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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 (IRS Employer Identification No.)
of incorporation or organization)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 Par Value New York Stock Exchange
(together with associated Preferred
Stock purchase rights)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting and non-voting common stock held by
non-affiliates of the Registrant at March 1, 2002 was $18,586,487. On that date,
there were 6,981,889 outstanding shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders are
incorporated by reference into Part III of this report.
Exhibit Index is on pages 48 through 50 of this report.
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TRANSPRO, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
YEAR ENDED DECEMBER 31, 2001
PAGE
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers of the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners and Management 47
Item 13. Certain Relationships and Related Transactions 47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
Signatures 51
2
PART I
ITEM 1. BUSINESS
Transpro, Inc. (the "Company") designs, manufactures and markets radiators,
radiator cores, heater cores, air conditioning parts (including condensers,
compressors, accumulators and evaporators) and other heat transfer products for
the automotive aftermarket. In addition, the Company manufactures and
distributes radiators, radiator cores, charge air coolers, oil coolers and other
specialty heat exchangers for original equipment manufacturers ("OEMs") of heavy
trucks and industrial and off-highway equipment and the heavy duty heat
exchanger aftermarket. A description of the particular products manufactured and
the services performed by the Company in each of its market segments is set
forth below.
ORIGINS OF THE BUSINESS
The Company's origins date back to 1915 when a predecessor of the Company's G&O
division commenced operations in New Haven, Connecticut as a manufacturer of
radiators for custom built automobiles, fire engines and original equipment
manufacturers. Allen Telecom Inc. ("Allen," formerly The Allen Group Inc.)
acquired G&O in 1970 as part of its strategy to become a broad-based automotive
supplier. The Company's GO/DAN Industries ("GDI") division was formed in 1990
when Allen contributed a portion of its G&O division and other assets, which
together represented all of Allen's aftermarket radiator business, and Handy &
Harman contributed substantially all of the assets of its then wholly-owned
subsidiaries, Daniel Radiator Corporation, Jackson Industries, Inc., Lexington
Tube Co., Inc. and US Auto Radiator Manufacturing Corporation, to form a 50/50
joint venture partnership.
In 1995, Allen contributed all of the assets and liabilities of G&O, its
specialty fabricated metal products business and Allen's interest in GDI to the
Company. Immediately thereafter, Allen caused GDI to redeem Handy & Harman's
ownership interest in GDI. On September 29, 1995, Allen spun off the Company to
Allen's stockholders. The Company added replacement automotive air conditioning
condensers to its aftermarket product line with the acquisition of substantially
all of the assets, and the assumption of certain liabilities, of Rahn Industries
effective August 1996. The Company added replacement automotive air conditioning
parts to its aftermarket product line with the acquisition of the outstanding
stock of Evap, Inc., which subsequently became Ready-Aire, in a purchase
transaction effective August 1, 1998. The Company added re-manufactured
automotive air conditioning compressors to its aftermarket product line with the
acquisition of the outstanding stock of A/C Plus, Inc. in a purchase transaction
effective February 1, 1999, which became part of Ready-Aire.
In 1999, the Company decided to concentrate its efforts on its heating and
cooling systems business. Effective May 5, 2000, the Company sold substantially
all of the assets and liabilities of its specialty metal fabrication business to
Leggett & Platt, Incorporated in a transaction valued at $37.5 million,
comprised of $28.7 million in cash and the assumption of $8.0 million of
Industrial Revenue Bonds due in 2010 and an unfunded pension liability of $0.8
million. The company recorded a gain of $6.0 million, net of $3.8 million of
tax.
CURRENT STRUCTURE AND RECENT DEVELOPMENTS
The Company is comprised of three operating divisions that supply products and
services to the automotive and truck aftermarkets and original equipment
manufacturers of trucks and other industrial products. These operating divisions
are GDI, G&O, and Ready-Aire. GDI is a producer of replacement radiators and
other heat transfer products for the automotive and truck aftermarkets. G&O
produces and supplies radiators, charge air coolers, and engine cooling system
components for OEMs of heavy trucks, and industrial and off-highway equipment.
Ready-Aire is a manufacturer and distributor of replacement automotive air
conditioning parts for the automotive
3
aftermarket and a re-manufacturer of air conditioning compressors primarily for
import applications in the automotive aftermarket.
Early in 2002, the Company announced that it would be reorganizing into two
strategic business units ("SBU") based on the type of customer served - Auto and
Light Truck and Heavy Duty. The Auto and Light Truck SBU would be serviced by a
heat exchanger unit and a temperature control products unit. The heat exchanger
unit was previously the largest portion of GDI while Ready-Aire represented the
temperature control business. The Heavy Duty SBU will consist of both an OEM and
Aftermarket unit. The OEM unit consists of the G&O business while the
aftermarket was included in GDI. This new structure is designed to improve
customer focus. Commencing in 2002, the Company will report its results using
these new business segments. The Company also plans to de-emphasize the use of
the GDI, G&O and Ready Aire names and have all product names, including the well
known trade names Ready-Rad(R) Radiators, and Ready-Aire(R) Heater Core and Air
Conditioning Components, associated with Transpro, Inc.
MARKETS
The automotive and heavy truck parts industries target two distinct markets, the
aftermarket and the OEM market. The products and services used to maintain and
repair automobiles, vans, light trucks and heavy trucks, as well as accessories
not supplied with such vehicles when manufactured, form the respective
automotive and heavy truck aftermarkets. The manufacture of individual component
parts for use in the original equipment manufacturing process of automobiles,
vans and light trucks forms the automotive OEM market and the manufacture of
individual components for use in the original equipment manufacturing process of
heavy trucks and other heavy equipment forms the heavy duty OEM market. The
Company sells its products and services principally to the automotive and heavy
duty aftermarkets, as well as the heavy duty OEM market.
PRINCIPAL PRODUCTS AND SERVICES
The Company designs, manufactures and markets radiators, radiator cores, heater
cores, air conditioning parts (including condensers, compressors, accumulators
and evaporators) and other heat transfer products for the automotive
aftermarket. In addition, the Company manufactures and distributes radiators,
radiator cores, charge air coolers, oil coolers and other specialty heat
exchangers for OEMs of heavy trucks and industrial and off-highway equipment and
the heavy truck aftermarket. A description of the particular products
manufactured and the services performed by the Company in each of its market
segments is set forth below.
AFTERMARKET HEATING AND COOLING SYSTEMS
The Company provides one of the most extensive product ranges of high-quality
radiators, radiator cores, heater cores and air conditioning condensers to the
automotive and heavy duty aftermarkets. The Company's primary radiator and
heater manufacturing facility in Nuevo Laredo, Mexico is ISO-9002 certified,
which is an internationally recognized verification system for quality
management. In addition to its standard models, the Company can produce and
deliver special orders typically within 24 hours through its 11 regional plants
and 40 branch locations.
The purpose of a radiator is to cool the engine. A radiator acts as a heat
exchanger, removing heat from engine coolant as it passes through the radiator.
The construction of a radiator usually consists of: the radiator core, which
consists of coolant-carrying tubes and a large cooling area often made up of
metal fins; a receiving (inlet) tank; a dispensing (outlet) tank; and side
columns. In operation, coolant is pumped from the engine to the inlet tank where
it spreads over the tops of the tubes. As the engine coolant passes through the
tubes, it loses its heat to the air
4
stream through the fins connected to the tubes. After passing through the tubes,
the reduced temperature coolant enters the outlet tank and is then re-circulated
through the engine.
Complete Radiators. The Company's lines of complete radiators are produced for
automobile and light and heavy truck applications and consist of more than 700
models, which are able to service approximately 90% of the automobiles in the
United States. The Company has established itself as an industry leader with its
well-recognized line of Ready-Rad(R) radiators. The Ready-Rad(R) Plus line with
adaptable fittings has become popular because of its ability to fit the
requirements of a broad line of vehicles, enabling distributors to service a
larger number of vehicles with lower inventory levels. During 2001, the Company
acquired the capability to produce aluminum radiator cores in-house.
The Company introduced its Ready Rad(R) Heatbuster ("Heatbuster") line of
complete radiators in 1994. This line of replacement radiators is specially
designed to provide approximately 20% more cooling capability than a standard
radiator. The Heatbuster line is an ideal replacement radiator for vehicles,
which are used for towing, hauling, plowing, or off-highway purposes, and as a
result, it has been particularly popular in the growing light truck market of
the automotive fleet.
Radiator Cores. A radiator core is the largest and most expensive component of a
complete radiator. The Company's Ready-Core(R) line consists of 2,500 models of
radiator cores for automobiles and light trucks. Given the wide range of cores
required by today's automobile and truck fleet, there are many times when a
specific core is not readily available. In these cases, the Company can produce
a new core, on demand, within several hours. The Company is able to provide same
day service to virtually the entire United States using its 11 strategically
positioned regional manufacturing plants.
Heavy truck and industrial cores are heavy-duty units, which are constructed of
extremely durable components in order to meet the demands of the commercial
marketplace. The Company produces approximately 13,000 models of industrial
cores, and these products serve many different needs in a variety of markets. In
general, a heavy truck or industrial core is much larger than an automotive core
and typically sells for three to four times the price of an automotive core.
Heater Cores. The Company produces more than 350 different heater core models
for domestic and foreign cars and trucks, which cover the requirements for more
than 95% of today's automotive fleet. A heater core is part of a vehicle's
heater system through which heated coolant from the engine cooling system flows.
The warm air generated as the liquid flows through the heater core is then
propelled into the vehicle's passenger compartment by a fan.
The Company's Ready-Aire(R) line of heater cores is recognized as an industry
leader and its models utilize both cellular and tubular technology. Traditional
heater cores utilize folded metal cellular construction to transport coolant
through the unit, while the more modern models transport coolant through tubes.
The Company introduced its tubular CT Ready-Aire(R) line of heater cores in
1988.
Radiator Parts and Supplies. The Company sells radiator shop supplies and
consumable products used by its customers in the process of radiator repairs.
The Company's extensive line includes radiator parts, small hand tools and
equipment, solders and fluxes. The Company is one of the largest domestic
suppliers of stamped metal radiator parts, supplying these parts to regional
core manufacturers throughout the United States.
Air Conditioning Condensers. Automotive air conditioning condensers were added
to the Company's product line in 1996. Air conditioning condensers are a
component of a vehicle's air conditioning system designed to convert the air
conditioner refrigerant from a high-pressure gas to a high-pressure liquid by
passing it through the air-cooled
5
condenser. More than 750 condenser part numbers are currently cataloged and
distributed under the Ready-Aire(R) brand.
AIR CONDITIONING PARTS
Through its air conditioning parts division, the Company provides one of the
most extensive catalogs of replacement automotive air conditioning parts and
compressors to the automotive and truck aftermarkets.
Compressors. The Company re-manufactures more than 1,500 models of replacement
air conditioning compressors for import applications in the automotive and truck
aftermarkets. The Company also sells approximately 2,000 air conditioning
compressor models for replacement in both the domestic and import automotive and
truck aftermarkets. The compressor is designed to compress low-pressure vapor
refrigerant, which it draws from the evaporator into a high-pressure gas. This
gas is then pumped to the condenser.
Accumulators. The Company offers over 500 accumulator models. Accumulators act
as a reservoir that prevents liquid refrigerant from reaching the compressor.
The accumulator uses a drying agent to remove moisture from the system and a
filter screen to trap any solid contaminants.
Evaporators. The Company offers over 400 evaporator models. Automotive air
conditioning evaporators are designed to remove heat from the passenger
compartment. The core is generally located under the dashboard or adjacent to
the fire wall and functions as a heat exchanger by passing low pressure liquid
refrigerant through its passageways and forcing warm air from the passenger
compartment over the core. The refrigerant becomes a low-pressure vapor and is
then re-compressed by the compressor and re-circulated.
Air Conditioning Parts and Supplies. The Company sells an extensive line of
other air conditioning parts and supplies. These other component parts include
driers, hose and tube assemblies, blowers and fan clutches.
OEM HEAT TRANSFER SYSTEMS
The Company designs, manufactures and markets radiators, radiator cores, charge
air coolers and engine cooling systems to OEMs. All products are custom designed
and produced to support a variety of unique OEM engine cooling configurations
for heavy-duty trucks, buses, specialty equipment and industrial applications
such as construction and military vehicles and stationary power generation
equipment. The Company's Jackson, Mississippi production facility is ISO 9002
certified and is currently employing QS-9000 principles in anticipation of
obtaining QS-9000 certification in the future.
Radiators. The Company custom designs, manufactures and sells a wide range of
different models of radiators, which are specifically designed and engineered to
meet customer specifications. The Company's radiators are specifically
engineered to withstand a variety of demanding customer applications. The
Company's radiators are sold under the widely-recognized Ultra-Fused(R) brand
name utilizing welded tube-to-header core construction and are specifically
engineered to meet customer specifications to withstand a variety of demanding
customer applications.
Charge Air Coolers. The Company offers its OEM customers a wide range of
different models of aluminum charge air coolers. A charge air cooler is a device
that is used to decrease the temperature of air from a turbocharger that is used
by the engine in its combustion process, which in turn improves the operating
efficiency of the engine and lowers its emission levels. The Company believes
that the demand for charge air coolers will continue to increase as the
Company's customers face increasing pressure to produce vehicles and equipment
that are more fuel efficient and less polluting. In 1999, the Company obtained a
U.S. Patent relating to its proprietary UltraoSeal(R) grommetted
6
charge air cooler. This product offers significant improvements in performance
and reliability and exceeds current industry guidelines for durability.
Engine Cooling Systems. The Company offers a wide range of different
configurations of custom engine cooling systems to OEMs depending on customer
requirements. These systems typically consist of a radiator and charge air
cooler plus ancillary components to suit each OEM's requirement preferences.
Additional components to each system may include air conditioning condenser, oil
or fuel coolers, shroud, guards, fan, hose and piping. The Company has
experienced a significant OEM interest and emerging preference towards the
supply of a complete cooling system.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, EXPORT SALES AND DOMESTIC AND
FOREIGN OPERATIONS
The Company presently operates in two business segments, Aftermarket Heating and
Cooling Systems and OEM Heat Transfer Systems. Applicable segment information
appears in Note 16 of the Notes to Consolidated Financial Statements contained
in Item 8 of this Report. Export sales from North America and sales to any one
foreign country were below 10% of net trade sales in the years ended December
31, 2001, 2000 and 1999.
CUSTOMERS
The Company sells its products and services to a wide variety and large number
of industrial and other commercial customers. The Company sells its aftermarket
products to national retailers of aftermarket automotive products (such as
AutoZone, Pep Boys, CSK and O'Reilly), warehouse distributors, radiator shops,
parts jobbers and, to a lesser extent, OEMs. The Company supplies OEM heat
transfer systems, to OEMs of heavy duty trucks such as Paccar and Mack, and OEMs
of industrial and off-highway equipment, such as Cummins Power Generation and
Oshkosh Truck Corporation.
The Company's largest customer during 2001, 2000 and 1999 was AutoZone. AutoZone
accounted for approximately 19%, 20% and 12% of net sales for 2001, 2000 and
1999, respectively. No other customer individually represented more than 10% of
net trade sales in any of the years reported.
SALES AND MARKETING
The Company maintains a separate sales and marketing department at its two
principal operating units. By focusing its sales effort at the operating unit
level, the Company enables its sales staff to develop a thorough understanding
of such unit's technical and production capabilities and of the overall market
in which such unit operates. The Company has approximately 150 individuals
involved in sales and marketing efforts. The Company also utilizes independent
sales representatives to aid in its outside sales efforts in the Aftermarket
channels.
COMPETITION
The Company faces significant competition within each of the markets in which it
operates. In its Aftermarket Heating and Cooling Systems product lines, the
Company believes that it is among the major manufacturers and that competition
is widely distributed. The Company competes with the national producers of heat
transfer products, such as Modine Manufacturing ("Modine"), Visteon and other
internal operations of OEMs and, to a lesser extent, local and regional
manufacturers. The Company's primary competition in the air conditioning
replacement parts business includes Four Seasons, a division of Standard Motor
Products, as well as numerous regional operators. The Company believes it can
utilize its established distribution system to expand its air conditioning parts
business nationally. The Company's principal methods of competition include
product design, performance, price, service, warranty, product availability and
timely delivery.
7
With respect to its OEM Heat Transfer Systems segment, the Company competes with
national producers of heat transfer products, such as Modine, Valeo Engine
Cooling Systems and Behr GmbH & Co. The Company principally competes for new
business both at the beginning of the development phase or offering of a new
model and upon the redesign of existing models used by its major customers. New
model development generally begins two to three years prior to the marketing of
the vehicle to the public. Once a producer has been designated to supply
components to a new program, an OEM will generally continue to purchase those
components from the designated producer for the life of the program.
INTELLECTUAL PROPERTY
The Company owns a number of foreign and US patents and trademarks. The patents
expire on various dates from 2009 to 2019. In general, the Company's patents
cover certain of its radiator, charge air cooler and air conditioning
accumulator manufacturing processes. The Company has entered into licensing and
other agreements with respect to certain patents, trademarks and manufacturing
processes it uses in the operation of its business. The Company believes that it
owns or has rights to all patents and other technology necessary for the
operation of its business. The Company does not consider any single patent or
trademark or group of patents or trademarks to be material to its business as a
whole.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company in its Aftermarket Heating and
Cooling Systems and OEM Heat Transfer Systems product lines are copper, brass
and aluminum. Although copper, brass, aluminum and other primary materials are
available from a number of vendors, the Company has chosen to concentrate its
sources with a limited number of long-term suppliers. The Company believes this
strategy results in purchasing and operating economies. Outokumpu, a Swedish
corporation, supplied the Company with approximately 100% of its copper and
brass requirements in 2001, 2000 and 1999. The Company sourced all its aluminum
needs from Alcoa Inc. during 2001. The Company has not experienced any
significant supply problems in its operations and does not anticipate any
significant supply problems in the foreseeable future.
The Company typically executes purchase orders for its anticipated copper and
brass requirements approximately three to six months prior to the actual
delivery date. The purchase price for such copper and brass is established at
the time orders are placed by the Company and not at the time of delivery.
Copper prices began to rise during the middle of 1999, leveled off during 2000
and declined during 2001.
BACKLOG
Backlog consists primarily of product orders for OEM heat transfer system
products for which a customer purchase order has been received and is scheduled
for shipment within 12 months. Since orders may be rescheduled or canceled,
backlog does not necessarily reflect future sales levels. Backlog was
approximately $4.1 million at December 31, 2001, compared to $4.9 million at
December 31, 2000. The Aftermarket typically operates on a short lead time order
basis. As such, backlog is not indicative of future overall sales levels.
SEASONALITY
The Company expects the second and third quarters to be positively impacted, and
the first and fourth quarters to be negatively impacted, by the operating
results of the Aftermarket Heating and Cooling Systems segment, which typically
experiences higher sales during the summer months, as the demand for replacement
radiators and air conditioning parts and supplies increases, and lower sales
during the winter months. Historically, the OEM Heat
8
Transfer Systems segment has experienced a decrease in revenues and operating
income during the fourth quarter as results are affected by scheduled plant
shut-downs for the holiday season.
RESEARCH AND DEVELOPMENT
Research and development expenses were approximately $0.2 million for each of
the three years ended December 31, 2001.
EMPLOYEES
At December 31, 2001, the Company had approximately 1,568 employees. Of these
employees, approximately 701 were covered by collective bargaining agreements.
The Company's collective bargaining agreements are independently negotiated at
each manufacturing facility and expire on a staggered basis. Approximately 73%
of the Company's unionized employees are employed at the Company's Mexico plant
and are represented by a local Mexican labor union. The Company has successfully
re-negotiated collective bargaining agreements over the last several years and
feels labor relations are good, although there can be no assurance that the
Company will not experience work stoppages in the future.
ENVIRONMENTAL MATTERS
As is the case with manufacturers of similar products, the Company uses certain
hazardous substances in its operations, including certain solvents, lubricants,
acids, paints and lead, and is subject to a variety of environmental laws and
regulations governing discharges to air and water, the handling, storage and
disposal of hazardous or solid waste materials and the remediation of
contamination associated with releases of hazardous substances. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended), the Clean Water Act of 1990 (as amended) and the Comprehensive
Environmental Response, Compensation and Liability Act (as amended). The Company
believes that, as a general matter, its policies, practices and procedures are
properly designed to reasonably prevent risk of environmental damage and
financial liability to the Company. The Company believes it is reasonably
possible that environmental related liabilities might exist with respect to an
industrial site formerly occupied by the Company. Based upon environmental site
assessments, the Company believes that the cost of any potential remediation for
which the Company may ultimately be responsible will not have a material adverse
effect on the consolidated financial position, results of operation or liquidity
of the Company.
The Company currently does not anticipate any material adverse effect on its
consolidated results of operations, financial condition or competitive position
as a result of compliance with federal, state, local or foreign environmental
laws or regulations. However, risk of environmental liability and charges
associated with maintaining compliance with environmental laws is inherent in
the nature of the Company's business and there is no assurance that material
environmental liabilities and compliance charges will not arise.
9
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New Haven, Connecticut and
conducts its operations through the following principal facilities:
APPROXIMATE OWNED/
LOCATION SQUARE FOOTAGE LEASED PRODUCT LINE
---------------------------- ---------------- ----------- -------------------------------------------------------
Memphis, Tennessee 234,200 Leased Distribution and warehouse for heat exchange products
New Haven, Connecticut 158,800 Owned(1) Administrative headquarters, tubes for aftermarket
and original equipment radiators, test facility
Jackson, Mississippi 135,900 Owned Manufacture of original equipment radiators
Nuevo Laredo, Mexico 130,000 Leased Manufacture of heat exchange products
Arlington, Texas 125,000 Leased Manufacturer of remanufactured air conditioning
compressors, air conditioning parts and supplies
Dallas, Texas 50,100 Leased Manufacture of heat exchange products
Laredo, Texas 42,800 Leased Warehouse of heat exchange products
Maquoketa, Iowa 38,000 Leased Manufacture of parts and tooling for heat exchange
products
LEASE
LOCATION EXPIRATION
---------------------------- ------------
Memphis, Tennessee 2007
New Haven, Connecticut
--
Jackson, Mississippi --
Nuevo Laredo, Mexico 2005
Arlington, Texas 2012
Dallas, Texas 2006
Laredo, Texas 2002
Maquoketa, Iowa 2005
-------------------------
(1) Subject to IRB financing arrangements.
The Company believes its property and equipment are in good condition and
suitable for its needs. The Company has sufficient capacity to increase
production with respect to its replacement radiator and original equipment
product lines and its air conditioning replacement parts business. In its
Aftermarket Heating and Cooling Systems segment, the Company maintains a
nationwide network of eleven manufacturing and forty branch locations which
enable the Company to provide its customers, generally, with same day delivery
service. All of the branch facilities are leased and vary in size from 6,000
square feet to 20,000 square feet. Information about long-term rental
commitments appears in Note 15 of the Notes to Consolidated Financial Statements
contained in Item 8 of this Report.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions are pending against or involve the Company with respect to
such matters as product liability, casualty and employment-related claims. In
the opinion of management, the aggregate liability, if any, that ultimately may
be incurred in excess of amounts already provided should not have a material
adverse effect on the consolidated financial position, results of operations, or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2001.
10
SERVED AS POSITION OR OFFICE WITH THE COMPANY & BUSINESS EXPERIENCE DURING
NAME AGE OFFICER SINCE PAST FIVE-YEAR PERIOD
----------------------- ------- ---------------------- -------------------------------------------------------------------
Charles E. Johnson 56 March 2001 President, Chief Executive Officer and Director of Transpro,
Inc., since 2001; Chief Executive Officer of Canadian
General-Tower, Ltd., 1997 through 2001 and, from 1996 President
and Director; President and Chief Operating Officer of Equion
Corporation, 1993 through 1996.
Jeffrey L. Jackson 54 August 1995 Vice President Human Resources of Transpro, Inc., since 1995.
Richard A. Wisot 56 June 2001 Vice President, Treasurer, Secretary and Chief Financial Officer
of Transpro, Inc. since 2001; Vice President, Treasurer and Chief
Financial Officer of Ecoair Corp., 1997 through 2001; Vice
President, Controller, Chief Accounting Officer of Echlin Inc.,
1990 through 1996.
David J. Albert 54 June 2001 Vice President, Operations of Transpro, Inc., since 2001;
President and Chief Executive Officer of Hayden Industrial
Products from 1996 through 2000.
Kenneth T. Flynn, Jr. 52 September 2001 Vice President and Corporate Controller of Transpro, Inc. since
2001; Consultant, 1999 through 2000; Vice President and Corporate
Controller of Echlin Inc. from 1997 through 1999; Assistant
Corporate Controller of Echlin, Inc. from 1985 through 1997.
All officers are elected by the Board of Directors.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange. The number
of beneficial holders of the Company's common stock as of the close of business
on March 1, 2002, was approximately 3,000. Information regarding per share
market prices and dividends declared for the Company's common stock is shown
below for 2001 and 2000. Market prices are closing prices quoted on the New York
Stock Exchange, the principal exchange market for the Company's common stock.
The Company discontinued its quarterly common stock cash dividend in September
2000. Under the provisions of the Loan Agreement entered into on January 4,
2001, the Company is prohibited from paying common stock dividends.
YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------- ------------------ ------------------ -----------------
Market price of common stock
High $3.20 $3.80 $3.80 $4.00
Low $2.31 $2.45 $3.00 $2.29
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------- ------------------ ------------------ -----------------
Market price of common stock
High $6.50 $6.00 $5.19 $ 3.69
Low 4.19 4.25 3.06 2.13
Dividends per common share 0.05 0.05 -- --
As a result of recording the deferred tax valuation allowance, stockholders'
equity at December 31, 2001 fell below the $50 million minimum threshold for
continued listing on the New York Stock Exchange (NYSE). In accordance with NYSE
procedures, the Company will present a plan advising the NYSE of definitive
actions that will result in compliance with this threshold within the next
eighteen months. Should the Company be de-listed by the NYSE, it would seek to
list its common stock on another exchange or trading market.
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with "Item
7-Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8-Financial Statements and Supplementary Data." The
Company sold its Specialty Metal Fabrication Segment effective May 5, 2000.
Results of operations prior to the sale have been shown as income from
discontinued operations in the consolidated financial statements.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
(in thousands, except share data) 2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
Net sales $203,312 $203,320 $205,563 $195,592 $182,137
Gross margin(1) (4) 25,531 26,531 42,041 35,018 28,077
Restructuring and other special charges 3,652 1,407 325 -- 758
(Loss) income from continuing operations before
extraordinary item (20,308) (9,234) 5,099 (447) (3,516)
Income from discontinued operation, net of tax -- 440 1,717 2,094 11,391
Gain on sale of discontinued operation, net of tax -- 6,002 -- -- --
Loss on debt extinguishment (530) -- -- -- --
Net (loss) income (20,838) (2,792) 6,816 1,647 7,875
Basic (loss) income per common share:
Continuing operations $ (3.09) $ (1.43) $ 0.77 $ (0.07) $ (0.54)
Discontinued operation -- 0.07 0.26 0.32 1.74
Loss on debt extinguishment (0.08) -- -- -- --
Diluted (loss) income per common share(2):
Continuing operations $ (3.09) $ (1.43) $ 0.72 $ (0.07) $ (0.54)
Discontinued operation -- 0.07 0.24 0.32 1.74
Loss on debt extinguishment (0.08) -- -- -- --
Cash dividends per common share -- 0.10 0.20 0.20 0.20
Balance sheet data:
Working capital(3) $ 31,505 $ 44,742 $ 80,510 $61,747 $ 56,501
Total assets 129,683 156,967 176,293 142,575 133,824
Long-term debt 7,998 5,234 61,928 42,197 32,838
Total debt 37,663 45,323 61,928 42,197 37,838
Stockholders' equity 48,965 71,477 75,422 68,780 65,361
(1) In 2001, gross margin includes $0.9 million of restructuring charges.
(2) During 2001, 2000, 1998 and 1997, the weighted average number of shares of
common stock outstanding used for basic earnings per share was also used in
computing diluted earnings per share due to the anti-dilutive impact of
common share equivalents on the loss per common share.
(3) Working capital in 2001 and 2000 reflects borrowings under the Revolving
Credit Agreement as current liabilities.
(4) Reflects the reclassification of $13.0 million, $12.0 million, $10.2
million and $9.4 million in 2000, 1999, 1998 and 1997, respectively from
selling, general and administrative expenses to cost of sales.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO 2000
Net sales for the year ended December 31, 2001 of $203.3 million were equal to
the amount reported in 2000. Aftermarket heating and cooling system sales
increased $6.8 million or 4.1% over the prior year. Overall, Aftermarket heat
exchange product unit sales were up 3.2% primarily due to increased radiator
unit sales. Unit sales were adversely impacted by a soft fourth quarter caused
by warmer weather conditions, which were more pronounced than usual this year,
the postponement of new program initiations by several major customers, a
general softening in the Aftermarket following September 11 and a shift in
customer buying habits. Customers are now buying product to support sell through
rather than placing large advance seasonal orders. OEM heat transfer system
sales declined by 18.6% from 2000 reflecting a continuing softening of the heavy
duty market during the first half of the year. During the second half of 2001,
OEM sales were down 3.6% as the rate of market decline began to lessen and the
impact of price increases initiated in July added approximately $0.6 million to
sales.
Gross margins as a percentage of sales were 12.6% in 2001 versus 13.0% last
year. The Company reclassified warehousing costs, historically classified as
operating expenses, to cost of sales for 2001 and all historical periods. As a
result, $13.2 million and $13.0 million were reclassified in 2001 and 2000,
respectively. In addition, in 2001, $0.9 million of restructuring costs,
relating to the closure of our Rahn manufacturing facility, were included in
cost of sales. Excluding the impact of the restructuring costs, margin as a
percentage of sales would have been flat with the prior year. In addition,
margins, as a percentage of sales reported during the second half of 2001, were
significantly better than the first half, 15.1% versus 10.9%. In 2000, second
half margin percentages were 9.3% versus 16.7% in the first half. The
improvement in the second half of 2001 reflects overhead cost reductions and
improved labor utilization in both our Aftermarket and OEM manufacturing
locations and the impact of price increases. These improvements, which were the
result of programs implemented in both the Aftermarket and OEM segments as part
of the Company's initiative program, combined with material cost reductions and
higher production levels to favorably impact margin. In addition, gross margin
in the OEM segment during the first half of 2001 was adversely impacted by
higher claims caused by a warranty program, which had commenced during the
fourth quarter of 2000. During the second half of 2001, claims under this
program have begun to decline as the cause has been corrected.
Selling, general and administrative expenses increased $0.8 million or 2.4% over
2000. As a percentage of sales, expenses increased to 17.2% from 16.8% last year
due primarily to provisions for the write-off of several uncollectable
Aftermarket customer accounts receivable. Expense levels during the second half
of the year were 16.5% of sales as opposed to 17.9% during the first half of
2001 and 17.3% during the second half of 2000. This lower level of expenses
reflects cost reductions and the results of improvements to the Company's
distribution network implemented during the second half of the year.
During the third quarter of 2001, the Company implemented a restructuring
program to improve operating performance. The program which is expected to
continue into 2002, includes the redesign of our distribution system, headcount
reductions, the transfer of production between manufacturing facilities and a
reevaluation of our product offerings. As part of this program, the Company
recorded restructuring and other special charges of approximately $4.6 million
during 2001. Of this amount, $0.9 million was classified in cost of sales and
$3.6 million in operating expenses. A summary of the charge, which is also
discussed in Note 6 of the Notes to Consolidated Financial Statements contained
in this Report, is as follows:
14
Workforce related $1,101
Facility consolidation 414
Asset writedowns 1,230
Impairment of goodwill 1,830
---------
Total $4,575
=========
The workforce-related charge reflects the elimination of 119 salaried and hourly
positions within the OEM and Aftermarket segments during the second half of the
year.
The $0.4 million facility consolidation charge represents inventory and
machinery movement, lease termination and facility exit expenses associated with
the transfer of several product lines between OEM segment manufacturing
locations and the closure of seven Aftermarket segment branch facilities as part
of the redesign of the Company's distribution system. Machinery and inventory
movement costs were expensed as incurred.
Due to changes in product demand, the Company decided to exit its copper-brass
condenser and heat exchanger product production and closed a California
manufacturing plant, resulting in the impairment of $1.8 million of goodwill
recorded as part of the Rahn Industries acquisition in 1996. The write-off is
the result of a determination that the estimated future cash flows is less than
the carrying amount of the goodwill.
In conjunction with the closure of the California manufacturing plant, a charge
of $1.2 million was recorded to reflect the impairment of inventory and fixed
assets.
Interest expense declined by $0.3 million or 6% due to lower average debt levels
and lower average interest rates.
During the fourth quarter of 2001, the Company determined that in accordance
with the provisions of SFAS 109, "Accounting for Income Taxes", a non-cash
valuation allowance of $9.5 million was required to offset its net deferred tax
asset balance. The reserve was required due to the Company's cumulative losses
during the past three years. As the Company returns to profitability on a
pre-tax basis, it would recover the valuation allowance, which would improve net
income.
During March 2002, tax legislation was enacted which included a provision that
allows pre-tax losses incurred in 2001 and 2002 to be carried-back for a period
of five years instead of the current two years. As a result, the Company will
increase its net income in the first quarter of 2002 by approximately $3.5
million, which reflects a reduction in the deferred tax valuation allowance.
This refund is expected to be received in cash during the second quarter of
2002.
Excluding the impact of the valuation reserve, the effective tax rate for 2001
would have been 37.4%. Included in this was 5.3% resulting from adjustments as a
result of the favorable settlement of an IRS audit in the second quarter of 2001
and a state tax credit adjustment during the fourth quarter. The effective tax
rate in 2000 was 33.3%.
The loss on extinguishment of debt reflects the write-off of deferred debt issue
costs as a result of the paydown of the previous revolving credit agreement
during the first quarter of 2001.
The consolidated net loss in 2001 was $20.8 million or $3.17 per basic and
diluted common share as compared to a net loss of $2.8 million or $0.45 per
basic and diluted common share in 2000.
15
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO 1999
Net sales for the year ended December 31, 2000 declined 1.1% to $203.3 million
compared with $205.6 million for the year ended December 31, 1999. Sales in the
Aftermarket heating and cooling systems segment increased $0.3 million, or 0.2%,
compared with the comparable 1999 period. Unit volume increases in complete
radiator sales to warehouse distributors and radiator shops were partially
offset by declines in the retail channel. Radiator core sales declined as the
market continues to shift to complete radiators. Heater sales declined slightly
with declines to warehouse distributors and radiator shops partially offsetting
increases in the retail channel. Condenser sales increased compared with 1999,
while sales of other air conditioning parts were essentially flat. Pricing
actions in response to competitive pressures also contributed to the sales
decline. Sales in the OEM heat transfer systems segment decreased by $2.6
million, or 6.5%, compared with the comparable 1999 period due to a significant
decline in demand in the heavy-duty truck market in the fourth quarter of 2000.
Consolidated gross margins for the year ended December 31, 2000 were $26.5
million compared to $42.0 million for the year ended December 31, 1999. As a
percentage of sales, gross margins declined to 13.0% in 2000 from 20.5% in 1999.
Gross margins were lower in the Aftermarket heating and cooling systems segment
primarily due to lower production rates implemented as part of an inventory
reduction plan that 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 first half of 2000. Pricing activity in
response to competitive pressures in the Aftermarket also negatively affected
gross margins in 2000. Gross margins in the OEM heat transfer systems segment
were negative in 2000 as sales and production volume suffered from dramatically
lower demand and warranty expenses that were higher than historical rates.
Selling, general and administrative expenses increased $0.8 million, or 2.4%, as
a result of higher freight costs due to rising fuel prices, professional fees
associated with certain strategic initiatives and an increase in doubtful
collection charges. 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 1999 also
contributed to the increase. In 1999, the Company recorded $0.3 million in legal
settlement costs related to an employment-related lawsuit.
Plant closure costs of $0.7 million were incurred during 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, the Company recorded severance
charges of $0.4 million and search-related charges of $0.3 million related to
the departure of the Company's previous President and CEO.
Net interest expense increased $0.4 million for the year ended December 31, 2000
compared with the prior year. This increase resulted from higher effective
interest rates coupled with costs associated with the series of forbearance
agreements the Company entered into related to certain covenant violations under
the Company's previously existing Revolving Credit Agreement. 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 recorded a tax benefit at the rate of 33.3% for the year ended
December 31, 2000. The rate 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 a reduction from the
impact of non-deductible expenses for tax purposes. During 1999, the Company
recognized a non-recurring, non-cash deferred
16
tax benefit of $2.9 million related to the change in the organizational
structure of its GO/DAN Industries operation from a partnership to a
corporation.
The Company sold its Crown Division to Leggett & Platt, Incorporated on May 5,
2000 in a transaction valued at $37.5 million. As a result of the sale, the
Company reported a net gain on the sale of discontinued operations of $6.0
million, or $0.91 per basic and diluted common share for the year ended December
31, 2000. Income from discontinued operations for the year ended December 31,
2000 was $0.4 million, or $0.07 per basic and diluted common share, compared
with $1.7 million, or $0.26 per basic common share and $0.24 per diluted common
share, for the year ended December 31, 1999.
The consolidated net loss in 2000 was $2.8 million or $0.45 per basic and
diluted common share compared to net income of $6.8 million or $1.03 per basic
common share and $0.96 per diluted common share in 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On January 4, 2001, the Company entered into a $65 million Loan and Security
Agreement (the "Loan Agreement") with Congress Financial Corporation (New
England) ("Congress"), an affiliate of First Union National Bank. The Loan
Agreement replaced a $52 million revolving credit agreement with five banking
institutions.
The Loan Agreement originally provided for collateralized borrowings or the
issuance of letters of credit in an aggregate amount not to exceed $65 million
and was 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 secured by a blanket first security interest on
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 current liabilities in the
consolidated balance sheets. 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 originally 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 pre-tax profit
performance, or the First Union National Bank base lending rate. The Loan
Agreement originally required the maintenance of $74 million of working capital
and $67.5 million of net worth at all times 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 an amendment to the Loan Agreement, which provides that
effective July 1, 2001, borrowings 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 an amendment to the Loan Agreement which lowered
the net worth threshold to $63 million for periods after July 30, 2001. On
November 27, 2001, an amendment was entered into which lowered the maximum
borrowing amount under the Loan Agreement from $65 million to $55 million, and
lowered the maximum borrowing amount under the revolving credit facility from
$60 million to $50 million. In order to correct a technical violation, which
would have occurred under the original wording of the agreement, on February 20,
2002, the Company entered into an amendment which redefined Working Capital to
exclude deferred income tax assets, and established the minimum working capital
threshold at $53 million effective December 31, 2001 through March 31, 2002 and
at $55 million thereafter. In order to correct a net worth violation, which
would have occurred as a result of recording the tax
17
valuation reserve in 2001, and writing off goodwill in the first quarter of
2002, the Company obtained an amendment, which as of December 31, 2001, lowered
the minimum net worth threshold to $37 million.
Total debt outstanding at December 31, 2001 was $37.7 million versus $45.3
million a year ago. Borrowings at December 31, 2001 bore interest at 6.5% versus
10.5% a year ago. Available borrowings under the Revolving Credit Facility at
December 31, 2001 were $4.1 million.
During 2001, the Company generated $11.5 million of cash flow from operations,
marking the first time since 1998 that operations generated cash flow. Programs
designed to lower inventories generated $14.1 million, while accounts receivable
collections generated $1.4 million despite ongoing pressures from customers to
adjust payment terms. The inventory reduction actions were incorporated in the
Company's initiative program, and the results were achieved without adversely
impacting customer service levels. A portion of these funds was utilized to get
accounts payable payment policies in line with vendor terms.
During 2000, the Company required $11.5 million to support its continuing
operations. The net loss plus total adjustments to reconcile the net loss to net
cash used in operating activities, which includes, among other things,
depreciation and amortization, deferred income taxes, the gain on the sale of
discontinued operations and income from discontinued operations, required
funding of $3.2 million. Accounts receivable increased $3.0 million largely as a
result of the timing of certain radiator and heater shipments in the fourth
quarter. Lower inventory levels provided $1.4 million of cash.
During 1999, the Company required $6.5 million of cash to support its continuing
operations. Net income, plus adjustments to reconcile net income to net cash
used in operating activities, resulted in $8.7 million of operating cash flows.
The Company invested $20.9 million in inventory and $3.2 million in accounts
receivable to support new product introduction and its expansion in the air
conditioning parts business. An increase in accounts payable and accrued
expenses provided $7.4 million in cash.
Capital spending totaled $3.1 million, 5.4 million and $6.2 million in 2001,
2000 and 1999, respectively. Capital expenditures in 2001 were lower than a year
ago due to the Company's efforts to control spending levels. At December 31,
2001, there were no material outstanding capital commitments. In 2000, the
Company realized net proceeds of $26.8 million from the sale of the Specialty
Metal Fabrication segment. In 1999, the Company purchased all of the outstanding
stock of A/C Plus for $2.25 million in cash and issued a note payable for $0.25
million payable on the second anniversary of the closing.
The Company has entered into an agreement for the sale of its New Haven,
Connecticut facility, which provides that the Company will lease its existing
occupied space. Proceeds from the sale, which is expected to close by the end of
the second quarter of 2002, will be used primarily to repay the Industrial
Revenue Bond on the facility.
Cash dividends paid to preferred shareholders were approximately $0.1 million in
2001, 2000 and 1999. In addition, during 2000 and 1999, common shareholders were
paid dividends of $0.7 million and $1.3 million, respectively. In September
2000, the Board of Directors elected to discontinue the Company's quarterly cash
dividend to common stockholders.
In 2001, funds provided by the new Loan Agreement were utilized to repay the
previous revolver and provide funds for operating activities. During 2001, the
Company was able to repay $7.6 million of its outstanding debt. Net borrowings
under the previous revolver had declined by $9.6 million during 2000, but had
increased by $19.2 million during 1999.
18
The future liquidity and ordinary capital needs of the Company in the short term
are expected to be met from a combination of cash flows from operations and
borrowings under the Loan Agreement. The Company's working capital requirements
peak during the second and third quarters, reflecting the normal seasonality in
the Aftermarket heating and cooling systems business. In addition, the Company's
future cash flow may be impacted by industry trends lengthening customer payment
terms. The Company believes that its cash flow from operations, together with
borrowings under its Loan Agreement, will be adequate to meet its near-term
anticipated ordinary capital expenditures and working capital requirements.
However, the Company believes that the amount of borrowings available under the
Loan Agreement would not be sufficient to meet the capital needs for major
growth initiatives. If the Company were to implement major new growth
initiatives, it would have to seek additional sources of capital. However, no
assurance can be given that the Company would be successful in securing such
additional sources of capital.
INFLATION
The overall impact of the low rate of inflation in recent years has resulted in
no significant impact on labor costs and general services utilized by the
Company. The principal raw materials used in the Company's original equipment
and replacement radiator product lines are copper and brass. The Company also
requires aluminum for its radiator, condenser and heater product lines. Copper,
brass, aluminum and other primary metals used in the Company's business are
generally subject to commodity pricing and variations in the market prices for
such materials. Although these materials are available from a number of vendors,
the Company has chosen to concentrate its sources with a limited number of
long-term suppliers. The Company typically executes purchase orders for its
copper and brass requirements approximately three to six months prior to the
actual delivery date. The purchase price for such copper, brass, and aluminum
cores is established at the time such orders are placed by the Company and not
at the time of delivery.
The Company manages its metals commodity pricing by attempting to pass through
any cost increases to its customers. Although the Company has been successful in
passing through price increases to its customers to offset a portion of past
commodity cost increases, there is no assurance that the Company will continue
to be successful in raising prices in the future. The Company currently does not
use financial derivatives or other methods to hedge transactions with respect to
its metals consumption.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws designed to protect the
environment and believes that, as a general matter, its policies, practices and
procedures are properly designed to reasonably prevent risk of environmental
damage and financial liability to the Company. The Company believes it is
reasonably possible that environmental related liabilities might exist with
respect to an industrial site formerly occupied by the Company. Based upon
environmental site assessments, the Company believes that the cost of any
potential remediation for which the Company may ultimately be responsible will
not have a material adverse effect on the consolidated financial position,
results of operations, or liquidity of the Company.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations" ("SFAS 141"), which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. SFAS 141 also establishes criteria for the
separate recognition of intangible assets acquired in a business combination.
Effective July 1, 2001, the Company adopted this Statement, which did not have
any impact on the consolidated results of operations, financial position or cash
flows.
In June 2001, the FASB also issued Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to
19
earnings, but instead be subject to periodic testing for impairment. Intangible
assets determined to have definitive lives will continue to be amortized over
their useful lives. As this statement is effective for years beginning after
December 15, 2001, the Company will adopt SFAS 142 in the first quarter of 2002.
As a result of performing the tests included in SFAS 142, the Company has
determined that there is a transitional impairment loss relating to the
valuation of its goodwill. As a result, this loss will be recorded as a
cumulative effect of a change in accounting principle in the amount of $4.7
million in the consolidated results of operations.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. This
Statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. This Statement is
effective for the Company on January 1, 2003. The adoption of SFAS 143 is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which excludes from
the definition of long-lived assets goodwill and other intangibles that are not
amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets
to be disposed of by sale be measured at the lower of carrying amount or fair
value less cost to dispose, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be disposed
of rather than limiting such discontinuance to a segment of a business. This
Statement was effective for the Company on January 1, 2002. The adoption of SFAS
144 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
Statements included herein, which are not historical in nature, are
forward-looking statements. Such forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements regarding the Company's future business
prospects, revenues, orders, sales and liquidity are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including but not limited to: business conditions and growth in the general
economy and automotive and truck business, the impact of competitive products
and pricing, changes in customer and product mix, failure to obtain new
customers, retain existing customers or changes in the financial stability of
customers, changes in the cost of raw materials, components or finished
products, and changes in interest rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in interest
rates, foreign currency exchange rates and commodities.
The Company's interest rate risk is most sensitive to changes in U.S. interest
rates. At December 31, 2001, the Company had a loan agreement, under which $32.4
million was outstanding. The weighted average interest rate on the loan
agreement during 2001 was 8.04%. Effective July 1, 2001, interest on the loan
agreement is based on, at the Company's option, either the Eurodollar loan rate
plus 4% or the prime rate plus 1.5%. The Company also has an Industrial Revenue
Bond ("IRB") of $5.0 million outstanding at December 31, 2001, which matures in
October 2013. The IRB had a weighted average interest rate of 2.86% during 2001.
Interest on the IRB is based on the short-term tax exempt bonds index. The
impact of a 10% change in market interest rates would not have a material impact
on the Company's results of operations.
20
The Company has sales and a manufacturing facility in Mexico. The functional
currency of the Company's operations in Mexico is the U.S. dollar. As a result,
changes in the foreign currency exchange rates and changes in the economic
conditions in Mexico could affect financial results. The Company has accounted
for transactions associated with this foreign operation in accordance with the
guidance established under Financial Accounting Standards No. 52, "Foreign
Currency Translation." The Company believes it has mitigated the risk associated
with its foreign operations through its management of inventory and other
significant operating assets.
Certain risks may arise in the various commodity markets in which the Company
participates. Commodity prices in the copper, brass and aluminum markets may be
subject to changes based on availability. The Company conducts its purchasing of
such commodities generally through three to six month purchase order
commitments. See "Raw Materials and Suppliers" in Part I of this Report for
additional information on commodity pricing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
FINANCIAL STATEMENTS:
Report of Independent Accountants 22
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 23
Consolidated Balance Sheets at December 31, 2001 and 2000 24
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 25
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 26
Notes to Consolidated Financial Statements 27
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 2001, 2000 and 1999 46
21
Report of Independent Accountants
To the Board of Directors and Stockholders of Transpro, Inc:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Transpro, Inc. and its subsidiaries at December 31, 2001 and December 31, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 18, 2002
22
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
--------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Net sales $203,312 $203,320 $205,563
Cost of sales 177,781 176,789 163,522
-------------- -------------- --------------
Gross margin 25,531 26,531 42,041
Selling, general and administrative expenses 34,970 34,158 33,354
Restructuring and other special charges 3,632 1,407 325
-------------- -------------- --------------
Operating (loss) income (13,071) (9,034) (8,362)
Interest expense 4,527 4,815 4,444
-------------- -------------- --------------
(Loss) income from continuing operations before taxes and extraordinary
item (17,598) (13,849) (3,918)
Income tax provision (benefit) 2,710 (4,615 (1,181)
-------------- -------------- --------------
(Loss) income from continuing operations before extraordinary item (20,308) (9,234) 5,099
Income from discontinued operation, net of tax of $391 and $1,285 for
2000 and 1999 -- 440 1,717
Gain on sale of discontinued operation, net of tax of $3,841 -- 6,002 --
-------------- -------------- --------------
(Loss) income before extraordinary item (20,308) (2,792) (6,816)
Loss on debt extinguishment (530) -- --
-------------- -------------- --------------
Net (loss) income $ (20,838) $ (2,792) $ 6,816
============== ============== ==============
Basic (loss) income per common share:
Continuing operations $ (3.09) $ (1.43) $ 0.77
Discontinued operation -- 0.07 0.26
Gain on sale of discontinued operation -- 0.91 --
Loss on debt extinguishment (0.08) -- --
-------------- -------------- --------------
Net (loss) income per common share - basic $ (3.17) $ (0.45) $ 1.03
============== ============== ==============
Diluted (loss) income per common share:
Continuing operations $ (3.09) $ (1.43) $ 0.72
Discontinued operation -- 0.07 0.24
Gain on sale of discontinued operation -- 0.91 --
Loss on debt extinguishment (0.08) -- --
-------------- -------------- --------------
Net (loss) income per common share - diluted $ (3.17) $ (0.45) $ 0.96
============== ============== ==============
Weighted average common shares - basic 6,624 6,573 6,573
============== ============== ==============
Weighted average common shares and equivalents - diluted 6,624 6,573 7,089
============== ============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
23
TRANSPRO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS December 31,
----------------------------------
2001 2000
------------- --------------
Current assets
Cash and cash equivalents $ 150 $ 172
Accounts receivable (less allowance of $2,805 and $2,698) 30,940 34,154
Inventories 60,180 75,286
Deferred income taxes 1,796 5,703
Other current assets 2,878 4,890
------------- --------------
Total current assets 95,944 120,205
Property, plant and equipment, net 24,469 26,711
Goodwill (net of accumulated amortization of $875 and $1,130) 4,671 6,869
Other assets 4,599 3,182
------------- --------------
Total assets $129,683 $ 156,967
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit debt and current portion of long-term debt $29,665 $ 40,089
Accounts payable 20,316 21,972
Accrued liabilities 14,458 13,402
------------- --------------
Total current liabilities 64,439 75,463
------------- --------------
Long-term debt 7,998 5,234
Retirement and postretirement obligations 5,244 3,867
Deferred income taxes 3,037 926
------------- --------------
Total long-term liabilities 16,279 10,027
------------- --------------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, $.01 par value: Authorized 2,500,000 shares; issued and
outstanding as follows:
Series A junior participating preferred stock, $.01 par value:
Authorized 200,000 shares; issued and outstanding - none at
December 31, 2001 and 2000 -- --
Series B convertible preferred stock, $.01 par value:
Authorized 30,000 shares; issued and outstanding - 18,920 at
December 31, 2001 (liquidation preference $1,892) and 30,000 at
December 31, 2000 (liquidation preference $3,000) -- --
Common stock, $.01 par value: Authorized 17,500,000 shares, 7,023,825 and
6,662,446 shares issued in 2001 and 2000 and 6,981,889 and 6,590,335 shares
outstanding in 2001 and 2000 70 66
Paid-in capital 55,037 55,019
Unearned compensation -- (21)
Retained (deficit) earnings (4,264) 16,724
Accumulated other comprehensive loss (1,863) (285)
Treasury stock, at cost, 41,936 shares at 2001 and 72,111 at 2000 (15) (26)
------------- --------------
Total stockholders' equity 48,965 71,477
------------- --------------
Total liabilities and stockholders' equity $129,683 $ 156,967
============= ==============
The accompanying notes are an integral part of these
consolidated financial statements.
24
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
-------------------------------------------------
2001 2000 1999
------------ ------------- ------------
Cash flows from operating activities:
Net (loss) income $(20,838) $ (2,792) $ 6,816
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Non-cash restructuring charges 3,060 -- --
Loss on extinguishment of debt 530 -- --
Gain on sale of discontinued operation -- (6,002) --
Income from discontinued operation -- (440) (1,717)
Depreciation and amortization 5,514 5,760 5,986
Deferred income taxes 4,850 (497) (2,698)
Provision for uncollectible accounts receivable 1,786 739 268
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable 1,428 (3,048) (3,196)
Inventories 14,164 1,383 (20,917)
Accounts payable (1,656) 1,420 7,241
Accrued liabilities 900 (4,672) 200
Other 1,740 (3,313) 1,537
------------ ------------- ------------
Net cash provided by (used in) operating activities from continuing
Operations 11,478 (11,462) (6,480)
Change in net assets held for disposition -- (37) (3,571)
------------ ------------- ------------
Net cash provided by (used in) operating activities 11,478 (11,499) (10,051)
------------ ------------- ------------
Cash flows from investing activities:
Capital expenditures (3,077) (5,355) (6,194)
Net proceeds from sale of discontinued operation -- 26,772 --
Sales and retirements of fixed assets 181 424 11
Acquisition of business, net of cash acquired -- -- (2,118)
------------ ------------- ------------
Net cash (used in) provided by investing activities (2,896) 21,841 (8,301)
------------ ------------- ------------
Cash flows from financing activities:
Dividends paid (152) (802) (1,375)
Net (repayments) borrowings under previous revolving credit
Agreement (40,042) (9,590) 19,242
Net borrowings under new revolving credit facility 28,711 -- --
Borrowings under term loan 4,490 -- --
Repayments under term loan and capitalized lease obligations (818) -- --
Deferred debt costs (793) -- --
------------ ------------- ------------
Net cash (used in) provided by financing activities (8,604) (10,392) 17,867
------------ ------------- ------------
Net decrease in cash and cash equivalents (22) (50) (485)
Cash and cash equivalents at beginning of year 172 222 707
------------ ------------- ------------
Cash and cash equivalents at end of year $ 150 $ 172 $ 222
============ ============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
25
TRANSPRO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Retained
Common Preferred Treasury Paid-in (Deficit) Unearned
Stock Stock Stock Capital Earnings Compensation
---------- ---------- --------- -------- ---------- ---------------
Balance at December 31, 1998 $66 $-- $(26) $55,074 $14,883 $(113)
Net income -- -- -- -- 6,816 --
Adjustment for minimum pension
liability -- -- -- -- -- --
Comprehensive income -- -- -- -- -- --
Common stock dividends declared
($0.20 per share) -- -- -- -- (1,321) --
Preferred stock dividends declared -- -- -- -- (60) --
Amortization of unearned compensation -- -- -- -- -- 47
---------- ---------- --------- -------- ---------- ---------------
Balance at December 31, 1999 66 -- (26) 55,074 20,318 (66)
Net loss -- -- -- -- (2,792) --
Adjustment for minimum pension
liability -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
Common stock dividends declared
($0.10 per share) -- -- -- -- (660) --
Preferred stock dividends declared -- -- -- -- (142) --
Restricted stock canceled (7,000
shares) -- -- -- (55) -- 9
Amortization of unearned compensation -- -- -- -- -- 36
---------- ---------- --------- -------- ---------- ---------------
Balance at December 31, 2000 66 -- (26) 55,019 16,724 (21)
Net loss -- -- -- -- (20,838) --
Adjustment for minimum pension
liability -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
Common stock issued (373,279 shares) 4 -- -- 8 (12) --
Preferred stock dividends declared -- -- -- -- (138) --
Restricted stock canceled (11,900
shares) -- -- -- (75) -- 6
Treasury stock issued (30,175 shares) -- -- 11 85 -- --
Amortization of unearned compensation -- -- -- -- -- 15
---------- ---------- --------- -------- ---------- ---------------
Balance at December 31, 2001 $70 $-- $(15) $55,037 $(4,264) $--
========== ========== ========= ======== ========== ===============
Accumulated
Other
Comprehensive Total
(Loss) Stockholders'
Income Equity
-------------- --------------
Balance at December 31, 1998 $(1,104) $68,780
Net income -- 6,816
Adjustment for minimum pension
liability 1,160 1,160
-------------- --------------
Comprehensive income -- 7,976
-------------- --------------
Common stock dividends declared
($0.20 per share) -- (1,321)
Preferred stock dividends declared -- (60)
Amortization of unearned compensation -- 47
-------------- --------------
Balance at December 31, 1999 56 75,422
Net loss -- (2,792)
Adjustment for minimum pension
liability (341) (341)
-------------- --------------
Comprehensive loss -- (3,133)
-------------- --------------
Common stock dividends declared
($0.10 per share) -- (660)
Preferred stock dividends declared -- (142)
Restricted stock canceled (7,000
shares) (46)
Amortization of unearned compensation -- 36
-------------- --------------
Balance at December 31, 2000 (285) 71,477
Net loss -- (20,838)
Adjustment for minimum pension
liability (1,578) (1,578)
-------------- --------------
Comprehensive loss -- (22,416)
-------------- --------------
Common stock issued (373,279 shares) -- --
Preferred stock dividends declared -- (138)
Restricted stock canceled (11,900
shares) -- (69)
Treasury stock issued (30,175 shares) -- 96
Amortization of unearned compensation -- 15
-------------- --------------
Balance at December 31, 2001 $(1,863) $48,965
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
26
TRANSPRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
Transpro, Inc. (the "Company") is a manufacturer and supplier of heat transfer
components and systems and replacement automotive air conditioning parts for a
variety of Aftermarket and Original Equipment Manufacturing ("OEM") automotive,
truck and industrial equipment applications.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The Company's consolidated financial statements include
the accounts of all subsidiaries. Intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with maturities of three months or less at the time of purchase to be cash
equivalents. Cash overdrafts are classified as accounts payable. The carrying
amount reported in the balance sheet for cash and cash equivalents approximates
its fair value.
Inventories: Inventories are valued at the lower of cost (first-in, first-out
method) or market. Provisions are made for slow moving or obsolete inventory
based upon management estimates.
Property, Plant and Equipment: Property, plant and equipment is recorded at
cost. Ordinary maintenance and repairs are expensed, while replacements and
betterments are capitalized. Land improvements, buildings and machinery are
depreciated using the straight-line method over their estimated useful lives
which range up to forty years for buildings and between three and ten years for
machinery and equipment. Leasehold improvements are amortized over the lease
term or the estimated useful lives of the improvements, whichever is shorter.
Upon retirement or disposition of plant and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the Company's consolidated statements of operations.
Goodwill: Goodwill represents the excess of cost over the fair value of assets
acquired and is being amortized using the straight-line method over 20 years.
The Company periodically estimates the future undiscounted cash flows of the
businesses to which goodwill relates to ensure that the carrying value of such
goodwill has not been impaired.
Impairment of Long-Lived Assets: In the event that facts and circumstances
indicate that the carrying amounts of a segment's long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
writedown is required. If this review indicates that the assets will not be
recoverable, the carrying value of the Company's assets would be reduced to
their estimated fair value.
Foreign Currency Translation: The functional currency of the Company's
manufacturing operations in Mexico is the U.S. dollar and, therefore, any
adjustments related to currency transactions are included in results from
continuing operations.
Revenue Recognition: Sales are recognized when products are shipped. Accruals
for warranty costs, sales returns and allowances are provided at the time of
shipment based upon historical experience. Delivery charges billed to customers
were not significant in 2001, 2000 or 1999.
Research and Development: Research and development costs are expensed as
incurred.
27
Income Taxes: Deferred tax assets and liabilities are recorded based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is recorded to reduce
the carrying amount of deferred tax assets if it is more likely than not that
such assets will not be realized.
Concentration of Credit Risk: The Company is subject to a concentration of
credit risk primarily with its trade and notes receivable. The Company grants
credit to certain customers who meet pre-established credit requirements, and
generally requires no collateral from its customers. Estimates of potential
credit losses are based upon historical experience and management's knowledge of
the industry. As of December 31, 2001, the Company had no other significant
concentrations of credit risk.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Reclassification: Certain items in 2000 and 1999 have been reclassified to
conform to the current year presentation. Included therein was the
reclassification of approximately $13 million in 2000 and $12 million in 1999 of
warehousing costs which had been historically classified as selling, general and
administrative expenses to cost of sales.
NOTE 3 RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations" ("SFAS 141"), which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. SFAS 141 also establishes criteria for the
separate recognition of intangible assets acquired in a business combination.
Effective July 1, 2001, the Company adopted this Statement, which did not have
any impact on the consolidated results of operations, financial position or cash
flows.
In June 2001, the FASB also issued Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be subject to periodic testing for impairment. Intangible assets
determined to have definitive lives will continue to be amortized over their
useful lives. As this statement is effective for years beginning after December
15, 2001, the Company will adopt SFAS 142 in the first quarter of 2002. As a
result of applying the tests included in SFAS 142, the Company has determined
that there is a transitional impairment loss relating to the valuation of its
goodwill. As a result, the cumulative effect of this change in accounting
principle in the amount of $4.7 million will be expensed in the consolidated
results of operations in the first quarter of 2002. This write-off has no impact
on cash flow from operations.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. This
Statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. This Statement is
effective for the Company on January 1, 2003. The adoption of SFAS 143 is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which excludes from
the definition of long-lived assets goodwill and other intangibles that
28
are not amortized in accordance with SFAS 142. SFAS 144 requires that long-lived
assets to be disposed of by sale be measured at the lower of carrying amount or
fair value less cost to dispose, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be disposed
of rather than limiting such discontinuance to a segment of a business. This
Statement was effective for the Company on January 1, 2002. The adoption of SFAS
144 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
NOTE 4 ACQUISITIONS
Effective February 1, 1999, the Company purchased 100% of the outstanding stock
of A/C Plus, an air conditioning compressor re-manufacturer located in
Arlington, Texas. The transaction was structured with a purchase price of $2.25
million in cash, including transaction costs, and a promissory note of $0.25
million payable on the second anniversary of the closing. Concurrent with the
purchase, the Company repaid $0.5 million in working capital debt on behalf of
A/C Plus. The purchase price and working capital repayment were financed through
the Company's prior Revolving Credit Agreement. The acquisition was accounted
for as a purchase. Goodwill of $2.2 million was recorded in connection with the
transaction. A/C Plus' results are included in the Company's consolidated
financial statements from the date of acquisition.
NOTE 5 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
$28.7 million in cash and the assumption of $8.0 million of Industrial Revenue
Bonds due in 2010 and an unfunded pension liability of $0.8 million. The Company
recorded a gain of $6.0 million, net of $3.8 million of tax, which is reported
as gain on sale of discontinued operation in the consolidated statements of
operations. Net proceeds from the sale were used to reduce outstanding
borrowings under the Company's prior Revolving Credit Agreement.
Revenues from the Specialty Metal Fabrication segment were $56.0 million for the
year ended December 31, 1999. From the measurement date to the date of
disposition, revenues and income from the discontinued operation were $23.9
million and $0.4 million (net of tax of $0.4 million), respectively.
NOTE 6 RESTRUCTURING AND OTHER SPECIAL CHARGES
During the third quarter of 2001, the Company implemented a restructuring
program designed around its business initiatives to improve operating
performance. The program, which is expected to continue into 2002, includes the
redesign of our distribution system, headcount reductions, the transfer of
production between manufacturing facilities and a reevaluation of our product
offerings. As a part of this program, the Company recorded restructuring and
other special charges of $4.6 million during 2001. The remaining reserve balance
at December 31, 2001 is classified in other accrued liabilities. A summary of
this charge is as follows:
(in thousands) Charge to Cash Non-Cash Balance Remaining at
Operations Payments Write-offs December 31, 2001
--------------- ------------- ---------------- -----------------------------
Workforce related $1,101 $704 $ -- $397
Facility consolidation 414 177 -- 237
Asset writedowns 1,230 -- 1,230 --
Impairment of goodwill 1,830 -- 1,830 --
---------- -------- ----------- ---------
Total $4,575 $881 $3,060 $634
========== ======== =========== =========
29
The workforce-related charge reflects the elimination of 119 salaried and hourly
positions within the OEM and Aftermarket segments during the second half of the
year. Cash payments are expected to continue through the end of 2002.
The $0.4 million facility consolidation charge represents inventory and
machinery movement, lease termination and facility exit expenses associated with
the transfer of several product lines between OEM segment manufacturing
locations and the closure of seven Aftermarket segment branch facilities as part
of the redesign of the Company's distribution system. Machinery and inventory
movement costs were expensed as incurred. Cash payments are expected to continue
through 2002 as a result of costs associated with idle facilities.
Due to changes in product demand, the Company decided to exit its copper-brass
condenser and heat exchanger product production and closed a California
manufacturing plant, resulting in the impairment of $1.8 million of goodwill
recorded as part of the Rahn Industries acquisition in 1996. The write-off is
the result of a determination that the value of estimated future cash flows is
less than the carrying amount of the goodwill.
In conjunction with the closure of the California manufacturing plant, a charge
of $1.2 million was recorded to reflect the impairment of inventory and fixed
assets. Of this charge, $0.9 million was included in cost of sales. All assets
were disposed of prior to year-end.
In 2000, the Company recorded $0.7 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 26
salaried and hourly employees. Approximately $0.1 million of the total reserve
remained as of December 31, 2000, related to remaining facility restoration
costs at the Houston facility and was classified as an accrued expense in the
accompanying balance sheet. These costs were paid during 2001.
During the fourth quarter of 2000, the Company recorded an accrual of $0.7
million to cover severance and other costs associated with the separation and
replacement of a former President and CEO of the Company. Payments will continue
through the first quarter of 2002.
A summary of these charges is as follows:
Cash
Charge to Payments During
Operations ------------------------------ Balance at
(in thousands) During 2000 2000 2001 December 31, 2001
------------------ ------------ ------------- ----------------------
Workforce related $ 222 $222 $ -- $--
Facilities consolidations 479 428 51 --
Executive separation 675 -- 643 32
Asset write down 31 31 -- --
---------- -------- -------- -------
Total $1,407 $681 $694 $32
========== ======== ======== =======
In 1999, the Company recorded $0.3 million in plant and business consolidation
and closure costs, primarily for severance, related to the closing two
automotive air conditioning condenser manufacturing plants. These costs were all
paid during 1999.
30
NOTE 7 INVENTORY
Inventory at December 31 consists of the following:
(in thousands) 2001 2000
------------- ------------
Raw material $17,915 $21,350
Work in progress 1,845 2,391
Finished goods 40,420 51,545
------------- ------------
Total inventory $60,180 $75,286
============= ============
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consists of the following:
(in thousands) 2001 2000
-------------- ---------------
Land and improvements $ 90 $ 90
Buildings and improvements 12,878 12,190
Machinery and equipment 59,752 68,287
-------------- ---------------
72,720 80,567
Accumulated depreciation and amortization (48,251) (53,856)
-------------- ---------------
Property, plant and equipment, net $ 24,469 $ 26,711
============== ===============
NOTE 9 DEBT
Debt at December 31 consists of the following:
(in thousands) 2001 2000
------------- --------------
Revolving credit facility $28,711 $ --
Term loan 3,695 --
Revolving credit agreement -- 40,042
Industrial revenue bond 5,000 5,000
Capitalized lease obligations 257 281
------------- --------------
Total debt 37,663 45,323
Less
Revolving credit obligations 28,711 40,042
Current portion of long-term debt 954 47
------------- --------------
Total long-term debt $ 7,998 $ 5,234
============= ==============
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. Proceeds from the Loan
Agreement were utilized to repay the then existing revolving credit arrangement
with five banking institutions. The Loan Agreement originally provided for
collateralized borrowings or the issuance of letters of credit in an aggregate
amount not to exceed $65 million and was 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
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, adjusted by an advance
rate. Borrowings under the Revolving Credit Facility are classified as short
term in the accompanying consolidated balance sheet.
31
The Term Loan is payable in 59 consecutive 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 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 an amendment to the Loan Agreement, which provides that
effective July 1, 2001, borrowings 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 an amendment to the Loan Agreement, which lowered
the net worth threshold to $63 million for periods after July 30, 2001. On
November 27, 2001, an amendment was entered into which lowered the maximum
borrowing amount under the Loan Agreement from $65 million to $55 million and
lowered the maximum borrowing amount under the revolving credit facility from
$60 million to $50 million. On February 20, 2002, the Company entered into an
amendment, which redefined working capital to exclude deferred tax assets, and
established the minimum working capital threshold at $53 million effective
December 31, 2001 through March 31, 2002 and at $55 million thereafter. These
amendments were entered into in order to correct a violation, which would have
occurred under the original wording of the agreement. In order to correct a net
worth violation, which would have occurred as a result of recording the tax
valuation reserve in 2001, and writing off goodwill in the first quarter of
2002, the Company obtained an amendment, which as of December 31, 2001, lowered
the minimum net worth threshold to $37 million.
At December 31, 2001, the interest rate on outstanding borrowings under the Loan
Agreement was 6.50%. The weighted average interest rate during 2001 was 8.04%.
Available borrowings under the Revolving Credit facility at December 31, 2001
were $4.1 million.
In July 1998, the Company entered into a Revolving Credit Agreement (the
"Revolving Credit Agreement") with five banking institutions, which provided for
collaterized borrowings or the issuance of letters of credit in an aggregate
amount not to exceed $75 million. The Revolving Credit Agreement was secured by
a blanket first 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 was due to expire on July 1, 2003.
Amounts borrowed under the Revolving Credit Agreement bore interest at variable
rates based, at the Company's option, on either (a) a Eurodollar loan rate, plus
an applicable margin based upon the ratio of the Company's total funded debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA"), or
(b) the higher of (i) the BankBoston, N.A, base lending rate or (ii) one-half of
one percent above the Federal Funds Effective Rate, as defined, plus an
applicable margin based upon the ratio of the Company's total funded debt to
EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's
total funded debt to EBITDA on the average daily unused portion of the Revolving
Credit Agreement was payable quarterly, in arrears.
The Revolving Credit Agreement contained financial covenants which, among other
things, required 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 placed 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 29, 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, reschedule the automatic reductions and amend the
leverage coverage ratio
32
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 reduced
the aggregate amount of secured borrowings or the issuance of letters of credit
to $55.0 million, rescheduled the automatic reductions, eliminated the
eligibility for early security release and contained 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
would have been 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 provided for the elimination of the borrowing base if,
on April 10, 2001, no Default or Event of Default existed. 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 and September 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 did not exceed $52 million, the
borrowing base exceeded the sum of the Company's borrowings plus outstanding
letters of credit under the Revolving Credit Agreement by $20 million and the
Company met certain other conditions. Pursuant to the Second 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 percent per annum.
On November 15, 2000, the Company entered into the Third 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
December 20, 2000, provided the Company's borrowings and outstanding letters of
credit under the Revolving Credit Agreement did not exceed $52 million, the
borrowing base exceeded the sum of the Company's borrowings plus outstanding
letters of credit under the Revolving Credit Agreement by $20 million and the
Company met certain other conditions.
On December 20, 2000, the Company entered into the Fourth 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
January 12, 2001 under the same terms and conditions. Borrowings under the
Revolving Credit Agreement were classified as a current liability in the
accompanying consolidated balance sheet as of December 31, 2000.
The interest rate on borrowings under the Revolving Credit Agreement
approximated 10.5% at December 31, 2000, and the weighted average interest rate
for 2000 approximated 8.85%.
33
In addition, the Company has an Industrial Revenue Bond relating to its New
Haven, Connecticut facility, which is due in October 2013 and is fully secured
by letters of credit. The floating rate industrial revenue bond bears interest,
payable quarterly, at a rate based on a short-term tax-exempt bonds index, as
defined in the bonds, and approximated 1.65% and 4.40% at December 31, 2001 and
2000, respectively. The average interest rate approximated 2.86% during 2001 and
4.18% during 2000.
Capitalized lease obligations related primarily to computer equipment.
Interest expense paid during 2001, 2000 and 1999 was $3.8 million, $3.9 million
and $4.2 million, respectively.
The Company utilizes letters of credit to back its industrial revenue bond,
certain insurance policies and certain trade purchases in the amounts of $9.4
million and $9.2 million at December 31, 2001 and 2000, respectively. The
letters of credit reflect fair value as a condition of their underlying purpose.
Minimum future debt repayments, excluding the revolving credit facility, will be
$1.0 million in 2002 and 2003, $2.0 million in 2004, and $0.1 million in 2005
and 2006.
NOTE 10 STOCKHOLDERS' EQUITY
Stockholder Rights Plan: On September 14, 1995, the Board of Directors adopted a
stockholder rights plan (the "Rights Plan"), under which one Right (the "Right")
was issued and distributed for each share of common stock. The Rights Plan is
intended to protect shareholders against unsolicited attempts to acquire control
of the Company that do not offer what the Company believes to be an adequate
price to all shareholders. Each Right will entitle the registered holder to
purchase from the Company one one-hundredth of a share of Series A Preferred
Stock at a price of $60.00 per one one-hundredth of a share of Series A
Preferred Stock subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent.
The Rights will become exercisable only if a person or group acquires or obtains
the right to acquire beneficial ownership of 20% or more of the outstanding
shares of common stock (an "Acquiring Person") or 10 days (or such later date as
the Company's Board of Directors may determine) following the commencement by a
person or group of a tender or exchange offer which would result in such person
or group becoming an Acquiring Person. The earlier of such dates is called the
"Rights Distribution Date." Until the Rights Distribution Date, the Rights will
be evidenced by the certificates for shares of common stock. In the event that
any person or group of affiliated or associated persons becomes an Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights that are or were owned beneficially by the Acquiring Person (which,
from and after the later of the Rights Distribution Date and the date of the
earliest of any such events, will be void), will thereafter have the right to
receive, upon exercise thereof at the then current exercise price of the Right,
that number of shares of common stock having a market value of two times the
exercise price of the Right.
Preferred Stock: In connection with the acquisition of Ready-Aire, the Company
issued 30,000 shares of Transpro, Inc. Series B Convertible Preferred Stock
("Preferred Stock"). The purchase agreement provides for a potential additional
payout for the Ready-Aire acquisition based on the earnings performance of the
business for the period January 1, 1999 through December 31, 2000 that would
take the form of an increase in the liquidation preference of the Preferred
Stock. The holder of the 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 Ready-Aire stock purchase agreement.
Should any adjustment result from these negotiations, the resulting increase in
goodwill may also be impaired as a result of the adoption of SFAS 142 in 2002,
resulting in a charge to operating income. The Preferred Stock is
non-transferable and is entitled to cumulative dividends of 5%. It is
convertible into common stock at the rate of 50% on August 1, 2001, an
additional 25% on August 1, 2002 and the remaining 25% on August
34
1, 2003 and is redeemable thereafter at the liquidation preference at the time
of redemption. The Preferred Stock is convertible into common stock based upon
the liquidation preference and the market value of common stock at the time of
conversion, as further defined in the purchase agreement. The aggregate number
of shares of common stock to be issued upon conversion of Preferred Stock may
not exceed 7% of the total number of shares of common stock outstanding, after
giving effect to the conversion. During the fourth quarter of December, 2001,
the holder of the Preferred Stock converted 11,080 shares of Preferred Stock
$(1.1 million) into 373,279 shares of common stock.
Treasury Stock: 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.
Other Comprehensive Loss: Other comprehensive loss pertains to revenues,
expenses, gains and losses that are not included in net income, but rather are
recorded directly in stockholders' equity. For 2001, 2000 and 1999, other
comprehensive loss reflects minimum pension liability adjustments. The pre-tax
income (loss) and net of tax income (loss) adjustments for the years ended
December 31, were $(1.6) million and $(1.6) million for 2001; $(0.5) million and
$(0.3) million for 2000 and $2.0 million and $1.2 million for 1999,
respectively.
NOTE 11 RETIREMENT AND POST-RETIREMENT PLANS
Retirement Plans: A majority of the Company's non-union full-time U.S. employees
are covered by a cash balance defined benefit plan. Generally, employees become
vested in their pension plan benefits after 5 years of employment. The Company
also maintains a non-qualified retirement plan to supplement benefits for
designated employees whose pension plan benefits are limited by the provisions
of the Internal Revenue Code. It is the Company's policy to make contributions
to qualified retirement plans sufficient to meet the minimum funding
requirements of applicable laws and regulations. The assets of the plans consist
principally of equity securities and fixed income instruments.
The Company has recorded an additional minimum liability at the end of each year
representing the excess of the accumulated benefit obligations over the fair
value of plan assets and accrued pension liabilities. To the extent possible, an
intangible asset, representing unrecognized prior service costs, has been
recorded to offset the liabilities. The balance of the liability at the end of
the period is reported as a separate reduction of stockholders' equity, net of
tax benefits.
Postretirement Plans: The Company provides health care and life insurance
benefits for certain retired employees who reach retirement age while working
for the Company. The Company accrues for the cost of its postretirement health
care and life insurance benefits based on actuarially determined costs
recognized over the period from the date of hire to the full eligibility date of
employees who are expected to qualify for these benefits. The Company funds
these costs on a pay as you go basis.
Components of net periodic benefit costs for three years ended December 31 are
as follows:
(in thousands) Retirement Plans Postretirement Plans
-------------------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
----------- ----------- ----------- --------- -------- -------
Service cost $ 798 $ 831 $ 979 $ 2 $ 2 $ 18
Interest cost 1,788 1,751 1,594 54 59 56
Expected return on plan assets (1,955) (1,894) (1,813) -- -- --
Plan curtailment (6) (458) -- -- (169) --
Amortization and deferral of net (gain) loss (84) (97) 72 (13) (44) (34)
---------- ---------- ---------- -------- ------- ------
Net periodic benefit cost (benefit) $ 541 $ 133 $ 832 $ 43 $(152) $ 40
========== ========== ========== ======== ======= ======
35
The following tables set forth the plans' combined funded status and amounts
recognized in the Company's consolidated balance sheets at December 31:
(in thousands) Retirement Plans Postretirement Plans
--------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ --------------
Change in benefit obligation
Benefit obligation at January 1 $ 24,173 $23,190 $ 707 $ 971
Service cost 798 831 2 2
Interest cost 1,788 1,751 54 59
Actuarial (gain) loss 1,203 53 237 (80)
Curtailment loss (gain) (6) 47 -- (169)
Actual gross benefits paid (1,977) (1,699) (307) (76)
------------ ------------ ------------ ------------
Benefit obligation at December 31 $ 25,979 $24,173 $ 693 $ 707
============ ============ ============ ============
Change in plan assets
Fair value of plan assets at January 1 $ 24,399 $26,480 $ -- $ --
Actual return on plan assets (2,860) (637) -- --
Company contributions 458 255 307 76
Actual gross benefits paid (1,977) (1,699) (307) (76)
------------ ------------ ------------ ------------
Fair value of plan assets at December 31 $ 20,020 $24,399 $ -- $ --
============ ============ ============ ============
Reconciliation of funded status
Funded status at December 31 $ (5,959) $ 226 $ (693) $ (707)
Unrecognized transition asset 9 (6) -- --
Unrecognized prior service cost (benefit) 540 598 (53) (57)
Unrecognized net loss (gain) 1,312 (4,832) 2 (243)
------------ ------------ ------------ ------------
Accrued benefit cost $ (4,098) $(4,014) $ (744) $(1,007)
============ ============ ============ ============
Amounts recognized in statements of financial position
Prepaid asset $ -- $ 282 $ -- $ --
Accrued benefit liability (6,511) (5,307) (744) (1,007)
Intangible asset 550 726 -- --
Accumulated other comprehensive loss 1,863 285 -- --
------------ ------------ ------------ ------------
Net amount recognized at December 31 $ (4,098) $(4,014) $ (744) $(1,007)
============ ============ ============ ============
The assumptions used in the measurement of the retirement and postretirement
plans for the years ended December 31 are as follows:
Retirement Plans Postretirement Plans
---------------------------------------- ------------------------------------------
2001 2000 1999 2001 2000 1999
------------ ----------- ---------- ------------ ------------- ----------
Discount rate 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%
Return on assets 9.00% 9.00% 9.00% -- -- --
Initial trend rate -- -- -- 12.00% 8.40% 8.80%
Salary progression 4.00% 4.25% 4.25% -- -- --
Ultimate health care trend rate -- -- -- 5.00% 5.00% 5.00%
Years to ultimate trend -- -- -- 10 10 10
36
Assumed healthcare cost trend rates have a significant effect on the amounts
reported for the healthcare plan. A one-percentage point change in the assumed
healthcare cost trend rates would have the following effects:
(in thousands) 1% Increase 1% Decrease
----------------- ------------------
Effect on total service and interest cost components $ 1 $ (1)
Effect on post-retirement benefit obligation $16 $(14)
At December 31, 2001, each pension plan had accumulated benefit obligations in
excess of plan assets. The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $8.3 million, $8.3 million and
$7.2 million, respectively as of December 31, 2000.
In 2000, the Company recorded a $0.5 million curtailment gain and a $0.6 million
net settlement loss on its pension liabilities and a $0.2 million curtailment
gain on its postretirement benefit liabilities, as a result of the sale of the
Specialty Metal Fabrication segment, which were included in the gain on the sale
of discontinued operations.
401(k) Investment Plan: Under the Company's 401(k) Plan, substantially all of
the Company's non-union employees and certain union employees are eligible to
contribute a portion of their salaries into various investment options, which
include the Company's common stock. The Company matches a percentage of the
amounts contributed by the employees. The Company's matching contributions were
approximately $0.4 million in 2001, 2000 and 1999.
NOTE 12 STOCK COMPENSATION PLANS
Stock Options: At December 31, 2001, the Company had two stock option plans
under which key employees and directors have options to purchase Transpro common
stock. Under the 1995 Stock Plan (the "Stock Plan") options are granted at fair
market value on the date of grant and are generally exercisable cumulatively at
the rate of 50% two years from the date of grant, 75% three years from the date
of grant, and 100% four years from the date of grant. Options granted under the
Stock Plan expire ten years and two days from the date of the grant. Awards of
restricted stock may also be granted to key employees under the Stock Plan and
may be issued in addition to, or in lieu of stock options. The total number of
shares of common stock with respect to which stock options may be granted and
restricted shares may be awarded under the Stock Plan shall not exceed 600,000.
At December 31, 2001 and 2000, respectively, 208,500 and 487,304 common shares
were reserved for stock options and restricted shares granted under the Stock
Plan. The Non-Employee Directors Stock Option Plan (the "Directors Plan")
provides for the issuance of options at the fair market value of the common
stock covered thereby on the date of grant. Subject to certain acceleration
provisions, each option granted under the Directors Plan will be exercisable 50%
after two years from the date of grant, 75% after three years from the date of
grant and 100% after four years from the date of grant. Options granted under
the Directors Plan expire ten years from the date of grant. The total number of
shares of common stock with respect to which options may be granted under the
Directors Plan may not exceed 100,000 shares. At December 31, 2001 and 2000,
88,500 and 77,800 common shares were reserved for stock options granted under
the Directors Plan.
On July 5, 2001, the Company commenced a tender offer for all outstanding
options under the 1995 Stock Plan having an exercise price in excess of $4.00
per share. Under the terms of the offer, tendered options would be cancelled and
exchanged for new options to be granted on or about the first business day which
is six months and one day after the option cancellation date. The number of
options to be granted would be equal to one half of the tendered options for
those grants with an exercise price between $4.00 and $6.00 and one-third of the
tendered options for those grants greater than $6.00. The tender offer expired
on August 2, 2001. Of the options to purchase
37
116,576 shares available to be tendered, options to purchase 69,176 shares were
tendered and have been cancelled. Options which were not tendered continue with
their original terms and conditions.
Information regarding the Stock Plan and the Directors Plan is as follows:
Option Price Range
-----------------------------------------------
Number Weighted
Stock Plan of Options Low Average High
---------- -------------- ---------- ------------- ----------------
Outstanding at December 31, 1998 440,515 $3.72 $7.64 $11.75
Granted 97,500 5.50 5.50 5.56
Canceled (57,049) 5.88 7.53 11.75
--------------
Outstanding at December 31, 1999 480,966 3.72 7.22 11.75
Granted -- -- -- --
Canceled (10,688) 5.88 6.56 8.60
--------------
Outstanding at December 31, 2000 470,278 3.72 7.24 11.75
Granted 230,000 2.50 2.88 3.20
Canceled (491,778) 2.50 6.94 11.75
--------------
Outstanding at December 31, 2001 208,500 2.50 3.14 5.88
==============
Exercisable at December 31, 2001 10,125 5.88 5.88 5.88
==============
Option Price Range
------------------------------------------------
Number Weighted
Directors Plan of Options Low Average High
-------------- -------------- --------- ------------ ---------------
Outstanding at December 31, 1998 56,400 $7.75 $9.70 $11.75
Granted 21,400 5.50 5.50 5.50
--------------
Outstanding at December 31, 1999 77,800 5.50 8.54 11.75
Granted -- -- -- --
--------------
Outstanding at December 31, 2000 77,800 5.50 8.54 11.75
Granted 10,700 2.70 2.70 2.70
--------------
Outstanding at December 31, 2001 88,500 2.70 7.84 11.75
==============
Exercisable at December 31, 2001 67,100 5.50 9.03 11.75
==============
The weighted-average grant date fair values of options granted during 2001 and
1999 were $1.66 and $2.71. There were no options granted during 2000.
Additional information relating to outstanding options under both plans as of
December 31, 2001 is as follows:
Options Outstanding Options Exercisable
------------------------------------- ---------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Term Exercise Shares Exercise
Exercise Price Outstanding (Years) Price Exercisable Price
--------------------- ------------------ ---------------- ---------------- ---------------- ---------------
$ 2.35 - $ 3.53 205,700 9.3 $2.93 0 0
$ 4.70 - $ 5.88 34,900 7.2 $5.65 20,825 $5.68
$ 7.05 - $ 8.23 10,700 5.3 $7.75 10,700 $7.75
$ 8.23 - $ 9.40 10,700 4.3 $8.38 10,700 $8.38
$ 9.40 - $10.58 14,000 3.8 $10.00 14,000 $10.00
$10.58 - $11.75 21,000 3.8 $11.17 21,000 $11.17
38
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized in the financial statements. Had
compensation cost for the Company's plans been determined based on the fair
value at the grant dates for awards under the plans, consistent with Statement
of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation," the pro forma net (loss) income and (loss) earnings per share
would have been as follows:
(in thousands, except per share amounts) 2001 2000 1999
------------ ----------- ------------
Net (loss) income:
As reported $(20,838) $(2,792) $6,816
Pro forma (21,108) (3,021) 6,579
Basic net (loss) income per common share:
As reported (3.17) (0.45) 1.03
Pro forma (3.21) (0.48) 0.99
Diluted net (loss) income per common share:
As reported (3.17) (0.45) 0.96
Pro forma (3.21) (0.48) 0.93
The fair value of each option grant is estimated for the above disclosure on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2001 2000 1999
------------ ----------- ------------
Dividend yield 0% 0% 2.20%
Expected volatility 56.5% 55.7% 52.1%
Risk-free interest rate 4.6% 4.5% 6.5%
Expected life 6 Years 6 Years 6 Years
Restricted Stock: Restricted stock awards vest four years from the date of the
award. Unearned compensation, representing the fair value of the restricted
shares at the date of the award, is charged to income over the period.
Compensation expense with respect to restricted shares amounted to $0.02 million
in 2001, $0.04 million in 2000 and $0.05 million in 1999.
Information relating to outstanding restricted stock awards is as follows:
Outstanding at December 31, 1998 and 1999 24,026
Canceled (7,000)
----------
Outstanding at December 31, 2000 17,026
Vested (5,126)
Canceled (11,900)
----------
Outstanding at December 31, 2001 --
==========
39
NOTE 13 INCOME TAXES
The provision for (benefit from) income taxes for the three years ended December
31, is as follows:
(in thousands) 2001 2000 1999
------------ ----------- ------------
Current:
Federal $(1,999) $(3,868) $ 1,249
Foreign 273 203 86
State and local (414) (453) 182
----------- ---------- -----------
(2,140) (4,118) 1,517
----------- ---------- -----------
Deferred:
Federal (4,752) (384) 265
Foreign -- -- (107)
State and local 117 (113) 2
Benefit related to GDI restructuring -- -- (2,858)
Valuation allowance 9,485 -- --
----------- ---------- -----------
4,850 (497) (2,698)
=========== ========== ===========
Provision for (benefit from) income taxes $ 2,710 $(4,615) $(1,181)
=========== ========== ===========
A reconciliation of the provision for (benefit from) income taxes
at the Federal statutory rate of 34% to the reported tax provision
for (benefit from) continuing operations in 2001, 2000 and 1999
is as follows:
( in thousands) 2001 2000 1999
------------ ----------- ------------
(Benefit) provision computed at the Federal statutory rate $(5,983) $(4,709) $ 1,332
State and local income taxes, net of Federal income tax benefit (200) (374) 121
Benefit related to GDI restructuring -- -- (2,858)
Permanent differences 144 188 82
Federal audit adjustment (576) -- --
State tax credit adjustment (390) -- --
Valuation allowance 9,485 -- --
Other 230 280 142
============ =========== ============
Provision for (benefit from) income taxes $ 2,710 $(4,615) $(1,181)
============ =========== ============
40
Significant components of deferred income tax assets and liabilities as of
December 31, are as follows:
(in thousands)
2001 2000
------------ ------------
Deferred tax assets:
Inventories $2,107 $ 2,133
Pensions 1,878 2,032
Postretirement benefits 283 269
Allowance for bad debts 1,406 1,093
Self insurance reserves 1,019 968
Warranty reserves 735 446
Accrued vacation 620 632
Federal net operating loss 3,515 --
Other 1,104 551
Valuation reserve (9,485) --
------------ ------------
Total deferred tax assets 3,182 8,124
------------ ------------
Deferred tax liabilities:
Depreciation (2,644) (2,595)
Deferred charges (373) (417)
Other (165) (335)
------------ ------------
Total deferred tax liabilities (3,182) (3,347)
------------ ------------
Net deferred tax assets $-- $ 4,777
============ ============
During the fourth quarter of 2001, the Company determined that in accordance
with the provisions of SFAS 109, "Accounting for Income Taxes", a non-cash
valuation allowance of $9.5 million was required to offset its net deferred tax
asset balance. The reserve was required due to the Company's cumulative losses
during the past three years. As the Company returns to profitability on a
pre-tax basis, it would recover the valuation allowance, which would improve net
income.
The earnings of certain foreign subsidiaries are considered permanently
reinvested in the foreign operations and therefore no provision has been made
for U.S. taxes related to these subsidiaries. (Loss) income before taxes from
United States and foreign sources is as follows:
(in thousands) 2001 2000 1999
-------------- ------------- -------------
United States $(18,120) $ (14,301) $3,516
Foreign 522 452 402
-------------- ------------- -------------
(Loss) income before taxes $(17,598) $ (13,849) $3,918
============== ============= =============
At December 31, 2001, the Company had a net operating loss carry-forward, which
would expire in 2021.
Net income taxes (refunded) paid during 2001, 2000 and 1999 were $(2.8)
million, $3.2 million and $1.9 million, respectively.
41
NOTE 14 (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted (loss)
income per common share:
(in thousands, except per share amounts)
2001 2000 1999
-------------- ------------- -------------
Numerator:
(Loss) income from continuing operations $(20,308) $(9,234) $ 5,099
Less: preferred stock dividends (138) (142) (60)
-------------- ------------- -------------
(Loss) income from continuing operations (attributable) available to
common stockholders (20,446) (9,376) 5,039
Income from discontinued operation, net of tax -- 440 1,717
Gain on sale of discontinued operation, net of tax -- 6,002 --
Loss on debt extinguishment (530) -- --
-------------- ------------- -------------
Net (loss) income (attributable) available to common stockholders (20,976) (2,934) 6,756
Add back: preferred stock dividend -- -- 60
-------------- ------------- -------------
Net (loss) income (attributable) available to stockholders and assumed
conversion $(20,976) $(2,934) $ 6,816
============== ============= =============
Denominator:
Weighted average common shares 6,624 6,590 6,597
Non-vested restricted stock -- (17) (24)
-------------- ------------- -------------
Adjusted weighted average common shares - basic 6,624 6,573 6,573
Dilutive effect of stock options and restricted non-vested stock -- -- 19
Dilutive effect of Series B Preferred Stock -- -- 497
-------------- ------------- -------------
Adjusted weighted average common shares - diluted 6,624 6,573 7,089
============== ============= =============
Basic (loss) income per common share:
Continuing operations $ (3.09) $ (1.43) $ 0.77
Discontinued operation -- 0.07 0.26
Gain on sale of discontinued operation -- 0.91 --
Loss on debt extinguishment (0.08) -- --
-------------- ------------- -------------
Net (loss) income per common share $ (3.17) $ (0.45) $ 1.03
============== ============= =============
Diluted (loss) income per common share:
Continuing operations $ (3.09) $ (1.43) $ 0.72
Discontinued operation -- 0.07 0.24
Gain on sale of discontinued operation -- 0.91 --
Loss on debt extinguishment (0.08) -- --
============== ============= =============
Net (loss) income per common share $ (3.17) $ (0.45) $ 0.96
============== ============= =============
The weighted average basic common shares outstanding was used in the calculation
of the diluted loss per common share for the years ended December 31, 2001 and
2000 as the use of weighted average diluted common shares outstanding would have
an anti-dilutive effect on the loss per share.
There were outstanding options to purchase common stock excluded from the
diluted calculation because their exercise price exceeded the average market
price of Transpro common stock during the respective earnings periods. The
shares excluded and the average market prices were as follows:
2001 2000 1999
------------ ------------ ------------
Options 181,300 394,354 347,115
Average market prices $2.96 $4.49 $ 6.22
42
NOTE 15 COMMITMENTS AND CONTINGENCIES
Leases: The Company's leases consist primarily of manufacturing and distribution
facilities and equipment, which expire between 2002 and 2012. A number of leases
require that the Company pay certain executory costs (taxes, insurance, and
maintenance) and contain renewal and purchase options. Annual rental expense for
operating leases approximated $4.2 million in 2001, $4.3 million in 2000 and
$4.9 million in 1999.
Future minimum annual rental payments under non-cancelable operating leases as
of December 31, 2001 were as follows: $4.2 million in 2002, $3.2 million in
2003, $2.6 million in 2004, $2.3 million in 2005, $1.5 million in 2006 and $4.0
million thereafter.
Insurance: The Company is self-insured for health care, workers compensation,
general liability and product liability up to predetermined amounts above which
third party insurance applies. The Company has reserved approximately $2.7
million to pay such claims as of December 31, 2001.
Legal Proceedings: Various legal actions are pending against or involve the
Company with respect to such matters as product liability, casualty and
employment-related claims. In the opinion of management, after review and
consultation with counsel, the aggregate liability, if any, that ultimately may
be incurred in excess of amounts already provided should not have a material
adverse effect on the consolidated financial position, results of operations, or
liquidity of the Company.
Environmental Matters: The Company is subject to Federal, state and local laws
designed to protect the environment and believes that, as a general matter, its
policies, practices and procedures are properly designed to reasonably prevent
risk of environmental damage and financial liability to the Company. The Company
believes it is reasonably possible that environmental-related liabilities might
exist with respect to one industrial site formerly occupied by the Company.
Based upon environmental site assessments, the Company believes that the cost of
any potential remediation, other than amounts already provided, for which the
Company may ultimately be responsible will not have a material adverse effect on
the consolidated financial position, results of operations, or liquidity of the
Company.
NOTE 16 BUSINESS SEGMENTS
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.
The Company evaluates the performance of its segments and allocates resources
accordingly based on operating income (loss) before interest and taxes.
Intersegment sales are recorded at cost. Certain other expenses such as
information technology, human resources and finance and accounting functions are
allocated between segments based on their respective use of shared facilities
and resources.
43
The tables below set forth information about reported segments for the three
years ended December 31:
(in thousands) (Loss) Income from
Continuing Operations
Consolidated Revenues Before Interest & Taxes
--------------------------------------- ----------------------------------------
2001 2000 1999 2001 2000 1999
----------- ---------- ----------- ------------ ----------- ------------
Trade sales:
Aftermarket heating and cooling systems $173,389 $166,544 $166,235 $ (2,683) $(1,137) $14,064
OEM heat transfer systems 29,923 36,776 39,328 (5,862) (3,810) (1,324)
Inter-segment revenues:
Aftermarket heating and cooling systems 4,761 6,851 5,868 -- -- --
OEM heat transfer systems 449 63 16 -- -- --
Elimination of inter-segment revenues (5,210) (6,914) (5,884) -- -- --
Corporate expenses -- -- -- (4,526) (4,087) (4,378)
----------- ------------ ------------ ------------ ----------- ---------
Consolidated totals $203,312 $203,320 $205,563 $(13,071) $(9,034) $ 8,362
=========== ============ ============ ============ =========== =========
Depreciation and
Total Assets Capital Expenditures Amortization Expense
----------------------------------- ----------------------------- ----------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
----------- ----------- ---------- -------- -------- --------- ---------- --------- -----------
Aftermarket heating and
cooling systems $106,384 $121,440 $121,385 $2,705 $3,389 $4,272 $3,865 $4,060 $4,293
OEM heat transfer systems 13,272 19,202 19,853 372 1,966 1,921 1,466 1,515 1,506
Corporate 10,027 16,325 35,055 -- -- 1 183 185 187
----------- ----------- ---------- -------- -------- --------- ---------- --------- -----------
Consolidated totals $129,683 $156,967 $176,293 $3,077 $5,355 $6,194 $5,514 $5,760 $5,986
=========== =========== ========== ======== ======== ========= ========== ========= ===========
Corporate includes assets held for disposal in 1999.
Restructuring and other special charges included in (loss) income from
operations before interest and taxes for the three years ended December 31, are
as follows:
(in thousands)
2001 2000 1999
---------- ------------ ----------
Aftermarket heating and cooling systems $3,988 $ 732 $325
OEM heat transfer systems 587 -- --
Corporate -- 675 --
---------- ------------ ----------
Totals $4,575 $1,407 $325
========== ============ ==========
In 2001, 2000 and 1999, the Company had one customer, which accounted for 19%,
20% and 12% of net sales, respectively. These sales were in the Aftermarket
heating and cooling systems segment. No other customers individually represented
more than 10% of net trade sales.
44
NOTE 17 QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts) Year Ended December 31, 2001
------------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------------- ------------ ----------- ----------
Net sales $45,707 $55,370 $57,351 $44,884
Gross margin 4,839 6,191 11,415 3,086
Loss from continuing operations (3,208) (2,849) (1,031) (13,220)
Loss on extinguishment of debt (380) -- -- (150)
Net loss (3,588) (2,849) (1,031) (13,370)
Basic loss per common share:
Continuing operations (0.49) (0.44) (0.16) (1.98)
Extinguishment of debt (0.06) -- -- (0.02)
Net loss per common share (0.55) (0.44) (0.16) (2.00)
Diluted loss per common share:
Continuing operations (0.49) (0.44) (0.16) (1.98)
Extinguishment of debt (0.06) -- -- (0.02)
Net loss per common share (0.55) (0.44) (0.16) (2.00)
Year Ended December 31, 2000
------------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------------- ------------ ----------- ----------
Net sales $48,430 $53,839 $53,625 $47,426
Gross margin 6,555 10,550 8,584 842
(Loss) income from continuing operation (2,661) 1,023 (1,620) (5,976)
Income from discontinued operation, net of tax 440 -- -- --
Gain (loss) on sale of discontinued operation, net of tax -- 6,002 187 (187)
Net (loss) income (2,221) 7,025 (1,433) (6,163)
Basic (loss) income per common share:
Continuing operation (0.41) 0.16 (0.25) (0.93)
Discontinued operation 0.07 -- -- --
Gain (loss) on sale of discontinued operation -- 0.91 0.03 (0.03)
Net (loss) income per common share (0.34) 1.07 (0.22) (0.96)
Diluted (loss) income per common share:
Continuing operation (0.41) 0.14 (0.25) (0.93)
Discontinued operation 0.07 -- -- --
Gain (loss) on sale of discontinued operation -- 0.85 0.03 (0.03)
Net (loss) income per common share (0.34) 0.99 (0.22) (0.96)
Prior year and prior quarter balances have been reclassified to correspond with
the account classifications used at the end of 2001. During the fourth quarter
of 2001, the Company recorded a valuation reserve in the amount of $9.5 million
against its net deferred tax asset in accordance with the provisions of SFAS 109
"Accounting for Income Taxes".
NOTE 18 SUBSEQUENT EVENT
During March 2002, tax legislation was enacted which included a provision that
allows pre-tax losses incurred in 2001 and 2002 to be carried-back for a period
of five years instead of the current two years. As a result, the Company will
increase its net income in the first quarter of 2002 by approximately $3.5
million, which reflects a reduction in the deferred tax valuation allowance.
This amount is expected to be received in cash during the second quarter of
2002.
45
SCHEDULE II
TRANSPRO, INC.
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO OTHER
PERIOD EXPENSES ACCOUNTS (1) WRITE-OFFS
-------------- ------------- ------------------- --------------
Year Ended December 31, 2001
Allowance for doubtful accounts $ 2,698 $ 1,786 $ -- $(1,679)
Allowance for excess/slow moving inventory 4,969 1,942 -- (2,329)
Reserve for warranty costs 1,100 2,243 -- (1,410)
Tax valuation reserve -- 9,485 -- --
Year Ended December 31, 2000
Allowance for doubtful accounts $ 1,943 $ 739 $ 26 $ (10)
Allowance for excess/slow moving inventory 4,550 3,047 -- (2,628)
Reserve for warranty costs 559 2,015 -- (1,474)
Year Ended December 31, 1999
Allowance for doubtful accounts $ 2,205 $ 268 $ (238) $ (292)
Allowance for excess/slow moving inventory 5,405 668 (232) (1,291)
Reserve for warranty costs 836 1,074 -- (1,351)
BALANCE AT
END OF PERIOD
----------------
Year Ended December 31, 2001
Allowance for doubtful accounts $ 2,805
Allowance for excess/slow moving inventory 4,582
Reserve for warranty costs 1,933
Tax valuation reserve 9,485
Year Ended December 31, 2000
Allowance for doubtful accounts $ 2,698
Allowance for excess/slow moving inventory 4,969
Reserve for warranty costs 1,100
Year Ended December 31, 1999
Allowance for doubtful accounts $ 1,943
Allowance for excess/slow moving inventory 4,550
Reserve for warranty costs 559
(1) Amounts charged to other accounts in doubtful accounts and inventory in
1999 were related to acquisition reserves recorded to goodwill.
46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Registrant and its independent
accountants on accounting and financial disclosure during the year ended
December 31, 2001.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Portions of the information required by this item are included in Part I hereof,
on page 11 of this Report. Other information required by this item is contained
in the Company's 2002 Proxy Statement under the heading, "PROPOSAL NO. 1 -
ELECTION OF DIRECTORS" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Company's 2002 Proxy Statement under the
heading "EXECUTIVE COMPENSATION" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Company's 2002 Proxy Statement under the
heading "STOCK OWNERSHIP-Principal Stockholders and Directors and Officers" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Company's 2002 Proxy Statement, under the
heading "CERTAIN TRANSACTIONS" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Registrant
See Consolidated Financial Statements under Item 8 on page 21 through 45 of
this Report.
(a) (2) Financial Statement Schedules
See Schedule II - Valuation and Qualifying Accounts under Item 8 on page 46
of this Report.
Schedules other than the schedule listed above are omitted because they are
not applicable, or because the information is furnished elsewhere in the
Consolidated Financial Statements or the Notes thereto.
(a) (3) Exhibits
47
The information required by this Item relating to Exhibits to this Report is
included in the Exhibit Index in (c) below.
(b) Reports on Form 8-K
On October 24, 2001, the Company filed a Current Report on Form 8-K, which
included the press release of October 23, 2001 announcing guidance on third
quarter results and preliminary details on a restructuring charge to be taken
between the third quarter of 2001 and the second quarter of 2002.
(c) Exhibits -The following exhibits are filed as part of this report:
2.1 Agreement, dated June 15, 1995, between Allen Heat Transfer
Products, Inc., AHTP II, Inc., GO/DAN Industries and Handy & Harman
Radiator Corporation. (1)
2.2 Asset Purchase Agreement dated as of April 17, 2000 by and among
Transpro, Inc. and Leggett & Platt, Incorporated. (6)
3.1(i) Restated Certificate of Incorporation of Transpro, Inc. (2)
3.1(ii) By-laws of Transpro, Inc., as amended (11)
4.1 Form of Rights Agreement between the Company and American Stock
Transfer & Trust Company, as assignee of the First National Bank of
Boston, as Rights Agent (including form of Certificate of
Designations of Series A Junior Participating Preferred Stock and
form of Rights Certificate). (1)
4.2 Form of Revolving Credit Agreement between the Company and Certain
lending Institutions or Banks, BankBoston, N.A., as Agent. (1)
4.3 First Amendment to Revolving Credit Agreement between the Company
and Certain Lending Institutions or Banks, BankBoston N.A. as Agent.
(4)
4.4 Waiver and Second Amendment to Revolving Credit Agreement between
the Company and Certain Lending Institutions or Banks, BankBoston,
N.A., as Agent. (4)
4.5 Third Amendment to Revolving Credit Agreement between the Company
and Certain Lending Institutions or Banks, BankBoston N.A. as Agent.
(5)
4.6 Limited Waiver and Fourth Amendment to Revolving Credit Agreement
between the Company and Certain Lending Institutions or Banks,
BankBoston, N.A., as Agent. (7)
4.7 Forbearance Agreement dated as of August 18, 2000. (8)
4.8 Forbearance Agreement dated as of September 29, 2000. (8)
4.9 Forbearance Agreement dated as of November 15, 2000. (9)
4.10 Forbearance Agreement dated as of December 20, 2000. (9)
48
4.11 Loan and Security Agreement dated as of January 4, 2001, by and
between Congress Financial Corporation (New England) as Lender and
Transpro, Inc., Ready-Aire, Inc., and GO/DAN Industries, Inc. as
Borrowers. (9)
The Company is a party to certain other long-term debt agreements
each of which does not exceed 10 percent of the total assets of the
Company and its subsidiaries on a consolidated basis. The Company
agrees to file such agreements upon request from the Securities and
Exchange Commission.
4.12 First Amendment to Loan and Security Agreement with Congress
Financial Corporation. (10)
4.13 Second Amendment to Loan and Security Agreement with Congress
Financial Corporation. (10)
4.14 Third Amendment to Loan and Security Agreement with Congress
Financial Corporation.
4.15 Fourth Amendment to Loan and Security Agreement with Congress
Financial Corporation.
4.16 Fifth Amendment to Loan and Security Agreement with Congress
Financial Corporation.
4.17 Sixth Amendment to Loan and Security Agreement with Congress
Financial Corporation.
10.1 Transpro, Inc. 1995 Stock Plan. (1)
10.2 Form of Stock Option Agreement under the 1995 Stock Plan. (1)
10.3 Form of Transpro, Inc. 1995 Non-employee Directors Stock Option
Plan. (1)
10.4 Form of Stock Option Agreement under the 1995 Non-employee Directors
Stock Option Plan. (1)
10.5 Form of Contribution Agreement between Allen and the Company. (1)
10.6 Form of Instrument of Assumption of the Company. (1)
10.7 Form of Indemnification Agreement. (1)
10.8 Form of Employment Agreement between the Company and Henry P.
McHale. (1)
10.9 Amendment No. 1 to Employment Agreement between the Company and
Henry P. McHale. (3)
10.10 Separation and Release Agreement dated December 18, 2000 between the
Company and Henry P. McHale. (9)
10.11 Form of Key Employee Severance Policy. (1)
10.12 Letter Agreement, dated December 15, 1992 between Jeffrey J. Jackson
and GO/DAN Industries. (1)
49
10.13 Employment Agreement between the Company and Charles E. Johnson.
(10)
21.1 Subsidiaries of the Company.
23 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney (included on signature page).
--------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-96770).
(2) Incorporated by reference to the Company's Form 10-Q for the quarter
ended September 30, 1998 (File No. 1-13894).
(3) Incorporated by reference to the Company's 1998 Form 10-K (File No.
1-13894).
(4) Incorporated by reference to the Company's Form 10-Q/A for the
quarter ended March 31, 1999 (File No. 1-13894).
(5) Incorporated by reference to the Company's 1999 Form 10-K (File No.
1-13894).
(6) Incorporated by reference to the Company's Form 8-K filed May 2,
2000 (File No. 1-13894).
(7) Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 2000 (File No. 1-13894).
(8) Incorporated by reference to the Company's Form 10-Q for the quarter
ended September 30, 2000 (File No. 1-13894).
(9) Incorporated by reference to the Company's 2000 Form 10-K (File No.
1-13894).
(10) Incorporated by reference to the Company's Form 10-Q for the quarter
ended June 30, 2001 (File No. 1-13894).
(11) Incorporated by reference to the Company's Form 10-Q for the quarter
ended September 30, 2001 (File No. 1-13894).
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Transpro, Inc.
By /s/ CHARLES E. JOHNSON
-------------------------------------
Charles E. Johnson
President and Chief Executive Officer
Date: March 22, 2002
POWER OF ATTORNEY
Each of the undersigned hereby appoints Barry R. Banducci and Charles
E. Johnson and each of them severally, his or her true and lawful attorneys to
execute on behalf of the undersigned any and all amendments to this annual
report on Form 10-K and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission.
Each such attorney will have the power to act hereunder with or without the
others. Each of the undersigned hereby ratifies and confirms all such attorneys,
or any of them may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ WILLIAM J. ABRAHAM, JR. March 22, 2002
----------------------------------------------------
William J. Abraham, Jr., Director
/s/ BARRY R. BANDUCCI March 22, 2002
----------------------------------------------------
Barry R. Banducci, Director
/s/ PHILIP WM. COLBURN March 22, 2002
----------------------------------------------------
Philip Wm. Colburn, Director
/s/ CHARLES E. JOHNSON March 22, 2002
----------------------------------------------------
Charles E. Johnson, President,
Chief Executive Officer and Director
/s/ PAUL R. LEDERER March 22, 2002
----------------------------------------------------
Paul R. Lederer, Director
/s/ SHARON M. OSTER March 22, 2002
----------------------------------------------------
Sharon M. Oster, Director
/s/ F. ALAN SMITH March 22, 2002
----------------------------------------------------
F. Alan Smith, Director
/s/ RICHARD A. WISOT March 22, 2002
----------------------------------------------------
Richard A. Wisot
Vice President, Treasurer,
Secretary and Chief Financial Officer
Principal Financial and
Accounting Officer
51