary Ultra-Seal grommetted charge air cooler. This
product offers significant improvements in performance and reliability and
exceeds current industry guidelines for durability.
G&O's traditional heavy-duty on-highway (class 8) truck market has become
increasingly competitive and its 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 the traditional class 8 truck
market.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, EXPORT SALES AND DOMESTIC AND
FOREIGN OPERATIONS
The Company operates under three business segments, Aftermarket Heating and
Cooling Systems, OEM Heat Transfer Systems and Specialty Metal Fabrication.
Applicable segment information appears in Note 3 of the Notes to Consolidated
Financial Statements contained in the Registrant's 1999 Annual Report to
Stockholders, certain portions of which are included in Item 8 of 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 and acquired a vehicle conversion facility in
Canada in December 1997. During 1999 and 1998, the Company
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had $5.1 million and $4.8 million in sales in Mexico, respectively. Sales in
Canada aggregated $4.3 million and $1.4 million in 1999 and 1998, respectively.
CUSTOMERS
The Company sells its products and services to a wide variety and large
number of industrial and other commercial customers. The Company sells its
Aftermarket replacement radiators, air conditioning replacement parts and
supplies, and other heat transfer products to national retailers of aftermarket
automotive products, such as AutoZone, Pep Boys, warehouse distributors,
radiator shops, parts jobbers and, to a lesser extent, OEMs. The Company
supplies OEM heat transfer systems, including 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
vehicle conversion products and services include operators of large commercial
fleets such as Sears, General Electric and Airborne Express. The Company sells
its fabricated metal components to telecommunications companies, such as Lucent
Technologies and Alcatel.
The Company's largest customer during 1999 and 1998 was AutoZone, in our
Aftermarket Heating and Cooling Systems segment. AutoZone accounted for
approximately 12% and 11% of net sales for 1999 and 1998, respectively. The
Company's largest customer during 1997 was Ford, in our Specialty Metal
Fabrication segment, which accounted for approximately 27% of the Company's 1997
net sales. The 1997 sales to Ford include Crew Cab and Dual Rear Wheel ("DRW")
components and up-fitted vans destined for the US Postal Service. In 1999, 1998
and 1997, the Company had no other customers who individually accounted for
greater than 10% of the Company's net sales.
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.
GDI's sales and marketing efforts are under the direction of GDI's Executive
Vice President who oversees the Vice President of Marketing, the Vice President
of National Account Sales and the National Sales Manager. The National Sales
Manager is responsible for sales to radiator shops and traditional wholesale
distributors through the Company's branches and agencies. GDI also employs
several marketing specialists who report to the 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. The Vice
President of National Account Sales is responsible for sales to retailers and
auto parts warehouses. GDI also uses independent sales representatives to aid in
its outside sales efforts in these channels.
EVAP has an internal sales and marketing staff consisting of a Vice President
of Sales and Marketing with staff that serves its existing customer base and
seeks new customers. EVAP also utilizes independent sales representatives to aid
in its outside sales efforts.
At G&O, the Company has an in-house sales management staff that is
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 the engineering staff
of G&O's customers in order to provide the technical expertise and advice needed
in the development stage of new customer products. In addition, G&O's engineers
work closely with truck engine OEMs, such as Cummins Engine and Detroit Diesel,
during the early stages of new product development and design. G&O has
historically focused on sales of its products to domestic OEMs of heavy-duty
trucks and industrial equipment. In recent years, G&O has expanded its focus to
include all highway and specialty vehicle applications.
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In the vehicle conversion portion of its business, the Company's Crown
Divisions employ direct salespersons dedicated to servicing the national fleet
and leasing companies, as well as, truck and van OEMs such as Ford, GM and
Chrysler as well as independent sales representatives who manage the sales
effort to the over 200 vehicle 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 employs several direct salespersons and utilizes
an independent sales representative force to service the telecommunications
industry and other industrial buyers of fabricated metal products and value
added assemblies.
COMPETITION
The Company faces significant competition within each of the markets in which
it operates. In its Aftermarket Heating and Cooling Systems product lines, the
Company believes that it is among the major manufacturers and that competition
is widely distributed. The Company competes with the national producers of heat
transfer products, such as Modine Manufacturing ("Modine"), the internal
operations of OEMs and, to a lesser extent, local and regional manufacturers.
The Company's primary competition in the air conditioning replacement parts
business includes the Four Seasons, a division of Standard Motor Products, as
well as numerous regional operators. The Company believes it can utilize its
established distribution system to expand its air conditioning parts business
nationally. The Company's principal methods of competition include product
design, performance, price, service, warranty, product availability and timely
delivery.
With respect to its OEM Heat Transfer Systems segment, the Company competes
with national producers of heat transfer products, such as Modine, Valeo Engine
Cooling Systems and Behr GmbH & Co. The Company principally competes for new
business both at the beginning of the development phase or offering of a new
model 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.
Competition in the vehicle conversion business is widely distributed and the
Company competes with numerous regional operators. In the fabricated enclosure
market, the Company competes with numerous regional fabricators and competition
is widely distributed. The Company's principal methods of competition in this
market include product design, quality and timely delivery. Leadership in the
vehicle 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 adapt capacity to meet seasonal
demands and satisfy customer delivery requirements.
INTELLECTUAL PROPERTY
The Company owns a number of foreign and US patents and trademarks. The
patents expire on various dates from 2009 to 2019. In general, the Company's
patents cover certain of its radiator, charge air cooler and air conditioning
accumulator manufacturing processes. The Company has entered into licensing and
other agreements with respect to certain patents, trademarks and manufacturing
processes it uses in the operation of its business. The Company believes that it
owns or has rights to all patents and other technology necessary for the
operation of its business. The Company does not consider any single patent or
trademark or group of patents or trademarks to be material to its business as a
whole.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company in its Aftermarket Heating
and Cooling Systems and OEM Heat Transfer Systems product lines are copper and
brass. The principal raw material used in the Company's specialty metal
fabrication business is steel. Although copper, brass and steel and other
materials are available from a number of
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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 1999, 1998, and
1997. The Company believes its sources for raw steel 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.
Copper prices had been trending upward through mid-year 1997 at which time a
steady decline began which continued through the end of 1998. Prices began to
rise during the middle of 1999 and recently began to level off. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" - Item 7.
BACKLOG
The Company's backlog was approximately $10.3 million at December 31, 1999
compared with approximately $13.1 million at December 31, 1998. 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
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 the Aftermarket Heating and Cooling Systems segment, which typically
experiences higher sales during the summer months as the demand for replacement
radiators and air conditioning parts and supplies tend to increase and lower
sales during the winter months. Historically, the OEM Heat Transfer Systems and
Specialty Metal Fabrication segments have experienced a slight decrease in
revenues and operating income during the third and fourth quarters compared with
the first and second quarters, as 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. GDI's seasonal impact became more pronounced on TransPro as a
whole since 1998 with the end of the far less seasonal Crew Cab and DRW program
in December 1997. The Company will continue to seek opportunities to mitigate
the seasonality factor through its other segment operations.
RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $0.2 million for each of
the years ended December 31, 1999, 1998 and 1997.
EMPLOYEES
At December 31, 1999, the Company had approximately 2,562 employees. Of these
employees, approximately 1,160 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 Paperworkers International Union
represent approximately 26% each, of the Company's unionized employees. In
addition, a local Mexican labor union represents approximately 44% of the
Company's unionized employees. The Company has successfully re-negotiated three
collective bargaining agreements over the last several years and feels labor
relations are good, although there can be no assurance that the Company will not
experience work stoppages in the future.
11
<PAGE> 12
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New Haven, Connecticut
and conducts its operations through 16 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 replacement
radiator and original equipment product lines, its air conditioning replacement
parts business, and its vehicle conversion and fabricated metal products
operations. The Company's principal manufacturing and assembly facilities are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION SQUARE FOOTAGE LEASED PRODUCT LINE
- ------------------------------------ -------------- --------- -----------------------------------------------
<S> <C> <C> <C>
New Haven, Connecticut 158,800 Owned(1) Corporate headquarters, GDI headquarters,
tubes for original equipment radiators.
Jackson, Mississippi 135,885 Owned Original equipment radiators.
Wooster, Ohio 216,000 Owned (1) Fabricated metal products, vehicle
conversion.
Lorain, Ohio 79,846 Owned Vehicle conversion.
Thomaston, Georgia 30,000 Owned Fabricated metal products.
Baltimore, Maryland 10,000 Leased Vehicle conversion.
Bridgeton (St. Louis), Missouri 16,900 Leased Vehicle conversion.
Plano, Texas 71,500 Leased Fabricated metal products.
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.
Mississauga, Ontario Canada 14,616 Leased Vehicle conversion.
Arlington, Texas 82,350 Leased Air conditioning parts & supplies.
Arlington, Texas 18,000 Leased Air conditioning compressor re-manufacturing.
Warren, Michigan 21,500 Leased Vehicle conversion.
</TABLE>
- -------------------------
(1) Subject to IRB financing arrangements.
In its Aftermarket Heating and Cooling Systems segment, 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 12 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 47 local branch offices and 18 independent agencies and one
distribution center in Memphis, Tennessee that comprise its nationwide local
distribution network. All of the Company's local branch distribution facilities
are leased and are approximately 6,000 square feet in size.
12
<PAGE> 13
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. During 1998, the Company was fined
approximately $0.1 million in connection with certain pre-treatment water
containment violations at its Jackson, Mississippi facility. The issues were
satisfactorily resolved. The Company believes it is reasonably possible that
environmental related liabilities might 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 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. 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, 1999.
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 61 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 52 August 1995 Vice President Human Resources, since 1995; Vice President of Human
Resources of GDI, 1992 through 1995. Prior thereto, Managing Director
of Resources of IMCOR since 1990.
Timothy E. Coyne 45 October 1996 Vice President Finance, Treasurer, Secretary, Chief Financial Officer
since 1998 and Corporate Controller, since 1996; Vice President of
Finance and Administration and Treasurer of Keene Corporation 1990
through 1996.
Michael T. Hooper 54 February 1998 President of The Crown Divisions since 1996; Senior Vice President of
Findlex Corporation from 1993-1996; prior thereto various executive
positions with Rockwell International and CMW, Inc.
John F. Della Ventura 51 February 1998 President of G&O, since 1998; Group Controller-Engine Systems of
Echlin, Inc. (which was acquired by Dana Corporation) 1990 through
1998. Prior thereto Vice President Finance, G&O Manufacturing.
</TABLE>
* All officers are elected by the Board of Directors.
13
<PAGE> 14
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 1, 2000, was 1,207. Information regarding market prices and
dividends declared for the Company's Common Stock is shown below for 1999 and
1998. 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, 1999
----------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
Market price of common stock
---High $ 6-1/4 $ 6-3/8 $ 7-15/16 $ 6-7/8
---Low 4-5/16 4-3/8 4-15/16 5
Dividends per share $ .05 $ .05 $ .05 $ .05
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
Market price of common stock
---High $ 8-15/16 $ 8-3/4 $ 7-7/16 $ 6-1/4
---Low 7 7-7/16 5-5/16 4-3/8
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 1999 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 1999 Annual Report to Stockholders,
portions of which are filed as Exhibit 13 to this Report.
ITEM 7A. 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.
The Company's interest rate risk is most sensitive to changes in the U.S.
interest rates. The Company has an outstanding revolving credit agreement, under
which approximately $49.7 million was outstanding at December 31, 1999. The
revolving credit agreement bears interest at variable rates based on current
indices. The weighted average interest rate on this agreement during 1999 was
6.55%. Interest on the revolving credit agreement is based on, at the Company's
option, changes in either the Eurodollar loan rate or the Federal Funds
effective rate, plus an applicable margin based on certain Company ratios. The
Company also has Industrial Revenue Bonds ("IRB's"), which
14
<PAGE> 15
aggregated $13.0 million at December 31, 1999, and mature in 2010 and 2013. The
IRB's had a weighted average interest rate of 3.58% during 1999. Interest on the
IRB's is based on the short-term tax exempt bonds index.
The Company has sales and manufacturing facilities in Mexico and Canada. As a
result, changes in the foreign currency exchange rates and changes in the
economic conditions in these foreign markets could affect financial results. The
Company has accounted for transactions associated with these foreign operations
in accordance with the guidance established under Financial Accounting Standards
No. 52, "Foreign Currency Translation." Generally, assets and liabilities are
translated into U.S. dollars at the current rate of exchange, while revenues and
expenses are translated at the average rate for the year. Property, plant and
equipment and its associated depreciation and stockholders' equity are
translated at the historical rate. Operating income or loss for the Mexico
operation is included in the periodic results of operations of the Company. The
foreign currency exchange amounts associated with Canada are included in other
comprehensive income through the statement of changes in stockholders' equity.
The Company believes it has mitigated the risk associated with its foreign
operations through its management of inventory and other significant operating
assets.
Certain risks may arise in the various commodity markets in which the Company
participates. Commodity prices in the copper, brass and steel markets may be
subject to changes based on availability. The Company conducts its purchasing of
such commodities generally through three to six month purchase order
commitments. See "Raw Materials and Suppliers" in Part I of this Report for
additional information on commodity pricing.
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 Changes in Stockholders' Equity, the Notes to
Consolidated Financial Statements and the "Report of Independent Accountants"
contained in the Registrant's 1999 Annual Report to Stockholders, portions of
which are filed as Exhibit 13 to this Report.
15
<PAGE> 16
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, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Portions of the information required by this item are included in Part I
hereof, on page 13 of this Report. Other information required by this item is
contained in the Company's 2000 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 2000 Proxy Statement under the
heading "EXECUTIVE COMPENSATION" is incorporated herein by reference.
16
<PAGE> 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's 2000 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 2000 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 14, 2000,
are incorporated herein by reference to the Registrant's 1999 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,
1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2)Financial Statement Schedules
The following additional information should be read in conjunction with the
Consolidated Financial Statements of the Registrant included in Item 8 of this
Report:
Schedule II - Valuation and Qualifying Accounts, on page 23 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.
17
<PAGE> 18
(b) Reports on Form 8-K
On October 22, 1999, the Company filed a Current Report on Form 8-K
announcing its intention to evaluate strategic alternatives for its OEM Heat
Transfer Systems and Specialty Metal Fabrication segments.
(c) Exhibits -The following exhibits are filed as part of this report:
<TABLE>
<S> <C>
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. (3)
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 Revolving Credit Agreement between the Company and
Certain lending Institutions or Banks, BankBoston, N.A., as
Agent. (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 First Amendment to Revolving Credit Agreement between the
Company and Certain lending Institutions or Banks, BankBoston
N.A. as Agent. (4)
4.4 Waiver and Second Amendment to Revolving Credit Agreement
between the Company and Certain lending Institutions or Banks,
BankBoston, N.A., as Agent. (4)
4.5 Third Amendment to Revolving Credit Agreement between the
Company and Certain lending Institutions or Banks, BankBoston
N.A. as Agent, filed herewith.
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 TransPro, Inc. 1995 Non-employee Directors Stock Option
Plan. (1)
10.4 Form of Stock Option Agreement under the 1995 Non-employee
Directors Stock Option Plan. (1)
10.5 Form of Contribution Agreement between Allen and the Company.
(1)
10.6 Form of Instrument of Assumption of the Company. (1)
10.7 Form of Indemnification Agreement. (1)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.8 Form of Employment Agreement between the Company and Henry P.
McHale. (1)
10.9 Amendment No. 1 to Employment Agreement between the Company and
Henry P. McHale. (1)
10.10 Form of Employment Agreement between the Company and John C.
Martin, III. (1)
10.11 Form of Key Employee Severance Policy. (1)
10.12 Letter Agreement, dated December 15, 1992 between Jeffrey J.
Jackson and GO/DAN Industries. (1)
10.13 Letter Agreement dated September 24, 1996 between Timothy E.
Coyne and TransPro, Inc. (2)
10.14 Settlement and Release Agreement dated February 3, 1999 between
the Company and John C. Martin, III, filed herewith.
13 Portions of the 1999 Annual Report to Stockholders incorporated
by reference herein.
21.1 Subsidiaries of the Company, filed herewith.
22 Report of Independent Accountants on Financial Statement
Schedule, filed herewith.
23 Consent of PricewaterhouseCoopers LLP, filed herewith.
24 Powers of Attorney (included on signature page), filed herewith.
27 (i-viii) Financial Data Schedule, filed herewith.
</TABLE>
----------------------
(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).
(3) Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1998(File No. 1-13894).
(4) Incorporated by reference to the Company's Form 10-Q/A for the quarter
ended March 31, 1999(File No. 1-13894).
19
<PAGE> 20
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 15, 2000
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.
<TABLE>
<S> <C>
/s/ HENRY P. MCHALE March 15, 2000
- ------------------------------------
Henry P. McHale, President, Chief
Executive Officer and Director
/s/ WILLIAM J. ABRAHAM, JR. March 15, 2000
- ------------------------------------
William J. Abraham, Jr., Director
/s/ BARRY R. BANDUCCI March 15, 2000
- ------------------------------------
Barry R. Banducci, Director
/s/ PHILIP WM. COLBURN March 15, 2000
- ------------------------------------
Philip Wm. Colburn, Director
/s/ PAUL R. LEDERER March 15, 2000
- ------------------------------------
Paul R. Lederer, Director
/s/ SHARON M. OSTER March 15, 2000
- ------------------------------------
Sharon M. Oster, Director
/s/ F. ALAN SMITH March 15, 2000
- ------------------------------------
F. Alan Smith, Director
/s/ TIMOTHY E. COYNE March 15, 2000
- ------------------------------------
Timothy E. Coyne
Vice President Finance, Treasurer,
Secretary, Corporate Controller
and Chief Financial Officer
</TABLE>
20
<PAGE> 21
SCHEDULE II
TRANSPRO, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
PERIOD BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
(DOLLARS IN THOUSANDS) PERIOD EXPENSES ACCOUNTS (1) PERIOD
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts $ 2,390 $ 268 $ (238) $ (292) $ 2,128
Allowance for obsolete inventory 5,605 875 (232) (1,525) 4,723
Allowance for tax loss valuation - - 189 - 189
Year Ended December 31, 1998
Allowance for doubtful accounts 3,441 1,394 250 (2,695) 2,390
Allowance for obsolete inventory 5,003 1,629 800 (1,827) 5,605
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
</TABLE>
(1) Amounts adjusted in doubtful accounts and inventory were related to
acquisition reserves and charged to goodwill. Amounts for tax valuation
allowance were charged to deferred taxes.
22
<PAGE> 1
Exhibit 4.5
THIRD AMENDMENT TO
REVOLVING CREDIT AGREEMENT
This Third Amendment to Revolving Credit Agreement, dated as of December
29, 1999 (the "Amendment"), by and between (a) TRANSPRO, INC., a Delaware
corporation (the "Parent"), ALLEN HEAT TRANSFER PRODUCTS, INC., a Delaware
corporation ("AHTP"), AHTP II, INC., a Delaware corporation ("AHTP II"), EVAP,
INC. (f/k/a EI Acquisition Corp.), a Texas corporation ("EVAP" and collectively
with Parent, AHTP and AHTP II, the "Original Borrowers"), GO/DAN INDUSTRIES,
INC., a Delaware corporation ("GDI") and A/C PLUS, INC., a Texas corporation
("AC" and collectively with GDI and the Original Borrowers, the "Borrowers"),
(b) BANKBOSTON, N.A., a national banking association and the other lending
institutions listed on Schedule 1 of the Credit Agreement (collectively, the
"Banks") and (c) BANKBOSTON, N.A., as agent (the "Agent") for the Banks,
amending certain provisions of the Revolving Credit Agreement dated as of July
30, 1998 (as amended and in effect from time to time, the "Credit Agreement"),
by and between the Original Borrowers, the Agent and the Banks. Capitalized
terms used herein and which are not otherwise defined shall have the respective
meanings ascribed thereto in the Credit Agreement.
WHEREAS, the Borrowers have requested that the Banks agree to amend the
terms of the Loan Documents in several respects as hereinafter more fully set
forth; and
WHEREAS, the Banks are willing to amend the terms of the Loan Documents in
such respects, upon the terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. AMENDMENT TO SECTION 1.1 OF THE CREDIT AGREEMENT. Section 1.1
of the Credit Agreement is hereby amended as follows:
(a) The definition of "Borrowing Base" set forth in Section 1.1 of
the Credit Agreement is hereby amended by (i) substituting the
percentage "85%" for the percentage "80%" contained in clause (a)
therein, and (ii) substituting the percentage "75%" for the
percentage "80% contained in clause (c) therein.
(b) The definition of "Eligible Accounts Receivable" set forth in
Section 1.1 of the Credit Agreement is hereby amended by adding the
following to the end thereof:
"; and (x) that are not due from any single account debtor if
more than thirty percent (30%) of the aggregate amount of all
Accounts Receivable
<PAGE> 2
owing from such account debtor would otherwise not be Eligible
Accounts Receivable."
Section 2. AMENDMENT TO SECTION 2.3.2(a) OF THE CREDIT AGREEMENT. Section
2.3.2(a) of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
(a) Unless terminated earlier pursuant to the provisions of
this Section 2.3, on each of the dates set forth in the table below
(each such date being referred to as a "Reduction Date"), the Total
Commitment shall be automatically reduced (or in the case of January
21, 2000, increased) to the amount set forth opposite such date in
the column headed "Commitment Amount" set forth below, as such
Commitment Amount may be adjusted and in effect from time to time
pursuant to this Section 2.3 whereupon the Commitments of the Banks
shall be reduced (or increased) pro rata in accordance with their
respective Commitment Percentages:
<TABLE>
<CAPTION>
REDUCTION DATE COMMITMENT AMOUNT
-------------- -----------------
<S> <C> <C>
January 21, 2000 $75,000,000
November 30, 2000 $70,000,000
December 31, 2000 $65,000,000
March 31, 2001 $63,500,000
June 30, 2001 $62,000,000
September 30, 2001 $60,500,000
December 31, 2001 $59,000,000
March 31, 2002 $57,500,000
June 30, 2002 $56,000,000
September 30, 2002 $54,500,000
December 31, 2002 $53,000,000
March 31, 2003 $51,500,000
June 30, 2003 $50,000,000
</TABLE>
On each Reduction Date there shall become absolutely and
unconditionally due and payable, and the Borrowers hereby absolutely
and unconditionally, jointly and severally, promise to pay to the
Agent for the account of the Banks, the amount by which the sum of
the aggregate principal amount of all Loans outstanding plus the
Maximum Drawing Amount of all Letters of Credit and all Unpaid
Reimbursement Obligations exceeds the Total Commitment after giving
effect to the reduction of the Total Commitment as set forth herein.
No reduction of the Total Commitment may be reinstated.
<PAGE> 3
Section 3. AMENDMENT TO SECTION 10.1 OF THE CREDIT AGREEMENT. The table in
Section 10.1 of the Credit Agreement is hereby amended and restated in its
entirety as set forth below:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
April 1, 1999 - March 31, 2000 3.50:1.00
April 1, 2000 - June 30, 2000 3.25:1.00
July 1, 2000 - March 31, 2001 3.00:1.00
April 1, 2001 and thereafter 2.75:1.00
</TABLE>
Section 4. ADDITION TO SECTION 10 OF THE CREDIT AGREEMENT. The following
new Section 10.6 is hereby added to the Credit Agreement:
"10.6 Minimum Availability. The Borrowers will not at any time prior
to January 1, 2001 permit the sum of the outstanding amount of the
Loans plus the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations to exceed the Borrowing Base minus $5,000,000."
Section 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become
effective until the Agent receives the following:
(a) a counterpart of this Amendment signed by each of the Borrowers, the
Agent and each of the Banks;
(b) an amendment fee of $112,500 paid by the Borrowers for the pro rata
account of each Bank based on such Bank's Commitment Percentage;
(c) an opinion of counsel to the Borrowers, in form and substance
satisfactory to the Agent; and
(d) such other documents, instruments, certificates or agreements as the
Agent may reasonably require.
Section 6. REPRESENTATIONS AND WARRANTIES. The Borrowers represent and
warrant that the representations and warranties of the Borrowers contained in
the Credit agreement and the other Loan Documents were true and correct when
made and continue to be true and correct on and as of the date hereof as if made
on the date hereof except to the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement or the other Loan Documents
and to the extent that such representations and warranties related expressly to
an earlier date and that no Default or Event of Default has occurred and is
continuing.
Section 7. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to, the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Amendment shall be read and construed as a
<PAGE> 4
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
Section 8. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT
INTENTIONALLY BLANK]
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
TRANSPRO, INC.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
ALLEN HEAT TRANSFER PRODUCTS, INC.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
AHTP II, INC.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
EVAP, INC. (f/k/a EI Acquisition Corp.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
GO/DAN INDUSTRIES, INC.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
A/C PLUS, INC.
By: /s/ TIMOTHY E. COYNE
-----------------------------------
Name: Timothy E. Coyne
Title: V.P.
<PAGE> 6
BANKBOSTON, NA., individually and as Agent
By: /s/ RICHARD D. BRIGGS, JR.
-----------------------------------
Name: Richard D. Briggs, Jr.
Title: Director
PEOPLE'S BANK
By: /s/ KEVIN. R. CALLAHAN
-----------------------------------
Name: Kevin R. Callahan
Title: Vice President
THE BANK OF NEW YORK
By: /s/ GERALDINE TURKINGTON
-----------------------------------
Name: Geraldine Turkington
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ JEFFREY C. NICHOLSON
-----------------------------------
Name: Jeffrey C. Nicholson
Title: Managing Director
BANK ONE, NA (Main Office Chicago)
By: /s/ STEPHEN E. MCDONALD
-----------------------------------
Name: Stephen. E. McDonald
Title: Senior Vice President
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share amounts, current ratio and employee
data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales $261,577 $240,065 $288,866 $264,095 $151,660
Gross margin 64,198 54,518 66,684 61,827 31,174
Plant and business consolidation
and closure costs 325 -- 3,958 4,389 --
Income from operations 11,364 6,231 16,448 17,006 13,907
Income from joint venture -- -- -- -- 2,495
Net income 6,816 1,647 7,875 8,420 9,074
Basic earnings per common share* $ 1.03 $ .25 $ 1.20 $ 1.28 $ 1.39
Diluted earnings per common share* $ .96 $ .24 $ 1.20 $ 1.28 $ 1.39
Cash dividends per common share $ .20 $ .20 $ .20 $ .20 $ .05
FINANCIAL CONDITION
Current ratio 3.24 3.34 2.65 2.46 2.27
Working capital $ 93,574 $ 70,176 $ 63,465 $ 56,161 $ 53,255
Capital expenditures 8,200 8,582 7,214 5,565 4,066
Depreciation and amortization expense 7,541 6,782 8,193 7,020 3,701
Net property, plant and
equipment 40,627 39,487 36,752 37,939 36,951
Total assets 185,895 148,527 144,540 140,266 139,718
Debt 61,928 42,197 37,838 38,917 40,846
Total equity 74,471 67,867 65,015 58,696 51,103
Number of employees 2,562 2,367 2,322 2,139 2,001
</TABLE>
* The basic and diluted earnings per common share for 1995 is for comparative
purposes only, as common shares were not issued until October 1995, and assumes
average common shares outstanding of 6,621,000.
On September 29, 1995, TransPro, Inc. ("TransPro" or the "Company")
completed a series of transactions pursuant to which the Company's sole
stockholder, Allen Telecom 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, that produces replacement radiators and other heat
transfer products for the automotive and truck aftermarkets. 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. Effective April 1, 1999, GDI
changed its organizational structure from a partnership to a corporation.
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 owns the Automotive and Truck
Products Business and 100% of GDI, and is an independent publicly-traded
company.
1
<PAGE> 2
The above table sets forth certain selected historical (1995) financial
data for the Crown and G&O divisions of the Company (formerly the Automotive and
Truck Products Business). 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 1995 sales, gross margin and income from operations amounts in the
table above include only three months of GDI activity. The number of employees
for 1995 includes GDI employees.
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
TransPro, Inc. 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 OEM automotive, truck
and industrial equipment applications, and performs vehicle conversions. The
Company operates in three business segments: Aftermarket Heating and Cooling
Systems, OEM Heat Transfer Systems and Specialty Metal Fabrication. In October
1999, the Company announced its intentions to focus on its Aftermarket Heating
and Cooling Systems segment and explore strategic alternatives for its Specialty
Metal Fabrication and OEM Heat Transfer Systems Segments.
YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998
Net sales in 1999 increased 9.0% to $261.6 million compared with $240.1
million in 1998. Sales in the Aftermarket Heating and Cooling Systems business
increased $9.9 million, or 6.3%, compared with 1998, reflecting the sales of air
conditioning parts at Evap and A/C Plus and volume increases in complete
radiators, partially offset by lower radiator core and condenser sales. Sales in
the Specialty Metal Fabrication business increased $11.5 million, or 26.0%,
compared with 1998, primarily due to increased sales in both specialty
fabricated enclosures to telecommunications customers and vehicle conversions.
Sales in the OEM Heat Transfer Systems business were essentially flat.
Consolidated gross margin percentages improved to 24.5% in 1999 from 22.7%
in 1998. Gross margin improved 17.8% to $64.2 million in 1999 from $54.5 million
in 1998, reflecting the contribution of higher margin air conditioning parts
sales at Evap and A/C Plus, coupled with lower material costs, a higher
proportion of complete radiator sales, and manufacturing efficiencies in the
Aftermarket Heating and Cooling Systems business. Gross margin improved in the
Specialty Metal Fabrication business due to higher production levels and
improved manufacturing efficiencies in specialty fabricated enclosures,
partially offset by lower production volume in the Canadian vehicle conversion
operations. Actions the Company has taken to improve operational efficiencies
and reduce costs in the OEM Heat Transfer Systems business generated positive
gross margins for the year ended December 31, 1999, compared with negative
margins in the prior year.
Selling, general and administrative ("SG&A") expenses in 1999 increased
$4.2 million, or 8.7%, over 1998, but were flat as a percent of sales at 20.1%.
Aftermarket Heating and Cooling Systems SG&A expenses increased due to the full
year inclusion of Evap and A/C Plus. Specialty Metal Fabrication SG&A expenses
increased, reflecting a full complement of expenses at the Plano, Texas facility
in 1999, and, in 1998 a $1.1 million reduction in certain freight accruals no
longer required at the vehicle conversion operation and a one-time dividend from
the Ohio State Workers Compensation fund of $0.6 million, offset by the
settlement of an employment related lawsuit of $0.6 million. OEM Heat Transfer
Systems SG&A expenses in 1999 included approximately $0.3 million related to the
settlement of an employment-related lawsuit. Corporate expenses during 1999
decreased $1.1 million reflecting a reduction of $0.7 million in personnel
related costs and the inclusion in 1998 of a one-time reserve of $0.5 million
against the doubtful collection of a note receivable.
The Company recorded $0.3 million in plant and business consolidation and
closure costs in 1999 associated with the closing of the Company's Philadelphia,
Pennsylvania and Atlanta, Georgia replacement automotive condenser manufacturing
plants.
Net interest expense increased to $4.4 million in 1999 from $3.3 million in
1998 due to higher debt levels associated with the acquisition of Evap and A/C
Plus, coupled with higher working capital levels in the Aftermarket Heating and
Cooling Systems business to support our new product introductions and
anticipated sales increases in the air conditioning parts and Specialty Metal
Fabrication businesses.
3
<PAGE> 4
During the year ended December 31, 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. Excluding the impact of the non-recurring,
non-cash deferred tax benefit, the Company's effective tax rate was 42.8% for
the year ended December 31, 1999 and is comprised of the U.S. Federal income tax
rate, plus the estimated aggregate effective rate for foreign, state and local
income taxes. The effective tax rate declined from 43.3% for the year ended
December 31, 1998, reflecting a decrease in non-deductible expenses for tax
purposes in 1999 and a valuation allowance for the net realizable amount of
available tax benefit associated with a net operating loss carry-forward for the
Company's Canadian vehicle conversion operation.
Net income was $6.8 million, or $1.03 per basic common share and $0.96 per
diluted common share in 1999 compared with $1.6 million, or $0.25 per basic
common share and $0.24 per diluted common share in 1998. Before the net impact
of plant and business consolidation and closure costs, legal settlement costs
and the deferred tax benefit, net earnings were $4.3 million, or $0.65 per basic
common share and $0.61 per diluted common share in 1999. Before the net impact
of legal settlement costs, the workers' compensation dividend and the note
receivable reserve, earnings were $1.9 million, or $0.29 per basic common share
and $0.28 per diluted common share in 1998.
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER 31, 1997.
Net sales for 1998 declined 17% to $240.1 million compared with $288.9
million for 1997. This decline reflects the completion in the fourth quarter of
1997 of the Ford Crew Cab and DRW program and the Ford order to convert vehicles
for the U.S. Postal Service (the "Ford Orders"). Excluding the Ford Orders from
the 1997 results, sales increased by $28.3 million or 13% in 1998. Aftermarket
Heating and Cooling Systems sales increased $13.1 million or 9% over 1997 due to
unit volume gains in the radiator, heater and condenser product lines as well as
air conditioning parts sales related to the August 1998 acquisition of Evap, an
aftermarket air conditioning parts supplier. Excluding the Ford Orders, sales in
the Specialty Metal Fabrication business increased $14.8 million or 50% over
1997 levels, substantially offsetting the loss of revenue from the Ford order to
convert vehicles for the U.S. Postal Service and reflecting the full year effect
of the December 1997 acquisition of Vehicle Management Systems, Inc. ("VMS"), a
Canadian vehicle converter. OEM Heat Transfer Systems sales increased 1% over
1997.
Gross margins of 22.7% in 1998 were lower than the 23.1% achieved in the
prior year, reflecting the completion of the Ford Orders. Aftermarket Heating
and Cooling Systems margins increased due to cost savings achieved by the move
of heater manufacturing to Mexico during 1997, efficiencies resulting from
increased volume and lower copper costs, offset by a higher proportion of sales
to lower margin customers. Excluding the Ford Orders, margins in the Specialty
Metal Fabrication business have increased during the year due to higher vehicle
conversion revenues and improved manufacturing efficiencies. These achievements
have substantially offset the negative margin impact of the completion of the
Ford U.S. Postal Service program in December 1997. Although gross margins for
the OEM Heat Transfer Systems business remained negative during 1998, there have
been substantial improvements compared with 1997.
In 1998, SG&A expenses increased 4% to $48.3 million from $46.3 million in
1997. SG&A expenses in the Aftermarket Heating and Cooling Systems business
increased by $1.8 million due to higher costs associated with increased volume,
and the acquisition of Evap, which added approximately $1.1 million of
incremental SG&A expense, partially offset by a reduction in bad debt expense of
$0.8 million related to the 1997 bankruptcy filing of a large customer and cost
savings related to the consolidation of distribution centers during 1998. SG&A
expense in the Specialty Metal Fabrication business declined $1.2 million due to
the closing of the Kentucky facility as a result of the completion of the Ford
Crew Cab and DRW program in December 1997,
4
<PAGE> 5
a one time dividend from the Ohio State Workers Compensation Fund of $0.6
million and the reduction of $1.1 million in certain freight accruals no longer
required at the vehicle conversion operation, partially offset by a $0.7 million
increase in personnel costs associated with increased volume and the opening of
the new facility in Plano, Texas, the settlement of an employment related
lawsuit approximating $0.6 million and residual medical costs of $0.2 million
related to the 1997 Kentucky facility closing. SG&A expenses in the OEM Heat
Transfer Systems Business increased $0.4 million due to the full year impact of
administrative costs associated with the business move to Jackson, Mississippi.
Corporate office costs increased $1.0 million due to the recognition of a $0.5
million reserve against a note receivable accepted in a 1994 asset sale
transaction, $0.4 million increase in incentive accruals and the write-off of
deferred debt costs of $0.1 million due to the renegotiation of the Company's
bank credit facility.
Net interest expense increased to $3.3 million in 1998 from $3.1 million in
1997 as a result of higher borrowings under the bank credit facility.
The Company's effective tax rate of 43.3% is comprised of the U.S. Federal
income tax rate plus the estimated aggregate effective rate for foreign, state
and local income taxes. The rate increased from the 1997 rate of 40.8%
principally as a result of higher non-deductible expenses in relation to taxable
income in 1998.
Net income for 1998 was $1.6 million, or $0.25 per basic common share and
$0.24 per diluted common share compared with $7.9 million, or $1.20 per basic
and diluted common share in 1997. Before the net impact of legal settlement
costs, the workers' compensation dividend and the note receivable reserve,
earnings were $1.9 million, or $0.29 per basic common share and $0.28 per
diluted common share in 1998. Before the net impact of plant closure costs, net
income for 1997 was $10.2 million, or $1.55 per basic and diluted common share.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company is party to a Revolving Credit Agreement (the "Revolving Credit
Agreement") with five banking institutions that 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 December 31, 1999, the Company did not meet the financial ratios
required for the 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 was
automatically reduced by $0.5 million at the end of each quarter through June
30, 1999 and then by $1.25 million at the end of each quarter through December
31, 1999. On December 9, 1999, the Company entered into the Third Amendment to
the Revolving Credit Agreement (the "Third Amendment") to return the amount of
secured borrowings or the issuance of letters of credit to the original
aggregate amount of $75 million and reschedule the automatic reductions and
amend the leverage coverage ratio covenant. Pursuant to the Third Amendment, the
aggregate amount of available borrowings is automatically reduced by $5 million
on November 30, 2000 and December 31, 2000 and by $1.5 million at the end of
each quarter beginning March 31, 2001 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
5
<PAGE> 6
BankBoston, N.A. base lending rate or (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. On June 25, 1999, the Company entered into a Waiver and
Second Amendment to the Revolving Credit Agreement (the "Waiver and Second
Amendment"), amending the interest coverage ratio covenant and the liabilities
to net worth ratio covenant and waived compliance with the interest coverage
ratio and the liabilities to net worth ratio covenants for the quarter ended
March 31, 1999.
Total debt outstanding at December 31, 1999 under the Revolving Credit
Agreement was $49.7 million. In addition, the Company had floating rate
Industrial Revenue Bonds totaling $13 million outstanding at December 31, 1999,
which were fully secured by letters of credit. Outstanding letters of credit
totaled approximately $17.6 million at December 31, 1999.
During 1999, net borrowings under the Revolving Credit Agreement increased
by $19.7 million. In 1998, net borrowings under the Revolving Credit Agreement
increased by $4.4 million. During 1997, net borrowings under the Company's then
existing credit facility decreased by $1.2 million. Net income plus adjustment
to reconcile net income to net cash provided by operating activities, which
includes, among other things, depreciation and amortization, resulted in $4.9
million of operating cash flows.
During 1999, the Company required $7.7 million of cash to support its
operations. Net income, plus adjustments to reconcile net income to net cash
used in operating activities, which includes, among other things, depreciation
and amortization, resulted in $11.2 million of operating cash flows. The Company
invested $24.6 million in inventory and $7.1 million in accounts receivable to
support new product introduction and its expansion in the air conditioning parts
and fabricated metal enclosures businesses. An increase in accounts payable and
accrued expenses provided $13.1 million in cash.
During 1998, the Company generated $9.3 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, resulted in $10.5 million of operating cash flow. Accounts
receivable collections and inventories generated cash of $4.4 million and $1.1
million, respectively. Cash was used to reduce accounts payable and accrued
expenses by $4.6 million.
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 resulted in $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.
Capital spending totaled $8.2 million, $8.6 million and $7.2 million in
1999, 1998 and 1997, respectively. In 1999, the Company purchased all of the
outstanding stock of A/C Plus for $2.25 million in cash and issued a note
payable for $0.25 million payable on the second anniversary of the closing. In
1998, the Company purchased all of the outstanding stock of Evap for
approximately $6.0 million, which included an initial cash payment of $3.0
million and the issuance of $3.0 million of TransPro, Inc. Series B Convertible
Redeemable
6
<PAGE> 7
Preferred Stock (the "Series B Preferred Stock"). In 1997, the Company acquired
substantially all of the assets and assumed certain specified liabilities of VMS
for approximately $1.0 million.
In 1999, cash dividends of $1.3 million and $0.1 million were paid to
holders of common stock and Series B Preferred Stock, respectively. In both 1998
and 1997, cash dividends of $1.3 million were paid to holders of common stock.
The future liquidity and ordinary capital needs of the Company in the short
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 in the Aftermarket Heating and Cooling Systems business. The Company
believes that its cash flow from operations, together with borrowings under its
current Revolving Credit Agreement, will be adequate to meet its near term
anticipated ordinary capital expenditures and working capital requirements.
However, the Company believes that the amount of borrowings available under the
Revolving Credit Agreement will not be sufficient to meet the capital needs for
major growth initiatives. The Company intends to explore financing alternatives,
including obtaining a new line of credit with sufficient borrowing capacity or
securing additional sources of capital. It is also possible that additional
liquidity may be obtained through the disposition of business operations,
although there can be no assurance that any such disposition would occur on a
timely basis, or at all. No assurance can be given that the Company will be
successful in obtaining a new line of credit or securing additional sources of
capital on favorable terms, or at all.
ACQUISITIONS
Effective February 1, 1999, the Company purchased 100% of the outstanding
stock of 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 paid
in cash 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 debt repayment were financed through the Company's Revolving Credit
Agreement. The acquisition was accounted for as a purchase. Goodwill of $2.2
million was recorded in connection with the transaction and is being amortized
over 20 years. The results of A/C Plus have been included in the Company's
consolidated financial statements from the date of acquisition.
Effective August 1, 1998, the Company acquired 100% of the outstanding
stock of Evap. Evap is an Arlington, Texas manufacturer and distributor of
replacement automotive air conditioning parts. Evap's fiscal 1997 sales were
$6.6 million. The transaction was structured with an initial purchase price of
$6.0 million consisting of $3.0 million cash at closing and 30,000 shares of
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.
Concurrent with the purchase, the Company repaid $1.7 million of working capital
debt on behalf of Evap. The Company financed the cash portion of the initial
purchase price and the working capital debt repayment with borrowings under the
Revolving Credit Agreement. The acquisition was accounted for as a purchase and
goodwill of $3.3 million, which is being amortized over 20 years, was recorded
as part of the transaction. Evap's results have been included in the Company's
consolidated financial statements from the date of acquisition. The Series B
Preferred Stock has an initial liquidation preference of $3.0 million, which is
reflected in paid-in capital on the Company's consolidated balance sheets. The
potential additional payout based on future earnings 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 and 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. The Series B
Preferred Stock 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 the remaining 25% on the
7
<PAGE> 8
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
and the market value of TransPro common stock at the time of conversion, as
further defined in the purchase agreement. 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.
In December 1997 the Company acquired substantially all of the assets and
assumed certain specified liabilities of VMS for a cash payment of approximately
$1.0 million. VMS is located in Ontario, Canada and specializes in utility van
conversions. VMS reported fiscal 1997 sales of $1.6 million. The acquisition was
accounted for as a purchase and VMS's results have been included in the
Company's consolidated financial statements from the date of acquisition. The
Company financed the purchase of the VMS assets by borrowings under its then
existing bank credit facility and recorded $0.4 million of goodwill related to
the transaction, 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, Ford accounted for approximately 27% of the Company's
net sales and a significantly greater portion of the Company's total 1997
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 were unsuccessful and,
accordingly, the Company closed the Louisville plant in December 1997.
IMPACT OF THE YEAR 2000 ISSUE
The Company has completed the implementation of a Year 2000 compliant
information systems platform. There was no significant interruption of normal
operations resulting from the date change to the year 2000. The total cost of
the Year 2000 project was approximately $3.2 million of which $2.2 million was
for capitalizable hardware and software costs, which was funded by borrowings.
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. The principal raw materials used in the Company's original
equipment and replacement radiator product lines are copper and brass. The
principal raw material used in the Company's specialty metal fabrication
business product lines is steel. Copper, brass, steel 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. 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
8
<PAGE> 9
actual delivery date. The purchase price for such copper, brass, and steel 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, brass, and steel, there is no
assurance that the Company will continue to be successful in raising prices in
the future. The Company does not use hedging transactions with respect to its
metals consumption.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws designed to protect
the environment and believes that, as a general matter, its policies, practices
and procedures are properly designed to reasonably prevent risk of environmental
damage and financial liability to the Company.
During 1998, the Company was fined approximately $0.1 million in connection
with certain pre-treatment water containment violations at its Jackson,
Mississippi facility. The issues were satisfactorily resolved. The Company
believes it is reasonably possible that environmental related liabilities might
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.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical in nature, are
forward-looking statements. Such forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements regarding the Company's future business
prospects, revenues, orders, sales and liquidity are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including but not limited to: business conditions and growth in the general
economy and automotive and truck business, the impact of competitive products
and pricing, changes in customer and product mix, failure to obtain new
customers, retain existing customers or changes in the financial stability of
customers, changes in the cost of raw materials, components or finished
products, and changes in interest rates.
9
<PAGE> 10
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts) YEAR ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales $261,577 $240,065 $288,866
Cost of sales 197,379 185,547 222,182
-------- -------- --------
Gross margin 64,198 54,518 66,684
Selling, general, and administrative expenses 52,509 48,287 46,278
Plant and business consolidation and closure costs 325 -- 3,958
-------- -------- --------
Income from operations 11,364 6,231 16,448
Interest expense, net 4,444 3,326 3,140
-------- -------- --------
Income before taxes 6,920 2,905 13,308
Provision for income taxes 104 1,258 5,433
-------- -------- --------
Net income $ 6,816 $ 1,647 $ 7,875
======== ======== ========
Basic earnings per common share $ 1.03 $ 0.25 $ 1.20
======== ======== ========
Diluted earnings per common share $ .96 $ 0.24 $ 1.20
======== ======== ========
Weighted average common shares - basic 6,573 6,593 6,553
======== ======== ========
Weighted average common shares and equivalents - diluted 7,089 6,804 6,586
======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Amounts in thousands) YEAR ENDED DECEMBER 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income $ 6,816 $ 1,647 $ 7,875
------- ------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation 11 9 (26)
Minimum pension liability adjustment 1,111 (559) (326)
------- ------- -------
Other comprehensive income (loss) 1,122 (550) (352)
------- ------- -------
Comprehensive income $ 7,938 $ 1,097 $ 7,523
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 11
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in thousands) DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 222 $ 345
Accounts receivable (less allowances of $2,128 and $2,390) 41,689 34,173
Inventories:
Raw materials 23,385 14,765
Work in process 11,310 7,124
Finished goods 50,651 37,886
--------- ---------
Total inventories 85,346 59,775
--------- ---------
Deferred income taxes 5,520 2,641
Other current assets 2,546 3,200
--------- ---------
Total current assets 135,323 100,134
--------- ---------
Property, plant and equipment:
Land and land improvements 814 808
Buildings 17,822 17,662
Machinery and equipment 82,066 74,319
Leasehold improvements 2,464 2,124
--------- ---------
103,166 94,913
Less: accumulated depreciation and amortization (62,539) (55,426)
--------- ---------
Net property, plant and equipment 40,627 39,487
--------- ---------
Intangible assets (net of amortization of $810 and $348) 7,632 6,093
Other assets 2,313 2,813
--------- ---------
Total assets $ 185,895 $ 148,527
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
11
<PAGE> 12
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in thousands, except share and per share amounts) DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,395 $ 14,797
Accrued insurance 3,820 4,404
Accrued salaries and wages 4,486 4,823
Accrued taxes 1,558 541
Accrued expenses 5,490 5,393
--------- ---------
Total current liabilities 41,749 29,958
--------- ---------
Long-term liabilities:
Long-term debt 61,928 42,197
Retirement and postretirement obligations 5,442 7,482
Deferred income taxes 1,912 973
Other liabilities 393 50
--------- ---------
Total liabilities 111,424 80,660
--------- ---------
Commitments and contingent liabilities
--------- ---------
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; issued and outstanding;
none at December 31, 1999 and 1998 -- --
Series B convertible preferred stock, $.01 par value:
Authorized 30,000 shares; issued and outstanding;
30,000 at December 31, 1999 and 1998 (liquidation
preference $3,000) -- --
Common stock, $.01 par value:
Authorized 17,500,000 shares at December 31, 1999 and 1998;
6,669,446 shares issued in 1999 and 1998 and
6,597,335 shares outstanding in 1999 and 1998 66 66
Paid-in capital 55,074 55,074
Unearned compensation (66) (113)
Retained earnings 20,318 14,883
Accumulated other comprehensive income (895) (2,017)
Treasury stock, at cost:
72,111 shares at December 31, 1999 and 1998 (26) (26)
--------- ---------
Total stockholders' equity 74,471 67,867
--------- ---------
Total liabilities and stockholders' equity $ 185,895 $ 148,527
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 13
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Amounts in thousands) YEAR ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,816 $ 1,647 $ 7,875
-------- -------- --------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,541 6,782 8,193
Deferred income taxes (3,373) 677 (797)
Provision for losses - accounts receivable 268 1,394 1,790
Write-off of fixed assets related to plant closure -- -- 1,379
-------- -------- --------
Total adjustments to reconcile net income to net cash provided by (used in)
operating activities 4,436 8,853 10,565
-------- -------- --------
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (7,612) 4,413 (3,217)
Inventories (24,640) 1,068 (5,454)
Accounts payable 11,280 437 1,397
Accrued expenses 1,850 (5,004) (1,504)
Other 187 (2,146) 347
-------- -------- --------
Total change in operating assets and liabilities, net of acquisitions (18,935) (1,232) (8,431)
-------- -------- --------
Net cash (used in) provided by operating activities (7,683) 9,268 10,009
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (8,200) (8,582) (7,214)
Sales and retirements of fixed assets, net 11 73 318
Acquisitions, net of cash acquired and transaction costs (2,118) (2,764) (967)
-------- -------- --------
Net cash used in investing activities (10,307) (11,273) (7,863)
-------- -------- --------
Cash flows from financing activities:
Exercise of stock options -- -- 24
Purchase of treasury stock -- -- (26)
Dividends paid (1,375) (1,348) (1,321)
Net borrowings (repayments) under Revolving Credit Agreement 19,242 3,105 (1,150)
-------- -------- --------
Net cash provided by (used in) financing activities 17,867 1,757 (2,473)
-------- -------- --------
Net decrease in cash and cash equivalents (123) (248) (327)
Cash and cash equivalents at beginning of period 345 593 920
-------- -------- --------
Cash and cash equivalents at end of period $ 222 $ 345 $ 593
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,213 $ 3,064 $ 3,209
======== ======== ========
Taxes paid (net of refunds) $ 1,861 $ 1,041 $ 5,722
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
The Company acquired A/C Plus, Evap, and VMS in 1999, 1998 and 1997,
respectively; the details of which are further described in Note 14. In
connection with these transactions, liabilities were assumed and preferred
stock issued, as follows:
Fair value of assets acquired $ 3,060 $ 5,679 $ 1,000
Cash Paid (2,250) (3,000) (1,000)
======== ======== ========
Liabilities assumed $ 810 $ 2,679 $ --
======== ======== ========
Preferred stock issued $ -- $ 3,000 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 14
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK PREFERRED STOCK STOCK
SHARES VALUE SHARES VALUE VALUE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 6,591,835 $ 66 -- $ -- $ --
Net income -- -- -- -- --
Common stock dividends
declared ($0.20 per share) -- -- -- -- --
Treasury stock purchased (2,807) -- -- (26) --
Restricted stock issued 18,400 -- -- -- --
Stock options exercised 4,032 -- -- -- --
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)
Net Income -- -- -- -- --
Issuance of preferred stock
related to an acquisition -- -- 30,000 -- --
Common stock dividends
declared ($0.20 per share) -- -- -- -- --
Preferred stock dividends
declared -- -- -- -- --
Restricted stock issued 4,800 -- -- -- --
Restricted stock canceled (18,925) -- -- -- --
Amortization of unearned
compensation -- -- -- -- --
Net change in translation
adjustment -- -- -- -- --
Net change in adjustment for
minimum pension liability -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance December 31, 1998 6,597,335 66 30,000 -- (26)
Net income -- -- -- -- --
Common stock dividends
declared ($0.20 per share) -- -- -- -- --
Preferred stock dividends
declared -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- --
Net change in translation
adjustment -- -- -- -- --
Net change in adjustment for
minimum pension liability -- -- -- -- --
========== ========== ========== ========== ==========
Balance December 31, 1999 6,597,335 $ 66 30,000 $ -- $ (26)
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
PAID-IN RETAINED UNEARNED COMPREHENSIVE STOCKHOLDERS'
CAPITAL EARNINGS COMPENSATION INCOME EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ 52,061 $ 8,030 $ (346) $ (1,115) $ 58,696
Net income -- 7,875 -- -- 7,875
Common stock dividends
declared ($0.20 per share) -- (1,321) -- -- (1,321)
Treasury stock purchased -- -- -- -- (26)
Restricted stock issued 142 -- (142) -- --
Stock options exercised 24 -- -- -- 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 52,227 14,584 (369) (1,467) 65,015
Net Income -- 1,647 -- -- 1,647
Issuance of preferred stock
related to an acquisition 3,000 -- -- -- 3,000
Common stock dividends
declared ($0.20 per share) -- (1,323) -- -- (1,323)
Preferred stock dividends
declared -- (25) -- -- (25)
Restricted stock issued 37 -- (37) -- --
Restricted stock canceled (190) -- 190 -- --
Amortization of unearned
compensation -- -- 103 -- 103
Net change in translation
adjustment -- -- -- 9 9
Net change in adjustment for
minimum pension liability -- -- -- (559) (559)
---------- ---------- ---------- ---------- ----------
Balance December 31, 1998 55,074 14,883 (113) (2,017) 67,867
Net income -- 6,816 -- -- 6,816
Common stock dividends
declared ($0.20 per share) -- (1,321) -- -- (1,321)
Preferred stock dividends
declared -- (60) -- -- (60)
Amortization of unearned
compensation -- -- 47 -- 47
Net change in translation
adjustment -- -- -- 11 11
Net change in adjustment for
minimum pension liability -- -- -- 1,111 1,111
========== ========== ========== ========== ==========
Balance December 31, 1999 $ 55,074 $ 20,318 $ (66) $ (895) $ 74,471
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE> 15
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, 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 - 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.
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.
Estimated useful lives for buildings are 40 years and for machinery and
equipment are between three and ten years. The provision for amortization of
leasehold improvements is based on the lease term 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 the Company's
consolidated statements of income.
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. The Company periodically 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 acquisitions of A/C Plus in 1999, Evap in 1998, VMS in 1997 and Rahn,
Industries in 1996.
Impairment of Long-Lived Assets: The Company, in the event that
circumstances arise that indicate that its fixed assets may be impaired, would
perform an evaluation of asset impairment 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 values would be compared to the estimated future
undiscounted cash flows of the assets to determine if a write-down is required.
There were no impaired long-lived assets at December 31, 1999.
Foreign Currency Translation: Generally, 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. Property, plant and equipment, and its associated
depreciation, and stockholders' equity are translated at the historical rate.
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. The Securities and Exchange Commission
has deemed that Mexico ceased to be a highly inflationary economy, effective for
quarters beginning after January 1, 1999. As
15
<PAGE> 16
the Company currently uses the U.S. dollar as its functional currency, there was
no material impact on the financial position of the Company. 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.
Revenue Recognition: The Company recognizes revenues from product sales
upon shipment to its customers.
Research and Development: Research and development costs are expensed as
incurred.
Financial Instruments: The Company was a 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 common share. The diluted impact of
stock options, restricted stock grants and conversion of preferred stock are
included in the weighted average number of shares of common stock and
equivalents outstanding to arrive at diluted earnings per common 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 in a separate consolidated financial
statement.
Segment Information: The Company has reported segment information in
accordance with Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 requires disclosure of financial data based on the "management
approach" to business decision making. The management approach is based on
internal information used for making operating decisions and assessing the
performance of the Company's reportable segments. SFAS No. 131 also requires
disclosures regarding products and services. Segment information is reported
separately in these notes to the consolidated financial statements.
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.
Reclassification: Certain items in prior years have been reclassified due
to current year disclosures.
16
<PAGE> 17
NOTE 3 - SEGMENT AND BUSINESS INFORMATION
In 1998, the Company adopted SFAS No. 131. Prior year segment information
has been restated to present the Company's three reportable segments -
Aftermarket Heating and Cooling Systems, OEM Heat Transfer Systems and Specialty
Metal Fabrication.
Aftermarket Heating and Cooling Systems product lines include complete
radiators and radiator cores, heaters, air conditioning condensers, air
conditioning compressors and other air conditioning parts for aftermarket
customers. The OEM Heat Transfer Systems business provides manufactured
specialized heavy-duty equipment radiators, charge air coolers and oil coolers
to original equipment manufacturers. 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.
The accounting policies of the segments are the same as those described in
Note 2, with the exception of the following:
Intercompany Sales: Segment data includes inter-segment sales, at cost
plus a standard intercompany markup.
Allocations: Certain other expenses are allocated between segments
based on their respective use of shared facilities and resources, such
as information technology, human resources and finance and accounting
functions.
The Company evaluates the performance of its segments and allocates
resources accordingly based on income from operations.
The tables below set forth information about reported segments for the
years ended December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) CONSOLIDATED REVENUES INCOME FROM OPERATIONS
BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997
- --------------------------------------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aftermarket Heating and Cooling Systems $ 166,235 $ 156,335 $ 143,273 $ 14,064 $ 9,944 $ 6,299
OEM Heat Transfer Systems 39,328 39,257 38,864 (1,324) (1,955) (4,629)
Specialty Metal Fabrication 56,014 44,473 106,729 3,002 3,693 19,206
Inter-segment revenues:
Aftermarket Heating and Cooling Systems 5,868 3,678 3,443 -- -- --
OEM Heat Transfer Systems 16 112 543 -- -- --
Specialty Metal Fabrication -- -- -- -- -- --
Elimination of inter-segment revenues (5,884) (3,790) (3,986) -- -- --
--------- --------- --------- -------- -------- --------
Segment totals 261,577 240,065 288,866 15,742 11,682 20,876
Corporate expenses -- -- -- (4,378) (5,451) (4,428)
--------- --------- --------- -------- -------- --------
Consolidated Totals $ 261,577 $ 240,065 $ 288,866 $ 11,364 $ 6,231 $ 16,448
========= ========= ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND
(Amounts in thousands) TOTAL ASSETS BY SEGMENT CAPITAL EXPENDITURES AMORTIZATION EXPENSES
---------------------------------- ---------------------------- ----------------------------
BUSINESS SEGMENT 1999 1998 1997 1999 1998 1997 1999 1998 1997
- --------------------------- -------- -------- -------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aftermarket Heating and
Cooling Systems $121,385 $ 97,336 $ 89,022 $4,272 $4,412 $3,216 $4,293 $3,995 $3,422
OEM Heat Transfer Systems 19,853 18,144 18,831 1,921 1,756 1,900 1,506 1,260 1,265
Specialty Metal Fabrication 33,156 24,882 27,189 2,006 2,365 2,098 1,555 1,346 3,329
-------- -------- -------- ------ ------ ------ ------ ------ ------
Segment totals 174,394 140,362 135,042 8,199 8,533 7,214 7,354 6,601 8,016
Corporate 11,501 8,165 9,498 1 49 -- 187 181 177
-------- -------- -------- ------ ------ ------ ------ ------ ------
Consolidated totals $185,895 $148,527 $144,540 $8,200 $8,582 $7,214 $7,541 $6,782 $8,193
======== ======== ======== ====== ====== ====== ====== ====== ======
</TABLE>
17
<PAGE> 18
Business consolidation and closure costs included in earnings before interest
and taxes for the years ended December 31, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
BUSINESS SEGMENT 1999 1998 1997
- --------------------------------------- ---- ----- ------
<S> <C> <C> <C>
Aftermarket Heating and Cooling Systems $325 $ -- $ 336
OEM Heat Transfer Systems -- -- 422
Specialty Metal Fabrication -- -- 3,200
==== ===== ======
Totals $325 $ -- $3,958
==== ===== ======
</TABLE>
In 1999 and 1998, AutoZone accounted for 12% and 11%, respectively, of net
sales and comprised 29% of total accounts receivable at December 31, 1999 and
1998. These sales were all in the Aftermarket Heating and Cooling Systems
segment. During 1997, Ford accounted for approximately 27% of the Company's net
sales and were in the Specialty Metal Fabrication business.
In 1999, 1998 and 1997, the Company had no other customers who individually
accounted for greater than 10% of the Company's net sales.
Export sales from North America were below 10% in each of the years
reported. The Company has a manufacturing facility in Mexico and a vehicle
conversion plant in Canada. During 1999 and 1998, the Company had $5.1 million
and $4.8 million of sales in Mexico, respectively and $4.3 million and $1.4
million of sales in Canada, respectively. Substantially all other sales were
based in the U.S. Substantially all assets of the Company are located in the
U.S.
NOTE 4 - PLANT AND BUSINESS CONSOLIDATION AND CLOSURE COSTS
In 1999, the Company recorded $0.3 million in plant and business
consolidation and closure costs, primarily for severance, related to the closing
of the Company's Philadelphia, Pennsylvania and Atlanta, Georgia replacement
automotive condenser manufacturing plants.
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 included
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 consolidation
of the OEM and Aftermarket heat transfer organizations; the closing of the New
Haven, Connecticut OEM heat transfer product manufacturing plant and movement of
such manufacturing operations to Jackson, Mississippi; and the closing of the
Peru, Illinois Aftermarket Manufacturing operations and movement of such
manufacturing operations 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.
18
<PAGE> 19
NOTE 5 - INCOME TAXES
Information with respect to income taxes is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C> <C>
Current: Federal $ 2,207 $ 83 $ 4,929
Foreign 152 123 --
State and local 321 (7) 1,301
------- ------- -------
2,680 199 6,230
------- ------- -------
Deferred: Federal 439 804 (630)
Foreign (189) -- --
State and local 32 255 (167)
Benefit related to GDI restructuring (2,858) -- --
------- ------- -------
(2,576) 1,059 (797)
------- ------- -------
Provision for income taxes $ 104 $ 1,258 $ 5,433
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes at the Federal
statutory rate of 34% in 1999, 35% in 1998 and 34% in 1997, to the reported tax
provisions is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Provision computed at the Federal statutory rate $ 2,353 $1,017 $4,657
State and local income taxes, net of Federal income tax benefit 278 161 738
Operating loss not benefitted 124 -- --
Benefit related to GDI restructuring (2,858) -- --
Permanent differences 144 106 48
Other 63 (26) (10)
------- ------ ------
Provision for income taxes $ 104 $1,258 $5,433
======= ====== ======
</TABLE>
Significant components of deferred income tax assets and liabilities as of
December 31, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories $ 2,300 $ 469
Pensions and deferred compensation 2,208 2,691
Postretirement benefits 459 524
Allowance for bad debts 854 432
Self insurance reserves 1,186 823
Warranty reserves 224 338
Accrued vacation 805 355
Other 452 477
------- -------
Total deferred tax assets 8,488 6,109
------- -------
Deferred tax liabilities:
Depreciation (4,075) (2,470)
Investment in joint venture -- (1,425)
Deferred charges (437) (457)
Other (368) (89)
------- -------
Total deferred tax liabilities (4,880) (4,441)
------- -------
Net deferred tax assets $ 3,608 $ 1,668
======= =======
</TABLE>
The earnings of certain foreign subsidiaries are considered permanently
reinvested in the foreign operations and therefore no provision has been made
for U.S. taxes related to these subsidiaries. During 1999, the Company's
Canadian subsidiary generated a net operating loss carry-forward of $0.4
million, which held a 50% valuation allowance as of December 31, 1999. This
carry-forward expires in seven years. Income before taxes from United States and
Foreign sources is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
United States $7,437 $2,619 $13,043
Foreign (517) 286 265
------ ------ -------
$6,920 $2,905 $13,308
====== ====== =======
</TABLE>
19
<PAGE> 20
NOTE 6 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share amounts)
BASIC EARNINGS PER COMMON SHARE CALCULATION 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income $ 6,816 $ 1,647 $ 7,875
Less: preferred stock dividends (60) (25) --
------- ------- -------
Net income available to common stockholders $ 6,756 $ 1,622 $ 7,875
======= ======= =======
Denominator:
Weighted average common shares 6,597 6,615 6,604
Non-vested restricted stock (24) (22) (51)
------- ------- -------
Denominator for basic earnings per common share -
adjusted weighted average common shares 6,573 6,593 6,553
======= ======= =======
Basic earnings per common share $ 1.03 $ .25 $ 1.20
======= ======= =======
DILUTED EARNINGS PER COMMON SHARE CALCULATION
Numerator:
Net income available to common stockholders $ 6,756 $ 1,622 $ 7,875
Add back: preferred stock dividend 60 25 --
------- ------- -------
Net income available to stockholders and assumed conversions $ 6,816 $ 1,647 $ 7,875
======= ======= =======
Denominator:
Adjusted weighted average common shares 6,573 6,593 6,553
Diluted effect of stock options and restricted non-vested stock 19 4 33
Diluted effect of Series B Preferred Stock 497 207 --
------- ------- -------
Denominator for diluted earnings per common share -
adjusted weighted average common shares and equivalents 7,089 6,804 6,586
======= ======= =======
Diluted earnings per common share $ .96 $ .24 $ 1.20
======= ======= =======
</TABLE>
There were outstanding options to purchase common stock excluded from the
diluted calculation because their exercise price exceeded the average market
price of TransPro common stock during the respective earnings periods. The
shares excluded and the average market prices were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Options 347,115 362,000 15,000
Average market prices $ 6.22 $ 7.39 $ 9.16
</TABLE>
NOTE 7 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board ("FASB") Statements of Financial
Accounting Standards 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.
Long-Term Debt: The carrying amounts of the Company's long-term debt either
approximate fair value or are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
20
<PAGE> 21
Letters of Credit: The Company utilizes letters of credit to back its
industrial revenue bonds, certain insurance policies and certain trade
purchases, which totaled $13.4 million, $3.6 million and $0.6 million,
respectively, at December 31, 1999. The letters of credit reflect fair value as
a condition of their underlying purpose.
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. Estimates of potential
credit losses are provided for in the Company's consolidated financial
statements and are within management's expectations and industry averages. As of
December 31, 1999 the Company had no other significant concentrations of credit
risk.
NOTE 8 - DEBT
In July 1998, the Company entered into a Revolving Credit Agreement (the
"Revolving Credit Agreement") with five banking institutions to replace its 1995
Revolving Credit and Term Loan Agreement (the "1995 Credit 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 if the Company
achieves certain senior debt ratings or if certain financial ratios are met and
maintained. At December 31, 1999, the Company did not meet the financial ratios
required for the 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 available borrowings under the Revolving Credit Agreement
was automatically reduced by $0.5 million at the end of each quarter through
June 30, 1999 and then by $1.25 million at the end of each quarter through
December 31, 1999. The Revolving Credit Agreement was amended (the "Third
Amendment") on December 9, 1999. The Third Amendment, effective in January 2000,
increases the commitment amount back to $75 million with automatic reductions of
$5.0 million each on November 30, 2000 and December 31, 2000; and then by $1.5
million at the end of each quarter beginning March 31, 2001 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 or (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. On June 25, 1999, the Company entered into the Waiver and
Second Amendment to the Revolving Credit Agreement (the "Waiver and Second
Amendment"), amending the interest coverage ratio covenant and the liabilities
to net
21
<PAGE> 22
worth ratio covenant and waiving compliance with the interest coverage ratio and
the liabilities to net worth ratio covenant for the quarter ended March 31,
1999.
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) 1999 1998
-------- --------
<S> <C> <C>
Revolver $ 49,683 $ 29,911
Industrial revenue bonds:
Floating rate bond due 2010 8,000 8,000
Floating rate bond due 2013 5,000 5,000
Unamortized debt expense (755) (714)
-------- --------
Total long-term debt $ 61,928 $ 42,197
======== ========
</TABLE>
Total debt outstanding at December 31, 1999 under the Revolving Credit
Agreement was $49.7 million. The average interest rate for the Revolving Credit
Agreement approximated 6.55% in 1999 and 7.80% in 1998. In addition, the Company
has Industrial Revenue Bonds totaling $13.0 million at December 31, 1999, which
are fully secured by letters of credit.
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 approximated
4.11% at December 31, 1999 and 3.60% at December 31, 1998. The average interest
rate for all industrial revenue borrowings approximated 3.58% during 1999 and
3.66% during 1998.
Long-term debt (excluding the unamortized debt expense) at December 31,
1999 matures after 2002.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases: The Company's leases consist primarily of manufacturing and
distribution facilities and equipment and expire principally between 2000 and
2004. 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 $5.2 million 1999, $4.7
million in 1998 and $3.7 million in 1997. Future minimum payments under
noncancelable operating leases as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands)
<S> <C>
2000 $4,904
2001 2,468
2002 1,535
2003 501
2004 126
------
Total $9,534
======
</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 $2.4 million to pay such claims.
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. 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.
22
<PAGE> 23
Severance Agreements: The Company has a Key Employee Severance Policy and
has entered into severance agreements with 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 might 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, other than amounts already provided,
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 2,562
employees at December 31, 1999. Of these employees, approximately 1,160 were
covered by collective bargaining agreements, which expire at different times.
The Company has successfully renegotiated three 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.
NOTE 10 - STOCK COMPENSATION PLANS
STOCK OPTIONS
At December 31, 1999, 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, 1999 and
1998, respectively, 504,992 and 495,052 common shares were reserved for stock
options and restricted shares granted under the Stock Plan. The weighted average
remaining contractual life on outstanding stock options was 7.6 years and 7.3
years at December 31, 1999 and 1998, respectively. 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,
1999 and 1998, respectively, 77,800 and 56,400 common shares were reserved for
stock options granted 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 in the financial statements. 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.
23
<PAGE> 24
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>
(Amounts in thousands, except per share amounts) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C> <C>
Net income As reported $ 6,816 $ 1,647 $ 7,875
Pro forma 6,579 1,484 7,590
Basic earnings As reported 1.03 .25 1.20
per common share Pro forma .99 .22 1.16
Diluted earnings As reported .96 .24 1.20
per common share Pro forma .93 .22 1.15
</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>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Dividend yield 2.20% 2.20% 2.20%
Expected volatility 52.08% 48.77% 30.20%
Risk-free interest rate 6.54% 4.80% 6.69%
Expected life 6 Years 6 Years 6 Years
</TABLE>
Information regarding the Stock Plan and the Directors Plan is as follows:
<TABLE>
<CAPTION>
OPTION PRICE RANGE
-----------------------------------------
NUMBER OF WEIGHTED
STOCK PLAN OPTIONS LOW AVERAGE HIGH
- ---------- ------- --- ------- ----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1997 392,767 $ 3.72 $ 7.97 $11.75
Granted 112,100 5.88 6.25 7.75
Canceled (64,352) 6.24 7.91 11.75
-------
Outstanding at December 31, 1998 440,515 3.72 7.64 11.75
Granted 97,500 5.50 5.50 5.56
Canceled (57,049) 5.88 7.53 11.75
-------
Outstanding at December 31, 1999 480,966 3.72 7.22 11.75
=======
Exercisable at December 31, 1999 207,466 3.72 8.35 11.75
=======
</TABLE>
<TABLE>
<CAPTION>
OPTION PRICE RANGE
---------------------------------------
NUMBER OF WEIGHTED
DIRECTORS PLAN OPTIONS LOW AVERAGE HIGH
- -------------- ------- --- ------- ----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1997 56,400 $ 7.75 $ 9.70 $11.75
Granted -- -- -- --
------
Outstanding at December 31, 1998 56,400 7.75 9.70 11.75
Granted 21,400 5.50 5.50 5.50
------
Outstanding at December 31, 1999 77,800 5.50 8.54 11.75
======
Exercisable at December 31, 1999 48,375 7.75 9.99 11.75
======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
REMAINING AVERAGE EXERCISABLE AVERAGE
OPTIONS OUTSTANDING SUMMARY OUTSTANDING LIFE EXERCISE AS OF EXERCISE
RANGE OF EXERCISE PRICES @ 12/31/99 (IN YEARS) PRICE 12/31/99 PRICE
- --------------------------------------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.72 - $5.88 211,651 9.00 $ 5.64 10,751 $ 5.34
$7.50 - $11.75 347,115 6.60 8.49 245,090 8.81
------- -------
558,766 255,841
======= =======
</TABLE>
24
<PAGE> 25
RESTRICTED STOCK
Restricted stock awarded vests four years from the date of the award.
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
$47,000 in 1999, $103,000 in 1998, and $99,000 in 1997.
RESTRICTED STOCK AWARDS
<TABLE>
<S> <C>
Outstanding at December 31, 1997 50,586
Awarded 4,800
Exercised (12,435)
Canceled (18,925)
-------
Outstanding at December 31, 1998 24,026
Awarded --
Vested --
-------
Outstanding at December 31, 1999 24,026
=======
</TABLE>
NOTE 11 - STOCKHOLDER RIGHTS PLAN
On September 14, 1995, the Board of Directors adopted a stockholder rights
plan (the "Rights Plan"), under which one Right (the "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.
25
<PAGE> 26
NOTE 12 - RETIREMENT AND POSTRETIREMENT PLANS
RETIREMENT PLANS:
The Company has noncontributory defined benefit pension plans covering the
majority of its full-time U.S. employees. Non-union employees at the Company's
GDI operations are covered by a cash balance defined benefit plan. The Company
maintains a non-qualified 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, intangible assets representing unrecognized prior service costs have
offset the liabilities. The balance of the liability at the end of the period is
reported as a separate reduction of stockholders' equity, net of tax benefits.
During 1998, the Company purchased participating annuity contracts for
certain plan participants for the payment of future benefits. The Company
remains subject to any significant risks and rewards associated with the benefit
obligations on these contracts.
In 1999, 1998 and 1997 GDI contributed $0, $13,000 and $22,000
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 in the tables that follow.
POSTRETIREMENT PLANS:
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 Company provides health care and life insurance benefits for certain
retired employees who reach retirement age while working for the Company.
26
<PAGE> 27
The following tables set forth the Company's plans' combined funded status and
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
RETIREMENT PLANS POSTRETIREMENT PLANS
-------------------------- -----------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
(Amounts in thousands) 1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 30,423 $ 29,021 $ 951 $ 1,171
Plan amendment -- -- (61) --
Service cost 1,139 1,067 18 16
Interest cost 1,865 1,981 56 65
Plan participants' contribution -- -- 8 15
Actuarial (gain)loss (4,933) 2,844 143 (195)
Liability for participating annuity contracts -- (1,960) -- --
Actual gross benefits paid (1,713) (2,530) (144) (121)
-------- -------- ------- -------
Benefit obligation at December 31 $ 26,781 $ 30,423 $ 971 $ 951
======== ======== ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 $ 26,294 $ 25,685 $ -- $ --
Actual return on plan assets 3,796 3,381 -- --
Company contributions 846 1,019 136 106
Plan participant contributions -- -- 8 15
Purchase of participating annuity contracts -- (1,261) -- --
Actual gross benefits paid (1,713) (2,530) (144) (121)
-------- -------- ------- -------
Fair value of plan assets at December 31 $ 29,223 $ 26,294 $ -- $ --
======== ======== ======= =======
RECONCILIATION OF FUNDED STATUS
Funded status at December 31 $ 2,442 $ (4,129) $ (971) $ (951)
Unrecognized transition asset (96) (149) -- --
Unrecognized prior service cost (benefit) 760 847 (61) --
Unrecognized net (gain)loss (6,778) 69 (203) (344)
-------- -------- ------- -------
Accrued benefit cost $ (3,672) $ (3,362) $(1,235) $(1,295)
======== ======== ======= =======
AMOUNTS RECOGNIZED IN STATEMENTS OF FINANCIAL POSITION
Prepaid asset $ 147 $ -- $ -- $ --
Accrued benefit liability (5,625) (7,271) (1,235) (1,295)
Intangible asset 571 630 -- --
Accumulated other comprehensive amount 1,235 3,279 -- --
-------- -------- ------- -------
Net amount recognized at December 31 $ (3,672) $ (3,362) $(1,235) $(1,295)
======== ======== ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate 7.75% 6.50% 7.75% 6.50%
Return on assets 9.00% 9.00% N/A N/A
Initial trend rate N/A N/A 8.80% 9.20%
Salary progression 4.25% 4.00% N/A N/A
Ultimate health care trend rate N/A N/A 5.00% 5.00%
Years to ultimate trend N/A N/A 10 11
Average future working lifetime (in years) 12.67 16.64 N/A N/A
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
(Amounts in thousands) RETIREMENT PLANS POSTRETIREMENT PLANS
------------------------------------- -----------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 1,139 $ 1,067 $ 1,026 $ 18 $ 16 $ 27
Interest cost 1,865 1,981 1,916 56 65 85
Expected return on plan assets (2,015) (2,022) (1,956) -- -- --
Plan settlement -- 98 -- -- -- --
Amortization and deferral of net loss(gain) 202 135 88 (34) (35) (32)
------- ------- ------- ---- ---- ----
Net periodic benefit cost $ 1,191 $ 1,259 $ 1,074 $ 40 $ 46 $ 80
======= ======= ======= ==== ==== ====
</TABLE>
Assumed healthcare cost trend rates may have a significant effect on the amounts
reported for the healthcare plans. A one-percentage-point change in the assumed
healthcare cost trend rates would have the following effects.
<TABLE>
<CAPTION>
(Amounts in thousands) 1% POINT INCREASE 1% POINT DECREASE
----------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost components $ 3 $ (3)
Effect of postretirement benefit obligations $ 34 $ (33)
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $5.2 million, $5.2 million and $3.7 million,
respectively as of December 31, 1999 and $13.2 million, $13.2 million and $9.0
million, respectively as of December 31, 1998.
401(k) INVESTMENT PLANS
Under the Company's 401(k) Plans, substantially all of the Company's
non-union employees and certain 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 contributions to the 401(k) Plans were approximately
$389,000 in 1999, $416,000 in 1998, and $458,000 in 1997.
28
<PAGE> 29
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(Amounts in thousands, except price and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- -------- -------
<S> <C> <C> <C> <C>
Sales $57,278 $70,145 $ 71,555 $62,599
Gross margin 14,470 18,092 17,665 13,971
Net (loss) income 505 5,110 1,490 (289)
Basic (loss) earnings per common share .08 .78 .23 (.04)
Diluted (loss) earnings per common share .07 .72 .21 (.04)
Market price of common stock:
High $ 6-1/4 $ 6-3/8 $7-15/16 $ 6-7/8
Low 4-5/16 4-3/8 4-15/16 5
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ 50,587 $65,603 $68,535 $ 55,340
Gross margin 11,574 15,590 16,400 10,954
Net (loss) income (139) 1,446 1,091 (751)
Basic (loss) earnings per common share (.02) .22 .17 (.11)
Diluted (loss) earnings per common share (.02) .22 .16 (.11)
Market price of common stock:
High $ 8-15/16 $ 8-3/4 $7-7/16 $ 6-1/4
Low 7 7-7/16 5-5/16 4-3/8
</TABLE>
The above table summarizes quarterly financial information for 1999 and 1998. 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. Certain amounts may not agree to consolidated annual
amounts due to quarterly rounding.
NOTE 14 - ACQUISITIONS
Effective February 1, 1999, the Company purchased 100% of the outstanding
stock of A/C Plus, an air conditioning compressor re-manufacturer 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, including transaction costs, 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 $2.2 million was recorded in connection with the
transaction and is being amortized over 20 years. A/C Plus' results are included
in the Company's consolidated financial statements from the date of acquisition.
Effective August 1, 1998, the Company acquired 100% of the outstanding
stock of Evap. Evap is an Arlington, Texas manufacturer and distributor of
replacement automotive air conditioning parts. Evap's fiscal 1997 sales were
$6.6 million. The transaction was structured with an initial purchase price of
$6.0 million, consisting of $3.0 million cash at closing and 30,000 shares of
TransPro, Inc. Series B 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. Concurrent with the purchase,
the Company repaid $1.7 million of working capital debt on behalf of Evap. The
Company financed the cash portion of the initial purchase price and the working
capital debt repayment with borrowings under the Revolving Credit Agreement. The
acquisition was accounted for as a purchase and goodwill of $3.3 million, which
is being amortized over 20 years, was recorded as part of the transaction.
Evap's results are included in the Company's consolidated
29
<PAGE> 30
financial statements from the date of acquisition. The Series B Preferred Stock
has an initial liquidation preference of $3.0 million, which is reflected in
paid-in capital on the Company's consolidated balance sheet. The potential
additional payout based on future earnings 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 and 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. The Series B Preferred Stock 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
the remaining 25% on the fifth anniversary; it 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 and the market value of TransPro common stock at the time
of conversion, as further described in the purchase agreement. 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, as
further described in the purchase agreement. The average market value of the
TransPro common stock in excess of the 7% limitation, if any, will be paid in
cash.
Consolidated results as of December 31, 1998 on a pro forma basis, assuming
the acquisition of Evap as of the beginning of 1998, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1998
--------
<S> <C>
Net sales $247,356
--------
Gross margin 57,323
--------
Income from operations 7,222
--------
Net Income $ 2,122
========
Basic earnings per common share $ 0.32
========
Diluted earnings per common share $ 0.31
========
</TABLE>
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 sales of $1.6 million for the fiscal year ended February 1997. 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 1995 Credit
Agreement and recorded $0.4 million of goodwill related to the transaction,
which is being amortized over 20 years.
30
<PAGE> 31
NOTE 15 - COMPREHENSIVE INCOME
The following table sets forth the income tax expense or (benefit) related to
each item of other comprehensive income:
<TABLE>
<CAPTION>
(Amounts in thousands) PRE-TAX TAX EXPENSE NET-OF-
AMOUNT OR (BENEFIT) TAX AMOUNT
------ ------------ ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Foreign currency translation adjustment $ 19 $ 8 $ 11
Minimum pension liability adjustment 1,841 730 1,111
------- ----- -------
Other comprehensive income $ 1,860 $ 738 $ 1,122
======= ===== =======
YEAR ENDED DECEMBER 31, 1998
Foreign currency translation adjustment $ 15 $ 6 $ 9
Minimum pension liability adjustment (944) (385) (559)
------- ----- -------
Other comprehensive income $ (929) $(379) $ (550)
======= ===== =======
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)
======= ===== =======
</TABLE>
The following is a roll forward of the accumulated other comprehensive income
balances:
<TABLE>
<CAPTION>
(Amounts in thousands) MINIMUM ACCUMULATED
FOREIGN PENSION OTHER
CURRENCY LIABILITY COMPREHENSIVE
TRANSLATION ADJUSTMENT INCOME
----------- ---------- -------------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $(182) $ (933) $(1,115)
Current period change (26) (326) (352)
----- ------- -------
BALANCE DECEMBER 31, 1997 (208) (1,259) (1,467)
Current period changes 9 (559) (550)
----- ------- -------
BALANCE DECEMBER 31, 1998 (199) (1,818) (2,017)
Current period change 11 1,111 1,122
----- ------- -------
BALANCE DECEMBER 31, 1999 $(188) $ (707) $ (895)
===== ======= =======
</TABLE>
31
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TransPro, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity, and of cash flows present fairly, in all material
respects, the financial position of TransPro, Inc. and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 14, 2000
32
<PAGE> 1
Exhibit 10.14
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement is dated as of this 3rd day of
February, 1998 and is between TransPro, Inc., (the "COMPANY") and John C.
Martin, III (the "EMPLOYEE").
WHEREAS, the EMPLOYEE has had an employment relationship with the
COMPANY; and
WHEREAS, disputes among the parties have arisen in connection with
EMPLOYEE's employment; and
WHEREAS, the parties desire to compromise and settle any and all
disputes which have arisen upon the terms hereinafter set forth.
NOW THEREFORE, in consideration of the mutual promises of the parties
and other valuable and sufficient consideration, and intending hereby to
compromise and settle any and all such disputes, the parties hereto agree as
follows:
1. EMPLOYEE's employment with the COMPANY will terminate as of November
6, 1998, and he will perform no services for the COMPANY thereafter.
2. (A) In settlement of any and all possible claims, which arise or
might arise pursuant to EMPLOYEE's employment with the COMPANY, the COMPANY will
pay EMPLOYEE as follows:
1. Six (6) months of severance pay at the rate of $14,500.00 per
month, paid bi-weekly, notwithstanding any other employment or
earnings. Following this initial six (6) month period of
severance, EMPLOYEE will be eligible to receive up to an
additional twelve (12) months of severance. Severance pay
received during this twelve (12) months will be reduced by any
salary received by the EMPLOYEE from another employer and any
consulting compensation received by the EMPLOYEE from a
prospective employer (other than consulting compensation
received by an independent consulting business conducted by
EMPLOYEE). Any salary or consulting compensation received by
the EMPLOYEE shall be reported by the EMPLOYEE to the COMPANY.
2. On or before February 15, 1999 EMPLOYEE will be paid his
accrued and earned but not used vacation.
<PAGE> 2
3. For purposes of the COMPANY's 401k savings plan and pension
plans EMPLOYEE will no longer be deemed to be an employee as
of November 6, 1998.
4. EMPLOYEE will receive all rights and benefits he has earned
and accrued under the TransPro, Inc. 401k Savings Plan and
pension plans.
5. The use of the automobile furnished to the EMPLOYEE by the
COMPANY shall continue until the earlier of (1) May 6, 1999,
or (2) the date the EMPLOYEE obtains employment with another
employer, and the EMPLOYEE agrees that he will not remove such
automobile to any state other than the state in which he was
last employed by the COMPANY or the State of New York, and
that upon any such removal the COMPANY shall be entitled to
immediate possession of such automobile and shall no longer
furnish the use of such automobile to the EMPLOYEE.
6. During the period in which the EMPLOYEE is receiving the
severance payments the COMPANY shall arrange to provide the
EMPLOYEE with life, disability, accident and group health
insurance benefits substantially similar to those which the
EMPLOYEE was receiving immediately prior to termination.
Benefits received by the EMPLOYEE pursuant to this paragraph
shall be reduced to the extent comparable benefits actually
are received by the EMPLOYEE from any other source during the
severance period, and any such benefits actually received by
the EMPLOYEE shall be reported to the COMPANY.
7. 10,855 replacement Allen Performance Restricted Shares will
vest and will be turned over to the EMPLOYEE without
restriction based upon the following formula: number of full
months worked between December 31, 1996 and November 6, 1998
(date of termination) divided by 60 times the original grant
of 29,603 shares. All other stock options and restricted stock
grants previously awarded to the EMPLOYEE shall be governed by
the terms and conditions of the TransPro, Inc. 1995 Stock
Option Plan and the terms and conditions of each Restricted
Stock Agreement and Non-Qualified Option granted to the
Employee.
(B) As consideration for the release of claims by EMPLOYEE in paragraph
6, hereof, the COMPANY will pay EMPLOYEE the following, which are over and above
what is otherwise required under the Employment Agreement between the EMPLOYEE
and the COMPANY:
1. The use of the automobile furnished to the EMPLOYEE by the
COMPANY shall continue an additional six (6) months until the
earlier of (1) November 1, 1999, or (2) the date the EMPLOYEE
obtains
<PAGE> 3
employment with another employer, and there shall be no
geographical restriction regarding the use of the automobile.
2. The COMPANY will provide twelve (12) months of Outplacement
assistance with a professional Outplacement Firm and the
COMPANY shall pay the fee for the Outplacement Firm's services
on behalf of the EMPLOYEE.
3. The COMPANY will pay EMPLOYEE 11/12ths of any annual incentive
compensation he would have earned under the TransPro Annual
Incentive Plan for 1998 performance as determined by the
Nominating & Compensation Committee of the Board of Directors
of TransPro, Inc. Payment for any award granted will be made
no later than April 30, 1999.
3. Except as described in paragraph 2 of this Settlement and Release
Agreement, EMPLOYEE expressly admits, acknowledges and agrees that no other
payments shall be made by the COMPANY to him and that he has no entitlement to,
or any right to make any claim for, any additional payments by the COMPANY of
any kind or nature or under any circumstances whatsoever.
4. EMPLOYEE acknowledges receiving this Settlement and Release
Agreement on February 2, 1999 and that he has twenty-one (21) days from that
date, i.e. February 22, 1999, to consider the terms of this Settlement and
Release Agreement.
5. This Settlement and Release Agreement is revocable by EMPLOYEE for
seven (7) days after it is signed by him. This Settlement and Release Agreement
shall not be effective or enforceable until the period for revocation has
expired.
6. As a material inducement to the COMPANY to enter into this
Settlement and Release Agreement, EMPLOYEE hereby releases, for himself and for
his heirs, executors, administrators, successors and assigns, the COMPANY and
its current and former parents, affiliates, subsidiaries, partners,
stockholders, and their current and former officers, directors, employees,
agents, representatives, successors and assigns, from any and all liabilities
whatsoever, including, but not limited to, any claim for any compensation or
benefits under the SEVERANCE AGREEMENT, those specifically arising directly or
indirectly out of his employment relationship with the COMPANY, and from any
rights, claims in law or equity for wrongful discharge, discriminatory treatment
under any local, state or federal law, regulation or order (including without
limitation the Age Discrimination in Employment Act of 1967 ("ADEA") the Civil
Rights Act of 1964, the Civil Rights Act of 1866, the Connecticut Fair
Employment Practices Act), the Employee Income Security Act of 1974, the
Americans With Disabilities Act of 1992) personal injury, contract, defamation,
mental anguish, injury to health and/or personal reputation and any other claim
arising out of his employment with the COMPANY or the termination of his
employment, or under any other facts or circumstances whatsoever. The release of
claims in this Settlement and Release Agreement shall extend to
<PAGE> 4
claims of any nature whatsoever, including claims that are known or unknown,
suspected or unsuspected. This release shall not effect any pension rights and
benefits EMPLOYEE has earned or accrued under the TransPro, Inc. 401k Savings
Plan, or any other obligation provided for in this Agreement.
7. EMPLOYEE agrees and covenants not to initiate a lawsuit or commence
any sort of action or proceedings against the COMPANY or its current and former
parents, affiliates, subsidiaries, partners, stockholders, or their current and
former officers, directors, employees, agents, representatives, successors and
assigns at any time in the future based on any right or claim that arose or
could have arisen on or before the effective date of this Settlement Agreement
and Release.
8. EMPLOYEE recognizes that during the course of, and for the purpose
of his employment, by the COMPANY he was informed of or helped originate
proprietary information, some of which was confidential; and that the COMPANY
considers at least the following types of information to be confidential and the
property of the COMPANY: proposed inventions, engineering designs, new product
plans and market studies, manufacturing know-how, prices and pricing strategies,
profit margins and financial performance reports and financial performance
targets, names and addresses of suppliers, customers and consultants, and
customer problems, preferences, needs and complaints. EMPLOYEE also recognizes
that there may be other types of confidential information, such as that which is
proprietary to others and provided to the COMPANY under a secrecy agreement. The
EMPLOYEE agrees to immediately return any such confidential information in his
possession to COMPANY; agrees to hold and protect in strict confidence and to
not use or disclose for any purpose to any person who is not then an employee of
the COMPANY, any of the COMPANY's confidential or proprietary information; and
further agrees not to cause or assist any other person to use, publish or
disclose any of said information, except, however, such of the foregoing
information as shall have become generally available to the public without any
action, cause or fault of the EMPLOYEE's.
9. EMPLOYEE agrees that during the period in which severance payments
are being received EMPLOYEE will not: (a) offer, perform, or attempt to perform
services for any other person, firm or corporation if any of those services
would use or disclose or cause disclosure of any of the confidential or
proprietary information described in paragraph 8 above, and thereby would assist
or benefit competition against any line of the COMPANY's business; (b) cause,
assist or encourage any solicitation of a customer of the COMPANY for a sale in
competition with the COMPANY, and (c) cause, assist or encourage any recruitment
of any employee of the COMPANY to become employed with another, and (d) directly
or indirectly, whether as principal, agent, stockholder, employee, consultant or
in any other capacity, engage in or offer, perform or attempt to perform any
services or have a financial interest in any firm, corporation, or enterprise
which is in competition with any business conducted by the COMPANY or any of its
subsidiaries, or to take any other action not consistent with the good faith of
this Settlement and Release Agreement. In the event that during the severance,
EMPLOYEE engages in any of the conduct proscribed by this paragraph, EMPLOYEE's
severance payments will cease, and Employer will take such legal action as
authorized by law or equity
10. This Settlement and Release Agreement shall be governed by and
construed under the laws of the State of Connecticut.
<PAGE> 5
11. The provisions of this Settlement and Release Agreement are
severable, and if any part of it is found to be unenforceable, the other
paragraphs shall remain fully valid and enforceable, This Settlement and Release
Agreement shall survive the termination of any arrangements contained herein.
12. EMPLOYEE acknowledges that he is entering into this Settlement and
Release Agreement knowingly and voluntarily, that he fully understands all of
its provisions, and that he has been advised of his right to consult with an
attorney prior to signing this Settlement and Release Agreement. This Settlement
and Release Agreement constitutes the entire understanding of the parties, and
cannot be modified except by a writing signed by both parties.
13. The COMPANY and the EMPLOYEE agrees that, except as permitted by
Paragraph 12, or except as permitted or required by applicable Federal, State,
or Local law, the COMPANY and the EMPLOYEE will maintain the confidentiality of
this Settlement and Release Agreement and make no voluntary statement or take
any other action that might reasonably be expected to result in disclosure of,
or any publicity concerning, the terms hereof or the consideration paid to him
by the COMPANY, except EMPLOYEE may disclose the terms of this Agreement to his
spouse, personal attorney and/or accountant for legal and tax purposes.
14. The COMPANY, when asked for a reference concerning the reasons for
the EMPLOYEE's separation from the COMPANY, will advise prospective employers
that EMPLOYEE voluntarily resigned his employment with appropriate notice on
November 6, 1998. On the COMPANY's behalf, no person other than the President &
CEO and/or the Vice President of Human Resources shall respond to any reference
inquiry.
15. This Settlement and Release Agreement shall not in any way be
construed as an admission by the COMPANY that it has acted wrongfully with
respect to EMPLOYEE in connection with his employment with or termination of
employment from the COMPANY.
16. The COMPANY will provide EMPLOYEE by June 1, 1999 a calculation on
the benefit due EMPLOYEE at retirement under the TransPro, Inc. Retirement Plan
and the amount earned under the TransPro, Inc. Supplemental Non-Qualified
Pension Benefit, both of which shall be reasonably satisfactory to EMPLOYEE.
IN WITNESS WHEREOF, the undersigned have executed this Settlement and
Release Agreement as of the date first above written.
/s/ JOHN C. MARTIN, III February 3, 1999
- ----------------------- ----------------
EMPLOYEE Date
By: /s/ JEFFREY L. JACKSON January 27, 1999
---------------------- ----------------
Name Date
Vice President Human Resources
------------------------------
Title
<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, Inc. Delaware
GO/DAN de Mexico, SA de C.V. (1) Mexico
Radiadores GDI, SA de C.V. (1) Mexico
TransPro Indus Ltd. Mauritius
Crown-VMS Canada, Ltd. Ontario, Canada
EVAP, Incorporated Texas
A/C Plus, Incorporated Texas
</TABLE>
(1) A wholly-owned subsidiary of GO/DAN Industries.
<PAGE> 1
SCHEDULE II
TRANSPRO, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
PERIOD BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
(DOLLARS IN THOUSANDS) PERIOD EXPENSES ACCOUNTS (1) PERIOD
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful accounts $ 2,390 $ 268 $ (238) $ (292) $ 2,128
Allowance for obsolete inventory 5,605 875 (232) (1,525) 4,723
Allowance for tax loss valuation - - 189 - 189
Year Ended December 31, 1998
Allowance for doubtful accounts 3,441 1,394 250 (2,695) 2,390
Allowance for obsolete inventory 5,003 1,629 800 (1,827) 5,605
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
</TABLE>
(1) Amounts adjusted in doubtful accounts and inventory were related to
acquisition reserves and charged to goodwill. Amounts for tax valuation
allowance were charged to deferred taxes.
22
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statement of TransPro, Inc. on Form S-8 (File No. 33-80871) of our report dated
February 14, 2000, relating to the financial statements, which appears in the
Annual Report to Stockholders, and which is incorporated by reference in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated February 14, 2000 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 15, 2000
<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> DEC-31-1999
<CASH> 222
<SECURITIES> 0
<RECEIVABLES> 43,817
<ALLOWANCES> 2,128
<INVENTORY> 85,346
<CURRENT-ASSETS> 135,323
<PP&E> 103,166
<DEPRECIATION> 62,539
<TOTAL-ASSETS> 185,895
<CURRENT-LIABILITIES> 41,749
<BONDS> 61,928
0
0
<COMMON> 66
<OTHER-SE> 74,405
<TOTAL-LIABILITY-AND-EQUITY> 185,895
<SALES> 261,577
<TOTAL-REVENUES> 261,577
<CGS> 197,379
<TOTAL-COSTS> 197,379
<OTHER-EXPENSES> 52,566
<LOSS-PROVISION> 268
<INTEREST-EXPENSE> 4,444
<INCOME-PRETAX> 6,920
<INCOME-TAX> 104
<INCOME-CONTINUING> 6,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,816
<EPS-BASIC> 1.03
<EPS-DILUTED> 0.96
</TABLE>
