<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13894
TRANSPRO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1807383
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock, $.01 par value, outstanding as of
November 6, 2000 was 6,597,335.
Exhibit Index is on page 20 of this report.
Page 1 of 21
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three months and nine
months ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Comprehensive Income for the three
months and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 53,625 $ 58,163 $ 155,894 $ 159,748
Cost of sales 41,562 42,662 120,305 116,482
--------- --------- --------- ---------
Gross margin 12,063 15,501 35,589 43,266
Selling, general and administrative expenses 12,764 12,121 35,827 34,120
Plant closure and severance costs(1) 425 -- 1,220 325
--------- --------- --------- ---------
(Loss) income from continuing operations before
interest and income taxes (1,126) 3,380 (1,458) 8,821
Interest expense, net 1,071 1,180 3,500 3,153
--------- --------- --------- ---------
(Loss) income from continuing operations before
income taxes (2,197) 2,200 (4,958) 5,668
Income tax (benefit) provision(1) (577) 952 (1,700) (434)
--------- --------- --------- ---------
(Loss) income from continuing operations (1,620) 1,248 (3,258) 6,102
Income from discontinued operations, net of
income taxes -- 242 440 1,003
Gain on sale of discontinued operations, including
income from operations during phase-out period, net
of income taxes 187 -- 6,189 --
--------- --------- --------- ---------
Net (loss) income $ (1,433) $ 1,490 $ 3,371 $ 7,105
========= ========= ========= =========
Basic (loss) earnings per common share:
From continuing operations $ (0.25) $ 0.19 $ (0.50) $ 0.93
From discontinued operations -- 0.04 0.07 0.15
From gain on sale of discontinued operations 0.03 -- 0.94 --
--------- --------- --------- ---------
Basic (loss) earnings per common share $ (0.22) $ 0.23 $ 0.51 $ 1.08
========= ========= ========= =========
Diluted (loss) earnings per common share(2):
From continuing operations $ (0.25) $ 0.18 $ (0.50) $ 0.86
From discontinued operations -- 0.03 0.07 0.14
From gain on sale of discontinued operations 0.03 -- 0.94 --
--------- --------- --------- ---------
Diluted (loss) earnings per common share $ (0.22) $ 0.21 $ 0.51 $ 1.00
========= ========= ========= =========
Cash dividends per common share $ - $ 0.05 $ 0.10 $ 0.15
========= ========= ========= =========
Weighted average common shares - basic 6,575 6,573 6,574 6,573
========= ========= ========= =========
Weighted average common shares and assumed
conversions-diluted(2) 7,090 7,053 7,089 7,084
========= ========= ========= =========
(1) The basic and diluted earnings per share effect of plant closure and
severance costs is ($0.05) and ($0.12) for the three and nine month
periods ended September 30, 2000, respectively. The basic and diluted
earnings per share effect of plant closure costs is ($0.03) for the
nine months ended September 30, 1999. The basic and diluted earnings
per share effect on continuing operations of the non-recurring,
non-cash deferred tax benefit is $0.43 and $0.40 for the three and nine
month periods ended September 30, 1999, respectively.
(2) The weighted average basic common shares outstanding was used in the
calculation of the diluted loss per common share from continuing
operations, as well as the diluted earnings per share from discontinued
operations and from gain on sale of discontinued operations for the
three and nine month periods ended September 30, 2000 as the use of
weighted average diluted common shares outstanding would (2) have an
anti-dilutive effect on net earnings per share for the three and nine
month periods ended September 30, 2000.
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE> 4
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) income $(1,433) $ 1,490 $ 3,371 $ 7,105
Other comprehensive income, net of tax:
Foreign currency translation -- 2 12 7
Minimum pension liability -- -- (645) --
------- ------- ------- -------
Comprehensive income $(1,433) $ 1,492 $ 2,738 $ 7,112
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE> 5
TRANSPRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 199 $ 222
Accounts receivable (less allowances of $2,138 and $1,943) 35,533 31,845
--------- ---------
Inventories, net:
Raw materials 24,754 23,139
Work in process 2,606 2,706
Finished goods 58,272 50,824
--------- ---------
Total inventories 85,632 76,669
--------- ---------
Deferred income taxes 4,652 4,913
Other current assets 2,284 1,646
Net assets held for disposition -- 24,405
--------- ---------
Total current assets 128,300 139,700
--------- ---------
Property, plant and equipment 80,295 76,602
Less accumulated depreciation and amortization (53,531) (49,446)
--------- ---------
Net property, plant and equipment 26,764 27,156
--------- ---------
Goodwill (net of amortization of $1,035 and $746) 6,964 7,253
Other assets 2,404 2,184
--------- ---------
Total assets $ 164,432 $ 176,293
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit debt $ 35,777 $ --
Accounts payable 27,473 20,552
Accrued insurance 2,729 3,415
Accrued salaries and wages 4,022 3,653
Accrued taxes 1,700 1,962
Accrued expenses 6,488 5,203
--------- ---------
Total current liabilities 78,189 34,785
--------- ---------
Long-term liabilities:
Long-term debt 4,835 61,928
Retirement and postretirement obligations 3,917 3,474
Other liabilities 91 684
--------- ---------
Total liabilities 87,032 100,871
--------- ---------
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
September 30, 2000 and December 31, 1999
Series B convertible preferred stock, $.01 par value: -- --
Authorized 30,000 shares; issued and outstanding;
30,000 shares at September 30, 2000 and December 31, 1999;
(liquidation preference of $3,000 at September 30, 2000 and
December 31, 1999) -- --
Common stock, $.01 par value: Authorized 17,500,000 shares;
6,669,446 shares issued at September 30, 2000 and December 31, 1999
6,597,335 shares outstanding at September 30, 2000 and December 31, 1999 66 66
Paid-in capital 55,074 55,074
Unearned compensation (37) (66)
Retained earnings 22,924 20,318
Accumulated other comprehensive (loss) income (601) 56
Treasury stock, at cost:
72,111 shares at September 30, 2000 and December 31, 1999 (26) (26)
--------- ---------
Total stockholders' equity 77,400 75,422
--------- ---------
Total liabilities and stockholders' equity $ 164,432 $ 176,293
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE> 6
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,371 $ 7,105
-------- --------
Adjustments to reconcile net income to net cash used in operating
activities from continuing operations:
Income from discontinued operations (440) (1,003)
Depreciation and amortization 4,416 4,331
Gain on the sale of discontinued operations, including income during the
phase-out period (10,030) --
Gain on sale of fixed assets -- (5)
Deferred tax provision (benefit) 261 (4,256)
Provision for losses - accounts receivable 288 163
-------- --------
Total adjustments to reconcile net income to net
cash used in operating activities from continuing operations (5,505) (770)
-------- --------
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (3,976) (7,334)
Inventories (8,963) (13,864)
Accounts payable 6,921 3,912
Accrued expenses 846 5,003
Other, net (1,665) (1,627)
-------- --------
Total change in operating assets and liabilities (6,837) (13,910)
Change in net assets of discontinued operations (37) (2,255)
-------- --------
Net cash used in operating activities (9,008) (9,830)
-------- --------
Cash flows from investing activities:
Capital expenditures (3,653) (4,301)
Sales and retirements of fixed assets, net -- 4
Net proceeds from the sale of discontinued operations 26,772 --
Acquisition of A/C Plus, net of cash acquired -- (2,366)
-------- --------
Net cash provided by (used in) investing activities 23,119 (6,663)
-------- --------
Cash flows from financing activities:
Dividends paid (760) (1,007)
Net (repayments) borrowings under Revolving Credit Agreement (13,374) 18,134
-------- --------
Net cash (used in) provided by financing activities (14,134) 17,127
-------- --------
(Decrease) increase in cash and cash equivalents (23) 634
Cash and cash equivalents:
Beginning of period 222 345
-------- --------
End of period $ 199 $ 979
======== ========
Supplemental Cash Flow Information:
Interest paid $ 2,876 $ 2,962
Taxes paid $ 3,204 $ 1,382
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company acquired A/C Plus, effective February 1, 1999, the details of which are
further described in note 8. In connection with this transaction, liabilities
were assumed, as follows:
Fair value of assets acquired $ 3,060
Cash (paid) (2,250)
--------
Liabilities assumed $ 810
========
In connection with the acquisition, the Company issued a promissory note of
$250 payable on the second anniversary of the closing.
The Company sold the Specialty Metal Fabrication Segment effective May 5,
2000, the details of which are further described in note 9. In connection
with the sale, the buyer assumed Industrial Revenue Bonds in the amount of
$8,000.
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE> 7
TRANSPRO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
TransPro, Inc. (the "Company") is a manufacturer and supplier of
heating and cooling systems and components for a variety of Aftermarket and
Original Equipment Manufacturing ("OEM") automotive, truck and industrial
equipment applications.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the Securities and Exchange Commission on
March 17, 2000, including the consolidated financial statements and notes
thereto included therein.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of consolidated financial position,
consolidated results of operations and consolidated cash flows have been
included in the accompanying unaudited condensed consolidated financial
statements. All such adjustments are of a normal recurring nature. The December
31, 1999 condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. In accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," the condensed consolidated balance sheet as
of December 31, 1999 and the condensed consolidated statements of income for the
three months and nine months ended September 30, 1999 have certain
reclassifications to reflect the Specialty Metal Fabrication segment as a
discontinued operation. Certain other items reported in the prior condensed
consolidated financial statements have been reclassified to conform to the
presentation of the current condensed consolidated financial statements.
NOTE 3 - PLANT CLOSURE AND SEVERANCE COSTS
During the first quarter of 2000, the Company recorded $0.8 million in
closure costs related to actions taken in the Aftermarket Heating and Cooling
Systems segment to close the Houston, Texas regional radiator manufacturing
facility and to consolidate the Santa Fe Springs, California distribution
facility into the existing distribution facility in Memphis, Tennessee. The
manufacturing facility closure plan was initiated to reduce manufacturing costs
and address plant capacity issues at other regional facilities. The distribution
center consolidation plan was initiated to enhance fill rates to customers and
reduce the per unit carrying cost of inventory. These actions resulted in the
termination of 18 manufacturing and eight distribution center employees. A
summary of the associated closure costs is as follows:
<TABLE>
<CAPTION>
Amounts Charged to Balance Remaining
(Amounts in thousands) Operations Through At
(Unaudited) September 30, 2000 Amounts Paid September 30, 2000
------------------ ------------ ------------------
<S> <C> <C> <C>
Workforce related $ 222 $ 168 $ 54
Facilities 415 262 153
Product relocation 127 127 -
Asset write-down 31 - 31
---------- ----------- ---------
Total $ 795 $ 557 $238
========== =========== =========
</TABLE>
The balance remaining at September 30, 2000 is classified as an accrued expense
in the condensed consolidated balance sheet. All the costs associated with the
closures are expected to be paid in 2000.
7
<PAGE> 8
During the third quarter of 2000, the Company recorded $0.4 million of severance
costs associated with the previously announced departure of the President and
CEO. At September 30, 2000, no severance payments had been made and the
severance costs are classified as an accrued expense in the condensed
consolidated balance sheet. All the severance costs are expected to be paid in
2001.
NOTE 4 - SEGMENT AND BUSINESS INFORMATION
The Company operates in two reportable business segments: Aftermarket
Heating and Cooling Systems and OEM Heat Transfer Systems. 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.
There has been no material change in segment assets from continuing
operations since the filing of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. Segment data from continuing operations has
been disclosed on a basis consistent with the Form 10-K for the year ended
December 31, 1999.
The tables below set forth information about reported segments for the
three and nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
(Unaudited) CONSOLIDATED REVENUES FROM CONTINUING OPERATIONS
--------------------------------------------------------------
(Amounts in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BUSINESS SEGMENT
Aftermarket Heating and Cooling Systems $ 45,237 $ 48,469 $ 126,089 $ 130,968
OEM Heat Transfer Systems 8,388 9,694 29,805 28,780
Inter-segment revenues:
Aftermarket Heating and Cooling Systems 1,196 1,425 5,995 4,130
OEM Heat Transfer Systems 25 1 47 13
Elimination of inter-segment revenues (1,221) (1,426) (6,042) (4,143)
---------- ---------- ---------- ---------
Consolidated totals $ 53,625 $ 58,163 $ 155,894 $ 159,748
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited) (LOSS) INCOME FROM CONTINUING OPERATIONS
(Amounts in thousands) BEFORE INTEREST AND TAXES
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
BUSINESS SEGMENT
Aftermarket Heating and Cooling Systems $ 1,356 $ 4,737 $ 2,766 $ 12,941
OEM Heat Transfer Systems (862) (474) (1,100) (931)
-------- -------- -------- --------
Segment totals 494 4,263 1,666 12,010
Corporate expenses (1,620) (883) (3,124) (3,189)
--------- --------- --------- --------
Consolidated totals $ (1,126) $ 3,380 $ (1,458) $ 8,821
========= ========= ========= ========
</TABLE>
8
<PAGE> 9
NOTE 5 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
(Amounts in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(LOSS) EARNINGS PER COMMON SHARE COMPUTATION:
Numerator:
(Loss) income from continuing operations $(1,620) $ 1,248 $(3,258) $ 6,102
Less: preferred stock dividend (30) (15) (72) (45)
------- ------- ------- -------
(Loss) income from continuing operations available (attributable) to
common stockholders - basic (1,650) 1,233 (3,330) 6,057
Income from discontinued operations -- 242 440 1,003
Gain on sale of discontinued operations 187 -- 6,189 --
------- ------- ------- -------
Net (loss) income available (attributable) to common stockholders - basic $(1,463) $ 1,475 $ 3,299 $ 7,060
======= ======= ======= =======
(Loss) income from continuing operations (attributable) available to
common stockholders - basic $(1,650) $ 1,233 $(3,330) $ 6,057
Add back: preferred stock dividend 30 15 72 45
------- ------- ------- -------
(Loss) income from continuing operations (1,620) 1,248 (3,258) 6,102
Income from discontinued operations -- 242 440 1,003
Gain on sale of discontinued operations 187 -- 6,189 --
------- ------- ------- -------
Net (loss) income available (attributable) to common stockholders - diluted $(1,433) $ 1,490 $ 3,371 $ 7,105
======= ======= ======= =======
Denominator:
Weighted average common shares 6,597 6,597 6,597 6,597
Non-vested restricted stock (22) (24) (23) (24)
------- ------- ------- -------
Adjusted weighted average common shares - basic 6,575 6,573 6,574 6,573
Dilutive effect of Series B preferred stock 496 433 496 497
Dilutive effect of stock options and non-vested restricted stock 19 47 19 14
------- ------- ------- -------
Adjusted weighted average common shares and assumed
conversions - diluted 7,090 7,053 7,089 7,084
======= ======= ======= =======
Basic (loss) earnings per common share:
From continuing operations $ (0.25) $ 0.19 $ (0.50) $ 0.93
From discontinued operations -- 0.04 0.07 0.15
Gain on sale of discontinued operations 0.03 -- 0.94 --
------- ------- ------- -------
Basic (loss) earnings per common share $ (0.22) $ 0.23 $ 0.51 $ 1.08
------- ------- ------- -------
Diluted (loss) earnings per common share(1):
From continuing operations $ (0.25) $ 0.18 $ (0.50) $ 0.86
From discontinued operations -- 0.03 0.07 0.14
Gain on sale of discontinued operations 0.03 -- 0.94 --
------- ------- ------- -------
Diluted (loss) earnings per common share $ (0.22) $ 0.21 $ 0.51 $ 1.00
======= ======= ======= =======
(1) The weighted average basic common shares outstanding was used in the
calculation of the diluted loss per common share from continuing
operations, as well as the diluted earnings per share from discontinued
operations and from gain on sale of discontinued operations for the
three and nine month periods ended September 30, 2000 as the use of
weighted average diluted common shares outstanding would have an
anti-dilutive effect on net earnings per share for the three and nine
month periods ended September 30, 2000.
</TABLE>
9
<PAGE> 10
Certain options to purchase common stock were outstanding during the
three months and nine months ended September 30, 2000 and 1999, but were not
included in the computation of diluted earnings per share because their exercise
prices were greater than the average market price for the common shares for the
period. The anti-dilutive options outstanding and their exercise prices are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- --------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Options outstanding 500,304 347,115 500,304 437,178
Range of exercise prices $5.50 - $11.75 $7.50 - $11.75 $5.50 - $11.75 $5.88 - $11.75
</TABLE>
NOTE 6 - DEBT
In July 1998, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with five banking institutions, which
provided 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. Prior to the Limited
Waiver and Fourth Amendment to Revolving Credit Agreement (described below), the
security interest in the Company's assets and the pledge of the Company's
subsidiaries' stock was eligible for release if the Company achieved certain
senior debt ratings or if certain financial ratios were met and maintained.
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 calendar quarter
through June 30, 1999; and then by $1.25 million at the end of each calendar
quarter through December 31, 1999.
Amounts borrowed under the Revolving Credit Agreement bear interest at
variable rates based, at the Company's option on either (a) a Eurodollar loan
rate, plus an applicable margin based upon the ratio of the Company's total
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA"), or (b) the higher of (i) the BankBoston, N.A. base lending rate and
(ii) one-half of one percent above the Federal Funds Effective Rate, as defined,
plus an applicable margin based upon the ratio of the Company's total funded
debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the
Company's total funded debt to EBITDA on the average daily unused portion of the
Revolving Credit Agreement is payable quarterly, in arrears.
The Revolving Credit Agreement contains financial covenants which,
among other things, require maintenance of a minimum tangible net worth and
interest coverage ratio and a maximum leverage ratio and level of 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 December 31, 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 initial aggregate
amount of $75.0 million, and reschedule the automatic reductions and amend the
leverage coverage ratio covenant. Pursuant to the Third Amendment, the aggregate
amount of borrowings was to be automatically reduced by $5.0 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. On May 1, 2000, the Company
entered into the Limited Waiver and Fourth Amendment to Revolving Credit
Agreement (the "Limited Waiver and Fourth Amendment"). The Limited Waiver and
Fourth Amendment reduces the aggregate amount of secured borrowings or the
issuance of letters of credit to $55.0 million, reschedules the automatic
reductions, eliminates the eligibility
10
<PAGE> 11
for early security release and contains certain other amendments, which were
effective with the sale of the Crown Divisions in May 2000. Pursuant to the
Limited Waiver and Fourth Amendment, the aggregate amount of borrowings is
automatically reduced by $5.0 million on December 31, 2000, by $5.0 million on
December 31, 2001 and by $7.5 million on December 31, 2002. The Limited Waiver
and Fourth Amendment also consented to the sale of the Crown Divisions, released
any security interest in the Crown assets, released Crown Canada as a guarantor
and provides for the elimination of the borrowing base if, on April 10, 2001, no
Default or Event of Default exists. Pursuant to the Limited Waiver and Fourth
Amendment, the lenders agreed to waive compliance with the leverage ratio, the
interest coverage ratio and the liabilities to net worth ratio covenants for the
quarter ended March 31, 2000.
At June 30, 2000, the Company was in violation of its interest coverage
and leverage ratio covenants. On August 18, 2000, the Company entered into a
Forbearance Agreement with the lenders, whereby the lenders agreed to allow the
violation of the interest coverage and leverage ratio covenants to continue to
exist until September 30, 2000, provided the Company's borrowings and
outstanding letters of credit under the Revolving Credit Agreement did not
exceed $52 million and the Company met certain other conditions. Pursuant to the
Forbearance Agreement, outstanding borrowings under the Revolving Credit
Agreement during the forbearance period bore interest as set forth in the
Revolving Credit Agreement plus 1/2% per annum.
On September 29, 2000, the Company entered into the Second Forbearance
Agreement with the lenders, whereby the lenders agreed to allow the violation of
the interest coverage and leverage ratio covenants to continue to exist until
November 15, 2000, provided the Company's borrowings and outstanding letters of
credit under the Revolving Credit Agreement do not exceed $52 million, the
borrowing base exceeds the sum of the Company's borrowings plus outstanding
letters of credit under the Revolving Credit Agreement by $20 million and the
Company meets certain other conditions. At September 30, 2000, the borrowing
base exceeded the sum of the Company's borrowings plus outstanding letters of
credit under the Revolving Credit Agreement by $21.7 million. Pursuant to the
Second Forbearance Agreement, outstanding borrowings under the Revolving Credit
Agreement during the forbearance period bear interest as set forth in the
Revolving Credit Agreement plus 1/2% per annum.
The Company believes it is in violation of the interest coverage and
leverage ratios at September 30, 2000.
The Company is in the process of seeking alternate sources of capital
from other lenders to replace the Revolving Credit Agreement. Accordingly,
borrowings under the Revolving Credit Agreement are classified as a current
liability in the accompanying condensed consolidated balance sheet as of
September 30, 2000. Although no assurance can be given, the Company believes
that it will be successful in securing alternate sources of capital from other
lenders. Simultaneously, the Company is in the process of seeking a third
forbearance to allow the time necessary for the Company to secure the alternate
sources of capital from other lenders to replace the Revolving Credit Agreement.
Although no assurance can be given, the Company believes that it will be
successful in obtaining a third forbearance.
At September 30, 2000, borrowings under the Company's Revolving Credit
Agreement were $36.1 million. The Company also has $5.0 million of borrowings
under floating rate industrial revenue bonds, which bear interest based upon a
short-term tax-exempt bond index and mature in the year 2013. At September 30,
2000, deferred debt expense of $0.4, and $0.2 was associated with the Revolving
Credit Agreement and the floating rate industrial revenue bonds, respectively.
Outstanding letters of credit totaled $9.2 million at September 30, 2000,
including $5.0 million to support borrowings under the floating rate industrial
revenue bonds. At November 6, 2000, borrowings under the Revolving Credit
Agreement were $40.7 million and outstanding letters of credit totaled $9.2
million.
NOTE 7 - SERIES B CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of Evap, Inc. in July 1998, the
Company issued 30,000 shares of TransPro, Inc. Series B Convertible Preferred
Stock (the "Series B Preferred Stock"). The Series B Preferred
11
<PAGE> 12
Stock has an initial liquidation preference of $3.0 million, which is reflected
in paid-in capital on the Company's condensed consolidated balance sheet. There
is a potential additional payout for the Evap acquisition based on the future
earnings performance of the Evap business for the period January 1, 1999 through
December 31, 2000 that will take the form of an increase in the liquidation
preference of the Series B Preferred Stock with a maximum additional payout of
$3.75 million. Increases to the liquidation preference of the Series B Preferred
Stock, if any, are effective on April 1, 2000 and April 1, 2001 based upon the
earnings of the Evap business for the prior calendar year. The Company is
currently in the process of finalizing the determination of the initial
additional payout amount, in accordance with the purchase agreement. The final
payout amount will be determined during 2001. 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.
NOTE 8 - ACQUISITION
Effective February 1, 1999, the Company purchased 100% of the
outstanding stock of A/C Plus, Inc., ("A/C Plus") an air conditioning compressor
remanufacturer located in Arlington, Texas. A/C Plus had sales of approximately
$2.9 million in fiscal 1998. The transaction was structured with a purchase
price of $2.25 million in cash, plus 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.
12
<PAGE> 13
NOTE 9 - DISPOSITION OF BUSINESS SEGMENT
Effective May 5, 2000, the Company sold substantially all of the assets
and liabilities of its Crown Division Specialty Metal Fabrication segment to
Leggett & Platt, Incorporated in a transaction valued at $37.5 million,
comprised of $28.65 million in cash and the assumption of $8.0 million of
Industrial Revenue Bonds due 2010 and an unfunded pension liability of $0.85
million. The Company recorded a gain of $6.2 million, net of tax, which is
reported as gain on sale of discontinued operations in the condensed
consolidated statements of income. Crown designs and manufactures precision
specialty fabricated metal enclosures and components for a variety of
telecommunications and industrial applications and designs, manufactures and
installs specialized interiors and components for a variety of vans, utility
trucks and other specialized vehicles. Net proceeds from the sale were used to
reduce outstanding borrowings under the Company's Revolving Credit Agreement.
The following table presents the consolidated results of continuing
operations for the periods indicated on a pro forma basis, assuming the
reduction in debt resulting from the disposition of the Specialty Metal
Fabrication segment as if it had occurred on January 1, 1999.
<TABLE>
<CAPTION>
(unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands) SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 53,625 $58,163 $155,894 $159,748
Cost of sales 41,562 42,662 120,305 116,482
-------- ------- -------- --------
Gross margin 12,063 15,501 35,589 43,266
Selling, general and administrative expenses 12,764 12,121 35,827 34,120
Plant closure and severance costs 425 - 1,220 325
-------- ------- -------- --------
Income (loss) from continuing operations before interest and taxes (1,126) 3,380 (1,458) 8,821
Interest expense, net 1,071 655 2,975 1,578
-------- ------- -------- --------
Income (loss) from continuing operations before taxes (2,197) 2,725 (4,433) 7,243
Provision (benefit) for income taxes (577) 1,179 (1,521) (239)
-------- ------- -------- --------
Net income (loss) from continuing operations $ (1,620) $1,546 $(2,912) $7,482
======== ======= ======= ========
Basic earnings (loss) from continuing operations per common share $ (0.25) $0.24 $(0.44) $1.14
======= ====== ====== =====
Diluted earnings (loss) from continuing operations per common share(1) $ (0.25) $0.22 $(0.44) $1.06
======= ====== ====== =====
(1) The weighted average basic common shares outstanding was used in the
calculation of the diluted loss per common share from continuing
operations for the three month and nine month periods ended September
30, 2000 as the use of weighted average diluted common shares
outstanding would have an anti-dilutive effect on the loss per share
for the three month and nine month periods ended September 30, 2000.
</TABLE>
NOTE 10 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging contracts. The FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS No. 137") "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," in June
1999, deferring the effective date of SFAS No. 133 to be fiscal years beginning
after June 15, 2000. The effect of adopting SFAS No. 133 is being assessed.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1999
Net sales for the three months ended September 30, 2000 declined 7.8%
to $53.6 million compared with $58.2 million for the three months ended
September 30, 1999. Sales in the Aftermarket Heating and Cooling Systems segment
declined $3.2 million, or 6.7%, from the comparable 1999 quarter. This reflects
lower unit volume in complete radiators and heaters to major retail customers,
lower radiator core sales to the direct market and flat sales of air
conditioning parts. Demand for the Company's Aftermarket Heating and Cooling
Systems products during the quarter continued to be affected negatively by
inventory adjustments on the part of the large retailers, coupled with mild
weather conditions in most parts of the country. Sales of OEM Heat Transfer
Systems products declined $1.3 million, or 13.5%, from the prior-year third
quarter primarily due to the recent decline in demand in the overall heavy-duty
truck market.
In the third quarter of 2000, consolidated gross margins were $12.1
million compared with $15.5 million in the year ago third quarter. As a
percentage of sales, gross margins were 22.5% in the 2000 third quarter compared
with 26.7% in the third quarter of 1999. In the Aftermarket Heating and Cooling
Systems segment, gross margins continued to be affected negatively by lower
manufacturing cost absorption resulting from the Company's decision to reduce
production levels in order to lower inventory and debt levels more aggressively
by the end of the year. Pricing actions taken earlier in the year to respond to
competitive pressures for Aftermarket products also continued to impact gross
margins negatively during the third quarter. Gross margins in the OEM Heat
Transfer Systems segment were negative primarily due to the lack of absorption
of manufacturing costs as a result of the sudden decline in sales and production
volume.
Selling, general and administrative expenses increased $0.6 million, or
5.3%, due to a $0.3 million charge for doubtful collection reserves, higher
professional fees and the comparative impact of a reduction of employee medical
insurance accruals in the third quarter of 1999. These increases were partially
offset by the comparative affect of a $0.3 million charge recorded in the third
quarter of 1999 for legal fees and settlement costs associated with the
settlement of an employment-related lawsuit. During the third quarter of 2000,
the Company recorded a severance charge of $0.4 million related to the
previously announced departure of the Company's President and CEO.
Net interest expense declined $0.1 million, or 9.2%, for the three
months ended September 30, 2000 compared with the three months ended September
30, 1999. As a result of applying the proceeds from the May 5, 2000 sale of the
Specialty Metal Fabrication segment to reduce debt, average debt outstanding
during the third quarter of 2000 declined compared with average debt outstanding
during the third quarter of 1999. The impact of lower average outstanding debt
was partially offset by higher effective interest rates during the third quarter
of 2000 compared with the third quarter of 1999.
The Company's effective tax rate of 26.3% for the third quarter of 2000
is comprised of the U. S. Federal Income tax rate, plus the estimated aggregate
effective rate for state and local income taxes. The third quarter 2000 rate
reflects an adjustment to the year-to-date tax rate to reduce the tax benefit
arising from the loss from continuing operations for the impact of
non-deductible expenses for tax purposes. The rate decreased from the third
quarter 1999 rate of 43.3%, reflecting the reduction of the tax benefit from the
loss from continuing operations resulting from non-tax deductible expenses
expected in 2000.
14
<PAGE> 15
The loss from continuing operations in the third quarter of 2000 was
$1.2 million, or $0.17 per basic and diluted common share, excluding the effect
of the severance and doubtful collection charges. This compares with earnings
from continuing operations in the third quarter of 1999 of $1.4 million, or
$0.21 per basic common share and $0.20 per diluted common share, excluding the
effect of legal settlement costs. Including the effect of the severance and
doubtful collection charges, the loss from continuing operations for the third
quarter of 2000 was $1.6 million, or $0.25 per basic and diluted common share.
Including the effect of legal settlement costs, income from continuing
operations for the third quarter of 1999 was $1.2 million, or $0.18 per basic
common share and $0.18 per diluted common share.
The Company sold its Crown Specialty Metal Fabrication segment to
Leggett & Platt, Incorporated on May 5, 2000 and, accordingly, the Specialty
Metal Fabrication segment is accounted for as a discontinued operation. In the
third quarter of 2000, the Company adjusted the estimated effective tax rate on
the gain on the sale of discontinued operations and, accordingly recorded $0.2
million, or $0.03 per basic and diluted common share, of additional gain for the
three months ended September 30, 2000. Income from discontinued operations was
$0.2 million, or $0.04 per basic common share and $0.03 per diluted common share
for the third quarter of 1999.
The net loss for the third quarter of 2000 was $1.4 million, or $0.22
per basic and diluted common share, compared with net income of $1.5 million, or
$0.23 per basic common share and $0.21 per diluted common share in the third
quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1999
Net sales for the nine months ended September 30, 2000 declined 2.4% to
$155.9 million compared with $159.7 million for the nine months ended September
30, 1999. Sales in the Aftermarket Heating and Cooling Systems segment declined
$4.9 million, or 3.7%, from the comparable 1999 period. Complete radiator unit
volume was essentially flat year over year as volume declines to the retail
channel were offset by volume increases to warehouse distributors and the direct
market. Radiator core sales declined as the market continues to shift to
complete radiators. Heater sales declined during the first nine months of 2000
as heater shipments to the retail channel have been moved into the fourth
quarter. Compared with the comparable nine month period last year, condenser
sales increased as a result of a large shipment to a retail customer during the
first quarter, while sales of other air conditioning parts were essentially
flat. Sales for the first nine months were negatively impacted by lower volume
due to lower market demand and pricing actions in response to competitive
pressures. Sales in the OEM Heat Transfer Systems segment increased by $1.0
million, or 3.6%, compared with the comparable 1999 period due to strong demand
in the class 8 truck and specialty vehicle and industrial application markets in
the first half of the year.
Consolidated gross margins for the nine months ended September 30, 2000
were $35.6 million compared to $43.3 million for the nine months ended September
30, 1999. As a percent of sales, gross margins declined to 22.8% in the first
nine months of this year from 27.1% in the prior year first nine months. Gross
margins for the nine months ended September 30, 2000 reflect lower margins in
the Aftermarket Heating and Cooling Systems segment primarily due to lower
production rates implemented as part of the inventory and debt reduction plan,
which have resulted in decreased manufacturing cost absorption. In addition, the
start up of production in Mexico of two new products, plastic tank aluminum core
radiators and six-millimeter condensers, resulted in temporary manufacturing
inefficiencies in the 2000 nine-month period. Pricing activity in response to
competitive pressures in the Aftermarket also negatively affected gross margins
during this period. Gross margins in the OEM Heat Transfer Systems segment were
basically flat compared with the prior year nine-month period as the significant
slowing of demand negated the impact of improvements in manufacturing
efficiencies and cost management.
Selling, general and administrative expenses increased $1.7 million or
5.0%, as a result of higher freight costs resulting from higher fuel prices,
higher professional fees associated with certain strategic initiatives and a
15
<PAGE> 16
$0.3 million charge for doubtful collections. Increased headcount to position
the Aftermarket air conditioning parts operation for future growth,
inflation-related employee cost increases in the Aftermarket Heating and Cooling
Systems segment and the comparative impact of reducing employee medical
insurance accruals in the third quarter of 1999 also contributed to the
increase.
Plant closure costs of $0.8 million were incurred during the nine
months ended September 30, 2000 related to actions taken in the Aftermarket
Heating and Cooling Systems segment to close the Houston, Texas regional
radiator manufacturing plant and to consolidate the Santa Fe Springs, California
distribution center into the existing distribution facility in Memphis,
Tennessee. In addition, a severance charge of $0.4 million related to the
previously announced departure of the Company's President and CEO was recorded
during the nine months ended September 30, 2000. Plant closure costs of $0.3
million related to the closure of the Company's Philadelphia, Pennsylvania and
Atlanta, Georgia replacement automotive air conditioning condenser manufacturing
plants and legal and settlement costs related to an employment-related lawsuit
were recognized during the nine months ended September 30, 1999.
Net interest expense increased $0.3 million for the nine months ended
September 30, 2000 compared with the nine months ended September 30, 1999. This
increase resulted from higher average debt levels associated with higher working
capital levels in the Aftermarket Heating and Cooling Systems segment, coupled
with higher effective interest rates. The impact of these factors was partially
offset by lower debt levels resulting from the application of the proceeds from
the May 2000 sale of the Specialty Metal Fabrication segment to reduce debt.
The Company's effective tax rate of 34.3% for the nine months ended
September 30, 2000 is comprised of the U. S. Federal income tax rate plus the
estimated aggregate effective rate for state and local income taxes. The rate
decreased from the 1999 rate of 42.8%, reflecting the reduction of the tax
benefit arising from the loss from continuing operations for the expected impact
in 2000 of non-deductible expenses for tax purposes. During the nine months
ended September 30, 1999, the Company recognized a non-recurring, non-cash
deferred tax benefit of $2.9 million related to the change in the organizational
structure of its GO/DAN Industries operation from a partnership to a
corporation.
Excluding plant closure and severance costs, the loss from continuing
operations for the nine months ended September 30, 2000 was $2.3 million, or
$0.35 per basic and diluted common share. Including plant closure and severance
costs, the loss from continuing operations for the nine months ended September
30, 2000 was $3.3 million, or $0.50 per basic and diluted common share. This
compares with income from continuing operations of $3.6 million, or $0.55 per
basic common share and $0.51 per diluted common share, for the nine months ended
September 30, 1999, excluding plant closure and legal settlement costs and the
non-recurring, non-cash deferred tax benefit. Including the effect of plant
closure and legal settlement costs and the non-recurring, non-cash deferred tax
benefit, income from continuing operations for the first nine months of 1999 was
$6.1 million, or $0.93 per basic common share and $0.86 per diluted common
share.
The Company sold its Crown Specialty Metal Fabrication segment to
Leggett & Platt, Incorporated on May 5, 2000 and, accordingly, the Specialty
Metal Fabrication segment is accounted for as a discontinued operation. As a
result of the sale, the Company reported a net gain on the sale of discontinued
operations of $6.2 million, or $0.94 per basic and diluted common share for the
nine months ended September 30, 2000. Income from discontinued operations for
the nine months ended September 30, 2000 was $0.4 million, or $0.07 per basic
and diluted common share, compared with $1.0 million, or $0.15 per basic common
share and $0.14 per diluted common share, for the nine months ended September
30, 1999.
Net income for the nine months ended September 30, 2000 was $3.4
million, or $0.51 per basic and diluted common share, compared with net income
of $7.1 million, or $1.08 per basic common share and $1.00 per diluted common
share, in the comparable period of 1999.
16
<PAGE> 17
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
In July 1998, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with five banking institutions, which
provided 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. Prior to the Limited
Waiver and Fourth Amendment to Revolving Credit Agreement (described below), the
security interest in the Company's assets and the pledge of the Company's
subsidiaries' stock was eligible for release if the Company achieved certain
senior debt ratings or if certain financial ratios were met and maintained.
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 calendar quarter
through June 30, 1999; and then by $1.25 million at the end of each calendar
quarter through December 31, 1999.
Amounts borrowed under the Revolving Credit Agreement bear interest at
variable rates based, at the Company's option on either (a) a Eurodollar loan
rate, plus an applicable margin based upon the ratio of the Company's total
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA"), or (b) the higher of (i) the BankBoston, N.A. base lending rate and
(ii) one-half of one percent above the Federal Funds Effective Rate, as defined,
plus an applicable margin based upon the ratio of the Company's total funded
debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the
Company's total funded debt to EBITDA on the average daily unused portion of the
Revolving Credit Agreement is payable quarterly, in arrears.
The Revolving Credit Agreement contains financial covenants which,
among other things, require maintenance of a minimum tangible net worth and
interest coverage ratio and a maximum leverage ratio and level of 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 December 31, 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 initial aggregate
amount of $75.0 million, and reschedule the automatic reductions and amend the
leverage coverage ratio covenant. Pursuant to the Third Amendment, the aggregate
amount of borrowings was to be automatically reduced by $5.0 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. On May 1, 2000, the Company
entered into the Limited Waiver and Fourth Amendment to Revolving Credit
Agreement (the "Limited Waiver and Fourth Amendment"). The Limited Waiver and
Fourth Amendment reduces the aggregate amount of secured borrowings or the
issuance of letters of credit to $55.0 million, reschedules the automatic
reductions, eliminates the eligibility for early security release and contains
certain other amendments, which were effective with the sale of the Crown
Divisions in May 2000. Pursuant to the Limited Waiver and Fourth Amendment, the
aggregate amount of borrowings is automatically reduced by $5.0 million on
December 31, 2000, by $5.0 million on December 31, 2001 and by $7.5 million on
December 31, 2002. The Limited Waiver and Fourth Amendment also consented to the
sale of the Crown Divisions, released any security interest in the Crown assets,
released Crown Canada as a guarantor and provides for the elimination of the
borrowing base if, on April 10, 2001, no Default or Event of Default exists.
Pursuant to the Limited Waiver and Fourth Amendment, the lenders agreed to waive
compliance with the leverage ratio, the interest coverage ratio and the
liabilities to net worth ratio covenants for the quarter ended March 31, 2000.
17
<PAGE> 18
At June 30, 2000, the Company was in violation of its interest coverage
and leverage ratio covenants. On August 18, 2000, the Company entered into a
Forbearance Agreement with the lenders, whereby the lenders agreed to allow the
violation of the interest coverage and leverage ratio covenants to continue to
exist until September 30, 2000, provided the Company's borrowings and
outstanding letters of credit under the Revolving Credit Agreement did not
exceed $52 million and the Company met certain other conditions. Pursuant to the
Forbearance Agreement, outstanding borrowings under the Revolving Credit
Agreement during the forbearance period bore interest as set forth in the
Revolving Credit Agreement plus 1/2% per annum.
On September 29, 2000, the Company entered into the Second Forbearance
Agreement with the lenders, whereby the lenders agreed to allow the violation of
the interest coverage and leverage ratio covenants to continue to exist until
November 15, 2000, provided the Company's borrowings and outstanding letters of
credit under the Revolving Credit Agreement do not exceed $52 million, the
borrowing base exceeds the sum of the Company's borrowings plus outstanding
letters of credit under the Revolving Credit Agreement by $20 million and the
Company meets certain other conditions. At September 30, 2000, the borrowing
base exceeded the sum of the Company's borrowings plus outstanding letters of
credit under the Revolving Credit Agreement by $21.7 million. Pursuant to the
Second Forbearance Agreement, outstanding borrowings under the Revolving Credit
Agreement during the forbearance period bear interest as set forth in the
Revolving Credit Agreement plus 1/2% per annum.
The Company believes it is in violation of the interest coverage and
leverage ratios at September 30, 2000.
The Company is in the process of seeking alternate sources of capital
from other lenders to replace the Revolving Credit Agreement. Accordingly,
borrowings under the Revolving Credit Agreement are classified as current
liabilities in the accompanying condensed consolidated balance sheet as of
September 30, 2000. Although no assurance can be given, the Company believes
that it will be successful in securing alternate sources of capital from other
lenders. Simultaneously, the Company is in the process of seeking a third
forbearance to allow the time necessary for the Company to secure the alternate
sources of capital from other lenders to replace the Revolving Credit Agreement.
Although no assurance can be given, the Company believes that it will be
successful in obtaining a third forbearance.
At September 30, 2000, borrowings under the Company's Revolving Credit
Agreement were $36.1 million. The Company also has $5.0 million of borrowings
under floating rate industrial revenue bonds, which bear interest based upon a
short-term tax-exempt bond index and mature in the year 2013. At September 30,
2000, deferred debt expense of $0.4 million and $0.2 million was associated with
the Revolving Credit Agreement and the floating rate industrial revenue bonds,
respectively. Outstanding letters of credit totaled $9.2 million at September
30, 2000, including $5.0 million to support borrowings under the floating rate
industrial revenue bonds. At November 6, 2000, borrowings under the Revolving
Credit Agreement were $40.7 million and outstanding letters of credit totaled
$9.2 million.
During the first nine months of 2000, the Company required $9.0
million of cash to support its operations. Cash was required to fund a $8.9
million inventory build up and to support the seasonal increase of $4.0 million
in accounts receivable the Aftermarket Heating and Cooling Systems segment. Cash
of $2.1 million was required to fund the net loss plus total adjustments to
reconcile net income to net cash used in operating activities. The additional
minimum pension liability declined by $0.6 million and the current deferred tax
asset increased by $0.6 million. An increase in accounts payable and accrued
expenses provided $7.8 million of cash.
Capital spending during the first nine months of 2000 totaled $3.7
million. The Company paid two cash dividends of $0.05 per common share totaling
$0.7 million in the aggregate during the first nine months of 2000. On September
15, 2000, the Company announced that the Board of Directors had elected to
discontinue the quarterly cash dividend on the Company's common stock in order
to improve financial liquidity and support strategic growth initiatives such as
the air conditioning Aftermarket business. During the nine months ended
September 30, 2000, the Company paid cash dividends to its preferred stockholder
of $0.1 million. Net proceeds
18
<PAGE> 19
from the sale of the Specialty Metal Fabrication segment totaled $26.8 million.
Net borrowings under the Revolving Credit Agreement decreased by $13.4 million
from December 31, 1999.
The future liquidity and ordinary capital needs of the Company in the
near term are expected to be met from a combination of cash flow from operations
and borrowings under the Revolving Credit Agreement. As previously discussed,
the Company is in the process of seeking alternate sources of capital from other
lenders to replace the Revolving Credit Agreement. Although no assurance can be
given, the Company believes that it will be successful in securing alternate
sources of capital from other lenders. However, the capital for major growth
initiatives may exceed the aggregate amount of borrowings available to the
Company from lenders. If this were to occur, the Company would have to seek
additional sources of capital. However, no assurance can be given that the
Company would be successful in securing additional sources of capital.
FORWARD-LOOKING STATEMENTS - CAUTIONARY FACTORS
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical in
nature, are forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's Annual Report on Form 10-K contains certain
detailed factors that could cause the Company's actual results to materially
differ from the forward-looking statements made by the Company. In particular,
statements relating to the future financial performance of the Company,
including inventory and debt reductions, are subject to business conditions and
growth in the general economy and the automotive and truck business, the impact
of competitive products and pricing, changes in customer product mix, failure to
obtain new customers or retain old customers or changes in the financial
stability of customers, changes in the cost of raw materials, components or
finished products and changes in interest rates. Improvements in manufacturing
efficiencies and reduction of costs are subject to a number of factors,
including but not limited to, the ability of management to implement
improvements in workforce efficiencies and the timing of such improvements.
Obtaining additional capital is dependent on market conditions and the Company's
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in
interest rates, foreign currency exchange rates and commodities. There have been
no material changes in market risk since the filing of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(2.1) Asset Purchase Agreement dated as of April 17, 2000 by and among
TransPro, Inc. and Leggett & Platt, Incorporated(1)
(10.1) Limited Waiver and Fourth Amendment to Revolving Credit Agreement dated
May 1, 2000(2)
(10.2) Forbearance agreement dated as of August 18, 2000
(10.3) Forbearance agreement dated as of September 29, 2000
(27) Financial Data Schedule
------------------------
(1) Incorporated by reference to the Company's Form 8-K filed May 2, 2000
(File No. 1-13894)
(2) Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 2000 (File No. 1-13894)
b) Reports on Form 8-K.
On September 19, 2000 the Company filed a Current Report on Form 8-K announcing
the discontinuation of its quarterly dividend to shareholders.
On September 29, 2000 the Company filed a Current Report on Form 8-K announcing
the resignation of its President and Chief Executive Officer.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSPRO, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Henry P. McHale
--------------------------------------
Henry P. McHale
President, Chief Executive
Officer and Director
Date: November 14, 2000 By: /s/ Timothy E. Coyne
--------------------------------------
Timothy E. Coyne
Vice President, Treasurer,
Secretary, Controller and Chief
Financial Officer (Principal Financial
and Accounting Officer)
21
