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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13894
TRANSPRO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1807383
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of common stock, $.01 par value, outstanding as of
August 10, 2001 was 6,612,196.
Exhibit Index is on page 14 of this report.
Page 1 of 15
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INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2001 and 2000. 3
Condensed Consolidated Statements of Comprehensive (Loss) Income for the
Three and Six Months Ended June 30, 2001 and 2000. 4
Condensed Consolidated Balance Sheets at June 30, 2001 and December 31, 2000. 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000. 6
Notes to Condensed Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Sales $ 55,302 $ 53,839 $100,865 $102,269
Cost of sales 45,755 40,003 83,263 78,743
-------- -------- -------- --------
Gross margin 9,547 13,836 17,602 23,526
Selling, general and administrative expenses 13,271 11,325 24,623 23,064
Plant closure costs -- -- -- 795
-------- -------- -------- --------
(Loss) income from continuing operations before
interest, taxes and extraordinary item (3,724) 2,511 (7,021) (333)
Interest expense, net 1,223 1,093 2,394 2,429
-------- -------- -------- --------
(Loss) income from continuing operations before
taxes and extraordinary item (4,947) 1,418 (9,415) (2,762)
Income tax (benefit) provision (2,098) 395 (3,358) (1,124)
-------- -------- -------- --------
(Loss) income from continuing operations before
extraordinary item (2,849) 1,023 (6,057) (1,638)
Income from discontinued operation, net of
taxes -- -- -- 440
Gain on sale of discontinued operation, including
income from operations during phase-out period, net
of taxes -- 6,002 -- 6,002
-------- -------- -------- --------
(Loss) income before extraordinary item (2,849) 7,025 (6,057) 4,804
Loss on debt extinguishment, net of taxes -- -- (380) --
-------- -------- -------- --------
Net (loss) income $ (2,849) $ 7,025 $ (6,437) $ 4,804
======== ======== ======== ========
Basic (loss) earnings per common share:
Continuing operations $ (.44) $ .16 $ (.93) $ (.25)
Discontinued operation -- -- -- .07
Gain on sale of discontinued operation -- .91 -- .91
Loss on debt extinguishment -- -- (.06) --
-------- -------- -------- --------
Basic (loss) earnings per common share $ (.44) $ 1.07 $ (0.99) $ .73
======== ======== ======== ========
Diluted (loss) earnings per common share:
Continuing operations $ (.44) $ .14 $ (.93) $ (.25)
Discontinued operation -- -- -- .07
Gain on sale of discontinued operation -- .85 -- .91
Loss on debt extinguishment -- -- (.06) --
-------- -------- -------- --------
Diluted (loss) earnings per common share $ (.44) $ .99 $ (.99) $ .73
======== ======== ======== ========
Weighted average common shares - basic 6,586 6,575 6,584 6,574
======== ======== ======== ========
Weighted average common shares and equivalents
-diluted 6,586 7,087 6,584 6,574
======== ======== ======== ========
Cash dividends per common share -- $ .05 -- $ .10
-------- -------- -------- --------
The accompanying notes are an integral part of these statements.
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TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(Amounts in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net (loss) income $ (2,849) $ 7,025 $ (6,437) $ 4,804
Other comprehensive income, net of tax:
Foreign currency translation -- 12 -- 12
Minimum pension liability -- (645) -- (645)
-------- -------- -------- --------
Comprehensive (loss) income $ (2,849) $ 6,392 $ (6,437) $ 4,171
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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TRANSPRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
JUNE 30, DECEMBER 31,
2001 2000
---------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 172
Accounts receivable (less allowances of $3,025 and $2,698) 38,747 34,154
Inventories, net:
Raw materials 19,524 21,350
Work in process 1,950 2,391
Finished goods 42,898 51,545
---------- ----------
Total inventories 64,372 75,286
---------- ----------
Deferred income tax benefit 10,448 5,703
Other current assets 3,662 4,890
---------- ----------
Total current assets 117,229 120,205
---------- ----------
Property, plant and equipment 81,048 80,567
Accumulated depreciation and amortization (55,795) (53,856)
---------- ----------
Net property, plant and equipment 25,253 26,711
---------- ----------
Goodwill (net of amortization of $1,330 and $1,130) 6,669 6,869
Other assets 2,348 2,478
---------- ----------
Total assets $ 151,499 $ 156,263
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving credit debt and current portion of long-term debt $ 40,417 $ 39,680
Accounts payable 16,705 21,972
Accrued expenses 7,633 6,904
Accrued insurance 2,614 2,446
Accrued salaries and wages 3,321 2,910
Accrued taxes 1,394 1,142
---------- ----------
Total current liabilities 72,084 75,054
Long-term liabilities:
Long-term debt, net of current portion 8,011 4,658
Retirement and post-retirement obligations 3,825 3,867
Deferred income taxes 2,373 926
Other liabilities 200 281
---------- ----------
Total liabilities 86,493 84,786
---------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.01 par value: authorized 2,500,000 shares;
Issued and outstanding as follows:
Series A junior participating preferred stock, $0.01 par value
Authorized: 200,000 shares; issued and outstanding: none at June 30, 2001
and December 31, 2000 -- --
Series B convertible preferred stock, $0.01 par value
Authorized: 30,000 shares; issued and outstanding; 30,000 shares at June 30,
2001 and December 31, 2000; (liquidation preference $3,000 at June 30, 2001
and December 31, 2000) -- --
Common stock, $0.01 par value: authorized 17,500,000 shares:
6,652,746 shares issued at June 30, 2001 and 6,662,446 at December 31, 2000
6,610,810 shares outstanding at June 30, 2001 and 6,590,335 at December 31, 2000 66 66
Paid-in capital 55,029 55,019
Unearned compensation (1) (21)
Retained earnings 10,212 16,724
Accumulated other comprehensive loss (285) (285)
Treasury stock, at cost:
41,936 shares at June 30, 2001 and 72,111 at December 31, 2000 (15) (26)
---------- ----------
Total stockholders' equity 65,006 71,477
---------- ----------
Total liabilities and stockholders' equity $ 151,499 $ 156,263
========== ==========
The accompanying notes are an integral part of these statements.
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TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
SIX MONTHS ENDED
JUNE 30,
----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net (loss) income $ (6,437) $ 4,804
Adjustments to reconcile net (loss) income to cash (used in) provided by
operating activities:
Gain on sale of discontinued operation -- (6,002)
Income from discontinued operation -- (440)
Depreciation and amortization 2,279 3,182
Deferred income taxes (3,149) 261
Provision for losses - accounts receivable 486 173
Loss on extinguishment of debt 380 --
-------- --------
Cash (used in) provided by operating activities (6,441) 1,978
Changes in operating assets and liabilities:
Accounts receivable (5,079) (6,128)
Inventories 10,914 (8,460)
Accounts payable (5,266) 5,743
Accrued expenses 1,560 (1,146)
Net assets held for disposition -- (37)
Other 1,277 (1,187)
-------- --------
Cash used in operating activities (3,035) (9,237)
-------- --------
Cash flows from investing activities:
Net proceeds from sale of discontinued operation -- 26,772
Capital expenditures, net of retirements (480) (2,323)
-------- --------
Net cash (used in) provided by investing activities (480) 24,449
-------- --------
Cash flows from financing activities:
Dividends paid (76) (730)
Borrowings under revolving credit facility 40,200 --
Repayments under term loan (345) --
Borrowings under term loan 4,490 --
Net repayments of previous revolving credit arrangement (40,042) (14,579)
Deferred debt costs (884) --
-------- --------
Cash provided by (used in) financing activities 3,343 (15,309)
-------- --------
Decrease in cash and cash equivalents (172) (97)
Cash and cash equivalents:
Beginning of period 172 222
-------- --------
End of period $ -- $ 125
======== ========
The accompanying notes are an integral part of these statements.
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TRANSPRO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - 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, 2000 including the financial statements and notes thereto
included therein.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
which are of a normal recurring nature, 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.
NOTE 2 - BUSINESS CONSOLIDATION AND CLOSURE 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. A
summary of the associated closure costs is as follows:
(Amounts in thousands)
AMOUNTS
AMOUNTS CHARGED TO AMOUNTS PAID AND PAID BALANCE
OPERATIONS THROUGH REVERSED THROUGH DURING REMAINING AT
DECEMBER 31, 2000 DECEMBER 31, 2000 2001 JUNE 30, 2001
----------------- ----------------- ------ -------------
Workforce related $ 222 $ 222 $ -- $ --
Facilities 415 364 51 --
Production related 127 127 -- --
Asset write down 31 31 -- --
------ ------ ------ ----
TOTAL $ 795 $ 744 $ 51 $ --
====== ====== ====== ====
NOTE 3 - BORROWING AGREEMENT
For the period April 30, 2001 through June 30, 2001, the Company was in
default of the net worth covenant contained in its loan agreement with Congress
Financial Corporation ("Congress"). Congress has waived the default by executing
the first amendment to the loan agreement. The amendment provides that effective
July 1, 2001, borrowings will bear interest at either 1.5% above the prime rate
or 4% in excess of the Eurodollar rate, at the Company's option.
On July 30, 2001, the Company entered into a second amendment to the
loan agreement. The amendment provides for a lower net worth covenant threshold
for periods ending after July 30, 2001.
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NOTE 4 - SEGMENT AND BUSINESS INFORMATION
The table below sets forth information about reported segments:
(Amounts in thousands)
(LOSS) INCOME FROM
CONTINUING OPERATIONS
BEFORE INTEREST, TAXES
CONSOLIDATED REVENUES AND EXTRAORDINARY ITEM
---------------------- ----------------------
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------
BUSINESS SEGMENT 2001 2000 2001 2000
-------- -------- -------- --------
Aftermarket heating and cooling systems $ 47,567 $ 44,098 $ 297 $ 3,102
OEM heat transfer systems 7,735 9,741 (2,248) (120)
Inter-segment revenues
Aftermarket heating and cooling systems 1,507 1,754 -- --
OEM heat transfer systems 117 15 -- --
Elimination of inter-segment revenues (1,624) (1,769) -- --
Corporate expenses -- -- (1,773) (471)
-------- -------- -------- --------
Consolidated totals $ 55,302 $ 53,839 $ (3,724) $ 2,511
======== ======== ======== ========
(LOSS) INCOME FROM
CONTINUING OPERATIONS
BEFORE INTEREST, TAXES
CONSOLIDATED REVENUES AND EXTRAORDINARY ITEM
---------------------- ----------------------
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------
BUSINESS SEGMENT 2001 2000 2001 2000
-------- -------- -------- --------
Aftermarket heating and cooling systems $ 85,752 $ 80,852 $ (1,269) $ 1,410
OEM heat transfer systems 15,113 21,417 (3,685) (238)
Inter-segment revenues:
Aftermarket heating and cooling systems 2,446 4,798 -- --
OEM heat transfer systems 125 22 -- --
Elimination of inter-segment revenues (2,571) (4,820) -- --
Corporate expenses -- -- (2,067) (1,505)
-------- -------- -------- --------
Consolidated totals $100,865 $102,269 $ (7,021) $ (333)
======== ======== ======== ========
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NOTE 5 - (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted
(loss) earnings per share:
(Amounts in thousands, except per share data)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
Numerator:
(Loss) income from continuing operations $ (2,849) $ 1,023 $ (6,057) $ (1,638)
Less: preferred stock dividend (39) (23) (76) (42)
-------- -------- -------- --------
(Loss) income from continuing operations (attributable)
available to common stockholders - basic (2,888) 1,000 (6,133) (1,680)
Income from discontinued operation, net of tax -- -- -- 440
Gain on sale of discontinued operation, net of tax -- 6,002 -- 6,002
Loss on debt extinguishment, net of tax -- -- (380) --
-------- -------- -------- --------
Net (loss) income (attributable) available to common
stockholders - basic $ (2,888) $ 7,002 $ (6,513) $ 4,762
======== ======== ======== ========
(Loss) income from continuing operations (attributable)
available to common stockholders - basic $ (2,888) $ 1,000 $ (6,133) $ (1,680)
Add back: preferred stock dividend -- 23 -- --
-------- -------- -------- --------
(Loss) income from continuing operations (2,888) 1,023 (6,133) (1,680)
Income from discontinued operation, net of tax -- -- -- 440
Gain on sale of discontinued operation, net of tax -- 6,002 -- 6,002
Loss on debt extinguishment, net of tax -- -- (380) --
-------- -------- -------- --------
Net (loss) income (attributable) available to common
stockholders - diluted $ (2,888) $ 7,025 $ (6,513) $ 4,762
======== ======== ======== ========
Denominator:
Weighted average common shares 6,588 6,597 6,586 6,597
Non-vested restricted stock (2) (22) (2) (23)
-------- -------- -------- --------
Adjusted weighted average common shares - basic 6,586 6,575 6,584 6,574
Dilutive effect of Series B preferred stock -- 496 -- --
Dilutive effect of stock options and non-vested restricted
stock -- 16 -- --
-------- -------- -------- --------
Adjusted weighted average common shares and equivalents
- diluted 6,586 7,087 6,584 6,574
-------- -------- -------- --------
Basic (loss) income per common share:
Continuing operations $ (.44) $ .16 $ (.93) $ (.25)
Discontinued operation -- -- -- .07
Gain on sale of discontinued operation -- .91 -- .91
Loss on debt extinguishment -- -- (.06) --
-------- -------- -------- --------
Basic (loss) income per common share $ (.44) $ 1.07 $ (.99) $ .73
======== ======== ======== ========
Diluted (loss) income per common share:
Continuing operations $ (.44) $ .14 $ (.93) $ (.25)
Discontinued operation -- -- -- .07
Gain on sale of discontinued operation -- .85 -- .91
Loss on debt extinguishment -- -- (.06) --
-------- -------- -------- --------
Diluted (loss) income per common share $ (.44) $ .99 $ (.99) $ .73
======== ======== ======== ========
The weighted average basic common shares outstanding was used in the
calculation of the diluted loss per common share for the three and six months
ended June 30, 2001 and the six months ended June 30, 2000
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as the use of weighted average diluted common shares outstanding would have an
anti-dilutive effect on loss per share for the periods.
Certain options to purchase common stock were outstanding during the
three and six months ended June 30, 2001 and 2000, but were not included in the
computation of diluted loss per share because their exercise prices were greater
than the average market price of common shares for the period. The anti-dilutive
options outstanding and their exercise prices are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Options outstanding 334,776 500,304 394,776 500,304
Range of exercise prices $3.20 - $11.75 $5.50 - $11.75 $2.90 - $11.75 $5.50 - $11.75
NOTE 6 - SERIES B CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of Evap, Inc., the Company issued
30,000 shares of TransPro, Inc. Series B Convertible Preferred Stock (the
"Series B Preferred Stock"). The purchase agreement provides for a potential
additional payout for the Evap acquisition based on the earnings performance of
the 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. The holder of the Series B Preferred Stock has disputed the
calculation of the payout amount and, the Company is attempting to resolve the
differences in accordance with the provisions of the Evap stock purchase
agreement.
NOTE 7 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS No. 141"), "Business Combinations" and Statement No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets". SFAS No. 141 deals
with accounting for acquisitions while SFAS No. 142 pertains to the accounting
for goodwill and other intangibles. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001, while SFAS No. 142 will be effective
for fiscal years beginning after December 15, 2001. While the Company is still
evaluating the impact of these pronouncements, it does not expect the adoption
of SFAS No. 141 to have a material impact on its results of operations or
financial position. The adoption of SFAS No. 142 is expected to increase annual
pretax income by approximately $400 thousand, which would reflect the
elimination of historical goodwill amortization.
NOTE 8 - RELATED PARTY TRANSACTION
During the second quarter of 2001, the Board of Directors authorized
the issuance of 30,175 shares of treasury stock and the payment of $96,565 to
the Chairman of the Board as compensation for serving as interim President of
the Company.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
QUARTER ENDED JUNE 30, 2001 VERSUS QUARTER ENDED JUNE 30, 2000
Net sales increased $1.5 million or 2.7% from a year ago. Sales in the
Aftermarket Heating and Cooling Systems segment ("Aftermarket") increased 7.9%
as an 11.2% increase in unit volume offset a 3.3% reduction in selling prices.
Unit sales of radiators and heaters were higher while air conditioning part
sales declined. Sales in the OEM Heat Transfer Systems segment ("OEM") declined
by 20.6% as a 21.8% unit volume drop offset the favorable impact of price
increases. The overall softness in the heavy-duty truck marketplace continued to
adversely impact this segment.
Gross margins declined to 17.3% from 25.7% a year ago. Margins were
adversely impacted by 3.1 percentage points as the Company increased an accrual
for a warranty program, which commenced during the last quarter of 2000 and
settled a vendor dispute. Margins within the Aftermarket segment were lower due
to competitive pricing actions, which were taken along with unabsorbed overhead
as the Company lowered production levels in order to reduce inventories. A year
ago, factories were running at higher levels of production and building
inventory, thus absorbing overhead. Lower OEM segment margins reflect lower
production levels caused by the drop in market demand and our planned inventory
reduction efforts.
Operating expenses increased $1.9 million or 17% as a result of higher
self-insured medical costs associated with the incurrence of several major
claims and higher costs associated with the upgrade of the Company's computer
system. The second quarter last year benefited from a reduction in bonus and
insurance accruals that were no longer required.
Interest expense was 12% above a year ago as higher average debt levels
offset the impact of lower interest rates.
The Company's income tax benefit includes $554 thousand due to the
recent settlement of an Internal Revenue Service audit. The effective tax rate
for the year was increased to 29.7% from the 28.2% rate used in the first
quarter.
The Company sold its Specialty Metal Fabrication segment on May 5,
2000. Accordingly, the Specialty Metal Fabrication segment was accounted for as
a discontinued operation. As a result of the sale, the Company reported a net
gain of $6.0 million, or $0.91 per basic common share and $.85 per diluted
common share in the second quarter of 2000.
SIX MONTHS ENDED JUNE 30, 2001 VERSUS SIX MONTHS ENDED JUNE 30, 2000
Six-month sales declined 1.4% from last year's levels reflecting flat
unit volume and sales price decreases. Aftermarket sales were 6.1% higher as an
8.4% improvement in unit volume offset a 2.3% reduction in selling prices.
Increased demand for heaters and radiators offset lower air conditioning part
sales. OEM sales declined 29.4% as a 30.6% reduction in volume offset the 1.2%
increase generated by pricing actions.
Gross margin percentages were 17.5% versus 23% a year ago. Margins were
reduced by 2 percentage points for the six months due to the warranty and vendor
actions, which impacted the second quarter. Aftermarket margins have declined
due to cutbacks in production levels in order to reduce inventory and
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lower average selling prices. The OEM segment has experienced reduced margins
caused by lower sales volumes and lower production levels caused by the weak
heavy-duty truck market.
Operating expenses increased 6.8% to 24.4% of sales versus 22.6% a year
ago. Higher self-insured medical costs and higher costs associated with the
Company's computer upgrade project accounted for the increase. In the first
quarter of 2000, the Company established a provision of $795 thousand to cover
costs associated with the closure of several facilities.
The income tax benefit includes $554 thousand resulting from the
favorable settlement of an IRS audit and the increase of the effective tax rate
to 29.7% from the 28.2% rate used in the first quarter.
As a result of the pay down of the old revolving credit agreement
during the first quarter of 2001, the Company recorded an extraordinary charge
of $380 thousand, net of tax, to reflect the write-off of unamortized debt issue
costs.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a $65 million Loan and Security Agreement (the
"Loan Agreement") on January 4, 2001 with Congress Financial Corporation (New
England), ("Congress") an affiliate of First Union National Bank. The Loan
Agreement replaces a $52 million revolving credit arrangement with five banking
institutions.
The Loan Agreement provides for collateralized borrowings or the
issuance of letters of credit in an aggregate amount not to exceed $65 million
and is comprised of a $60 million Revolving Credit Facility and a $5 million
Term Loan. The initial term of the Loan Agreement expires on January 5, 2004,
with annual extensions thereafter at the option of Congress.
The Loan Agreement is collateralized 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. Available borrowings under the
Revolving Credit Facility are determined by a borrowing base consisting of the
Company's eligible accounts receivable and inventory, as adjusted by an advance
rate. Borrowings under the Revolving Credit Facility are classified as short
term in the condensed consolidated balance sheet. The Term Loan is payable in 59
consecutive equal monthly installments of $75 thousand commencing February 1,
2001, with a balloon payment due on January 5, 2004.
Amounts borrowed under the Loan Agreement initially bore interest at
variable rates based, at the Company's option, on either the Eurodollar rate
plus a margin of 2.0%, 2.25% or 2.50% depending on the Company's pretax profit
performance, or the First Union National Bank base lending rate. The Loan
Agreement contains covenants regarding working capital and net worth and
prohibits the payment of common stock dividends.
For the period April 30, 2001 through June 30, 2001, the Company was in
default of the net worth covenant contained in the Loan Agreement. Congress
waived the default by executing the first amendment to the Loan Agreement. The
amendment provides that effective July 1, 2001, borrowings will bear interest at
either 1.5% above the prime rate or 4% in excess of the Eurodollar rate at the
Company's option.
On July 30, 2001, the Company entered into a second amendment to the
Loan Agreement which provides for a lower net worth covenant threshold for
periods ending after July 30, 2001.
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Operations used $3.0 million of cash in the first half of 2001 versus
2000 when $9.2 million were used. While operations generated a net loss for the
period, $10.9 million of cash was generated by the Company's inventory reduction
plan implemented in the second quarter of 2001. In 2001, cash was utilized to
pay down trade accounts payable in order to bring outstanding balances in line
with stated terms. A year ago inventories rose by $8.5 million due to increased
purchases and higher production levels.
Capital expenditures are running below a year ago due to the Company's
efforts to control spending levels. The Company expects that expenditures for
the year will approximate depreciation expense.
Funds provided by the new Loan Agreement of $44.3 million were utilized
to pay off the old revolver and provide funds for operating activities. During
2000, the Company utilized the proceeds from the sale of its discontinued
operation to pay down $14.6 of the old revolving credit agreement and fund
operating needs. As of June 30, 2001, the Company had $2.5 million available for
future borrowings under the Loan Agreement.
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 of the Aftermarket Heating and Cooling Systems business. The Company
believes that, together with borrowings under its current Loan Agreement, its
cash flow from operations will be adequate to meet its anticipated ordinary
capital expenditure and working capital requirements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141 ("SFAS No. 141"), "Business Combinations" and Statement No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets". SFAS No. 141 deals
with accounting for acquisitions while SFAS No. 142 pertains to the accounting
for goodwill and other intangibles. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001, while SFAS No. 142 will be effective
for fiscal years beginning after December 15, 2001. While the Company is still
evaluating the impact of these pronouncements, it does not expect the adoption
of SFAS No. 141 to have a material impact on its results of operations or
financial position. The adoption of SFAS No. 142 is expected to increase annual
pretax income by approximately $400 thousand which would reflect the elimination
of historical goodwill amortization.
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. The Company's Annual Report on Form 10-K contains certain
detailed factors that could cause the Company's actual results to materially
differ from the forward-looking statements made by the Company. In particular,
statements relating to the future financial performance of the Company are
subject to business conditions and growth in the general economy and automotive
and truck business, the impact of competitive products and pricing, changes in
customer product mix, failure to obtain new customers or retain old customers or
changes in the financial stability of customers, changes in the cost of raw
materials, components or finished products and changes in interest rates.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has 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, 2000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on May 2,
2001, two proposals were voted upon by the Company's stockholders. A brief
discussion of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and withheld, as well as the number of abstentions to
each proposal are set forth below. There were no broker non-votes with regard to
these proposals.
A vote was taken at the Annual Meeting for the election of seven
Directors of the Company to hold office until the next Annual Meeting of
Stockholders of the Company and until their respective successors shall have
been duly elected. The aggregate number of shares of Common Stock voted in
person or by proxy for each nominee were as follows:
NOMINEE FOR AGAINST
---------------------- --------- ---------
Barry R. Banducci 5,825,002 498,375
William J. Abraham, Jr 4,802,167 1,521,210
Philip Wm. Colburn 5,824,432 498,945
Charles E. Johnson 5,824,903 498,474
Paul R. Lederer 5,825,002 498,375
Sharon M. Oster 5,824,865 498,512
F. Alan Smith 5,824,570 498,807
A vote was taken at the Annual Meeting on the proposal to ratify the
appointment of PricewaterhouseCoopers LLP as auditors for the Company for the
fiscal year ending December 31, 2001. The aggregate number of shares of Common
Stock in person or by proxy which: (a) voted for, (b) voted against or (c)
abstained from the vote upon such proposal were as follows:
FOR AGAINST ABSTAIN
--------- ------- -------
6,289,438 8,672 25,267
The foregoing proposals are described more fully in the Company's
definitive proxy statement dated March 29, 2001, filed with the Securities and
Exchange Commission pursuant to Section 14 (a) of the Securities Act of 1934, as
amended, and the rules and regulations promulgated there under.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
4.1 First Amendment to Loan and Security Agreement with Congress
Financial Corporation.
4.2 Second Amendment to Loan and Security Agreement with Congress
Financial Corporation.
b) Reports on Form 8-K
On May 31, 2001, the Company filed a Current Report on Form 8-K
announcing the appointment of Richard A. Wisot as Vice President,
Treasurer, Secretary and Chief Financial Officer of the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSPRO, INC.
(Registrant)
Date: August 13, 2001 By: /s/ Charles E. Johnson
----------- ---------------------------------------------
Charles E. Johnson
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2001 By: /s/ Richard A. Wisot
----------- ---------------------------------------------
Richard A. Wisot
Vice President, Treasurer, Secretary,
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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