10-Q 1 y42456e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13894 TRANSPRO, INC. (Exact name of Registrant as specified in its charter) DELAWARE 34-1807383 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 100 Gando Drive, New Haven, Connecticut 06513 (Address of principal executive offices, including zip code) (203) 401-6450 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of common stock, $.01 par value, outstanding as of November 6, 2000 was 6,597,335. Exhibit Index is on page 20 of this report. Page 1 of 21 2

INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2000 and 1999 3 Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2000 and 1999 4 Condensed Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21

2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRANSPRO, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per share amounts)

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Sales $ 53,625 $ 58,163 $ 155,894 $ 159,748 Cost of sales 41,562 42,662 120,305 116,482 --------- --------- --------- --------- Gross margin 12,063 15,501 35,589 43,266 Selling, general and administrative expenses 12,764 12,121 35,827 34,120 Plant closure and severance costs(1) 425 -- 1,220 325 --------- --------- --------- --------- (Loss) income from continuing operations before interest and income taxes (1,126) 3,380 (1,458) 8,821 Interest expense, net 1,071 1,180 3,500 3,153 --------- --------- --------- --------- (Loss) income from continuing operations before income taxes (2,197) 2,200 (4,958) 5,668 Income tax (benefit) provision(1) (577) 952 (1,700) (434) --------- --------- --------- --------- (Loss) income from continuing operations (1,620) 1,248 (3,258) 6,102 Income from discontinued operations, net of income taxes -- 242 440 1,003 Gain on sale of discontinued operations, including income from operations during phase-out period, net of income taxes 187 -- 6,189 -- --------- --------- --------- --------- Net (loss) income $ (1,433) $ 1,490 $ 3,371 $ 7,105 ========= ========= ========= ========= Basic (loss) earnings per common share: From continuing operations $ (0.25) $ 0.19 $ (0.50) $ 0.93 From discontinued operations -- 0.04 0.07 0.15 From gain on sale of discontinued operations 0.03 -- 0.94 -- --------- --------- --------- --------- Basic (loss) earnings per common share $ (0.22) $ 0.23 $ 0.51 $ 1.08 ========= ========= ========= ========= Diluted (loss) earnings per common share(2): From continuing operations $ (0.25) $ 0.18 $ (0.50) $ 0.86 From discontinued operations -- 0.03 0.07 0.14 From gain on sale of discontinued operations 0.03 -- 0.94 -- --------- --------- --------- --------- Diluted (loss) earnings per common share $ (0.22) $ 0.21 $ 0.51 $ 1.00 ========= ========= ========= ========= Cash dividends per common share $ - $ 0.05 $ 0.10 $ 0.15 ========= ========= ========= ========= Weighted average common shares - basic 6,575 6,573 6,574 6,573 ========= ========= ========= ========= Weighted average common shares and assumed conversions-diluted(2) 7,090 7,053 7,089 7,084 ========= ========= ========= ========= (1) The basic and diluted earnings per share effect of plant closure and severance costs is ($0.05) and ($0.12) for the three and nine month periods ended September 30, 2000, respectively. The basic and diluted earnings per share effect of plant closure costs is ($0.03) for the nine months ended September 30, 1999. The basic and diluted earnings per share effect on continuing operations of the non-recurring, non-cash deferred tax benefit is $0.43 and $0.40 for the three and nine month periods ended September 30, 1999, respectively. (2) The weighted average basic common shares outstanding was used in the calculation of the diluted loss per common share from continuing operations, as well as the diluted earnings per share from discontinued operations and from gain on sale of discontinued operations for the three and nine month periods ended September 30, 2000 as the use of weighted average diluted common shares outstanding would (2) have an anti-dilutive effect on net earnings per share for the three and nine month periods ended September 30, 2000. The accompanying notes are an integral part of these statements.

3 4 TRANSPRO, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Amounts in thousands)

THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ---------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net (loss) income $(1,433) $ 1,490 $ 3,371 $ 7,105 Other comprehensive income, net of tax: Foreign currency translation -- 2 12 7 Minimum pension liability -- -- (645) -- ------- ------- ------- ------- Comprehensive income $(1,433) $ 1,492 $ 2,738 $ 7,112 ======= ======= ======= ======= The accompanying notes are an integral part of these statements.

4 5 TRANSPRO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts)

September 30, December 31, ASSETS 2000 1999 --------- --------- (Unaudited) Current assets: Cash and cash equivalents $ 199 $ 222 Accounts receivable (less allowances of $2,138 and $1,943) 35,533 31,845 --------- --------- Inventories, net: Raw materials 24,754 23,139 Work in process 2,606 2,706 Finished goods 58,272 50,824 --------- --------- Total inventories 85,632 76,669 --------- --------- Deferred income taxes 4,652 4,913 Other current assets 2,284 1,646 Net assets held for disposition -- 24,405 --------- --------- Total current assets 128,300 139,700 --------- --------- Property, plant and equipment 80,295 76,602 Less accumulated depreciation and amortization (53,531) (49,446) --------- --------- Net property, plant and equipment 26,764 27,156 --------- --------- Goodwill (net of amortization of $1,035 and $746) 6,964 7,253 Other assets 2,404 2,184 --------- --------- Total assets $ 164,432 $ 176,293 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit debt $ 35,777 $ -- Accounts payable 27,473 20,552 Accrued insurance 2,729 3,415 Accrued salaries and wages 4,022 3,653 Accrued taxes 1,700 1,962 Accrued expenses 6,488 5,203 --------- --------- Total current liabilities 78,189 34,785 --------- --------- Long-term liabilities: Long-term debt 4,835 61,928 Retirement and postretirement obligations 3,917 3,474 Other liabilities 91 684 --------- --------- Total liabilities 87,032 100,871 --------- --------- Stockholders' equity: Preferred stock, $.01 par value: Authorized 2,500,000 shares; Issued and outstanding as follows: Series A junior participating preferred stock, $.01 par value: Authorized 200,000 shares; issued and outstanding; none at September 30, 2000 and December 31, 1999 Series B convertible preferred stock, $.01 par value: -- -- Authorized 30,000 shares; issued and outstanding; 30,000 shares at September 30, 2000 and December 31, 1999; (liquidation preference of $3,000 at September 30, 2000 and December 31, 1999) -- -- Common stock, $.01 par value: Authorized 17,500,000 shares; 6,669,446 shares issued at September 30, 2000 and December 31, 1999 6,597,335 shares outstanding at September 30, 2000 and December 31, 1999 66 66 Paid-in capital 55,074 55,074 Unearned compensation (37) (66) Retained earnings 22,924 20,318 Accumulated other comprehensive (loss) income (601) 56 Treasury stock, at cost: 72,111 shares at September 30, 2000 and December 31, 1999 (26) (26) --------- --------- Total stockholders' equity 77,400 75,422 --------- --------- Total liabilities and stockholders' equity $ 164,432 $ 176,293 ========= ========= The accompanying notes are an integral part of these statements.

5 6 TRANSPRO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)

NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 3,371 $ 7,105 -------- -------- Adjustments to reconcile net income to net cash used in operating activities from continuing operations: Income from discontinued operations (440) (1,003) Depreciation and amortization 4,416 4,331 Gain on the sale of discontinued operations, including income during the phase-out period (10,030) -- Gain on sale of fixed assets -- (5) Deferred tax provision (benefit) 261 (4,256) Provision for losses - accounts receivable 288 163 -------- -------- Total adjustments to reconcile net income to net cash used in operating activities from continuing operations (5,505) (770) -------- -------- Change in operating assets and liabilities, net of acquisitions: Accounts receivable (3,976) (7,334) Inventories (8,963) (13,864) Accounts payable 6,921 3,912 Accrued expenses 846 5,003 Other, net (1,665) (1,627) -------- -------- Total change in operating assets and liabilities (6,837) (13,910) Change in net assets of discontinued operations (37) (2,255) -------- -------- Net cash used in operating activities (9,008) (9,830) -------- -------- Cash flows from investing activities: Capital expenditures (3,653) (4,301) Sales and retirements of fixed assets, net -- 4 Net proceeds from the sale of discontinued operations 26,772 -- Acquisition of A/C Plus, net of cash acquired -- (2,366) -------- -------- Net cash provided by (used in) investing activities 23,119 (6,663) -------- -------- Cash flows from financing activities: Dividends paid (760) (1,007) Net (repayments) borrowings under Revolving Credit Agreement (13,374) 18,134 -------- -------- Net cash (used in) provided by financing activities (14,134) 17,127 -------- -------- (Decrease) increase in cash and cash equivalents (23) 634 Cash and cash equivalents: Beginning of period 222 345 -------- -------- End of period $ 199 $ 979 ======== ======== Supplemental Cash Flow Information: Interest paid $ 2,876 $ 2,962 Taxes paid $ 3,204 $ 1,382 Supplemental Schedule of Non-Cash Investing and Financing Activities: The Company acquired A/C Plus, effective February 1, 1999, the details of which are further described in note 8. In connection with this transaction, liabilities were assumed, as follows: Fair value of assets acquired $ 3,060 Cash (paid) (2,250) -------- Liabilities assumed $ 810 ======== In connection with the acquisition, the Company issued a promissory note of $250 payable on the second anniversary of the closing. The Company sold the Specialty Metal Fabrication Segment effective May 5, 2000, the details of which are further described in note 9. In connection with the sale, the buyer assumed Industrial Revenue Bonds in the amount of $8,000. The accompanying notes are an integral part of these statements.

6 7 TRANSPRO, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY TransPro, Inc. (the "Company") is a manufacturer and supplier of heating and cooling systems and components for a variety of Aftermarket and Original Equipment Manufacturing ("OEM") automotive, truck and industrial equipment applications. NOTE 2 - INTERIM FINANCIAL STATEMENTS The condensed consolidated financial information should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 filed with the Securities and Exchange Commission on March 17, 2000, including the consolidated financial statements and notes thereto included therein. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of consolidated financial position, consolidated results of operations and consolidated cash flows have been included in the accompanying unaudited condensed consolidated financial statements. All such adjustments are of a normal recurring nature. The December 31, 1999 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In accordance with Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the condensed consolidated balance sheet as of December 31, 1999 and the condensed consolidated statements of income for the three months and nine months ended September 30, 1999 have certain reclassifications to reflect the Specialty Metal Fabrication segment as a discontinued operation. Certain other items reported in the prior condensed consolidated financial statements have been reclassified to conform to the presentation of the current condensed consolidated financial statements. NOTE 3 - PLANT CLOSURE AND SEVERANCE COSTS During the first quarter of 2000, the Company recorded $0.8 million in closure costs related to actions taken in the Aftermarket Heating and Cooling Systems segment to close the Houston, Texas regional radiator manufacturing facility and to consolidate the Santa Fe Springs, California distribution facility into the existing distribution facility in Memphis, Tennessee. The manufacturing facility closure plan was initiated to reduce manufacturing costs and address plant capacity issues at other regional facilities. The distribution center consolidation plan was initiated to enhance fill rates to customers and reduce the per unit carrying cost of inventory. These actions resulted in the termination of 18 manufacturing and eight distribution center employees. A summary of the associated closure costs is as follows:

Amounts Charged to Balance Remaining (Amounts in thousands) Operations Through At (Unaudited) September 30, 2000 Amounts Paid September 30, 2000 ------------------ ------------ ------------------ Workforce related $ 222 $ 168 $ 54 Facilities 415 262 153 Product relocation 127 127 - Asset write-down 31 - 31 ---------- ----------- --------- Total $ 795 $ 557 $238 ========== =========== =========

The balance remaining at September 30, 2000 is classified as an accrued expense in the condensed consolidated balance sheet. All the costs associated with the closures are expected to be paid in 2000. 7 8 During the third quarter of 2000, the Company recorded $0.4 million of severance costs associated with the previously announced departure of the President and CEO. At September 30, 2000, no severance payments had been made and the severance costs are classified as an accrued expense in the condensed consolidated balance sheet. All the severance costs are expected to be paid in 2001. NOTE 4 - SEGMENT AND BUSINESS INFORMATION The Company operates in two reportable business segments: Aftermarket Heating and Cooling Systems and OEM Heat Transfer Systems. Aftermarket Heating and Cooling Systems product lines include complete radiators and radiator cores, heaters, air conditioning condensers, air conditioning compressors and other air conditioning parts for aftermarket customers. The OEM Heat Transfer Systems business provides manufactured specialized heavy-duty equipment radiators, charge air coolers and oil coolers to original equipment manufacturers. There has been no material change in segment assets from continuing operations since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Segment data from continuing operations has been disclosed on a basis consistent with the Form 10-K for the year ended December 31, 1999. The tables below set forth information about reported segments for the three and nine months ended September 30, 2000 and 1999.

(Unaudited) CONSOLIDATED REVENUES FROM CONTINUING OPERATIONS -------------------------------------------------------------- (Amounts in thousands) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ---------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- BUSINESS SEGMENT Aftermarket Heating and Cooling Systems $ 45,237 $ 48,469 $ 126,089 $ 130,968 OEM Heat Transfer Systems 8,388 9,694 29,805 28,780 Inter-segment revenues: Aftermarket Heating and Cooling Systems 1,196 1,425 5,995 4,130 OEM Heat Transfer Systems 25 1 47 13 Elimination of inter-segment revenues (1,221) (1,426) (6,042) (4,143) ---------- ---------- ---------- --------- Consolidated totals $ 53,625 $ 58,163 $ 155,894 $ 159,748 ========== ========== ========== =========

(Unaudited) (LOSS) INCOME FROM CONTINUING OPERATIONS (Amounts in thousands) BEFORE INTEREST AND TAXES ------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- -------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- BUSINESS SEGMENT Aftermarket Heating and Cooling Systems $ 1,356 $ 4,737 $ 2,766 $ 12,941 OEM Heat Transfer Systems (862) (474) (1,100) (931) -------- -------- -------- -------- Segment totals 494 4,263 1,666 12,010 Corporate expenses (1,620) (883) (3,124) (3,189) --------- --------- --------- -------- Consolidated totals $ (1,126) $ 3,380 $ (1,458) $ 8,821 ========= ========= ========= ========

8 9 NOTE 5 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:

(Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED (Amounts in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30, ----------------------- -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (LOSS) EARNINGS PER COMMON SHARE COMPUTATION: Numerator: (Loss) income from continuing operations $(1,620) $ 1,248 $(3,258) $ 6,102 Less: preferred stock dividend (30) (15) (72) (45) ------- ------- ------- ------- (Loss) income from continuing operations available (attributable) to common stockholders - basic (1,650) 1,233 (3,330) 6,057 Income from discontinued operations -- 242 440 1,003 Gain on sale of discontinued operations 187 -- 6,189 -- ------- ------- ------- ------- Net (loss) income available (attributable) to common stockholders - basic $(1,463) $ 1,475 $ 3,299 $ 7,060 ======= ======= ======= ======= (Loss) income from continuing operations (attributable) available to common stockholders - basic $(1,650) $ 1,233 $(3,330) $ 6,057 Add back: preferred stock dividend 30 15 72 45 ------- ------- ------- ------- (Loss) income from continuing operations (1,620) 1,248 (3,258) 6,102 Income from discontinued operations -- 242 440 1,003 Gain on sale of discontinued operations 187 -- 6,189 -- ------- ------- ------- ------- Net (loss) income available (attributable) to common stockholders - diluted $(1,433) $ 1,490 $ 3,371 $ 7,105 ======= ======= ======= ======= Denominator: Weighted average common shares 6,597 6,597 6,597 6,597 Non-vested restricted stock (22) (24) (23) (24) ------- ------- ------- ------- Adjusted weighted average common shares - basic 6,575 6,573 6,574 6,573 Dilutive effect of Series B preferred stock 496 433 496 497 Dilutive effect of stock options and non-vested restricted stock 19 47 19 14 ------- ------- ------- ------- Adjusted weighted average common shares and assumed conversions - diluted 7,090 7,053 7,089 7,084 ======= ======= ======= ======= Basic (loss) earnings per common share: From continuing operations $ (0.25) $ 0.19 $ (0.50) $ 0.93 From discontinued operations -- 0.04 0.07 0.15 Gain on sale of discontinued operations 0.03 -- 0.94 -- ------- ------- ------- ------- Basic (loss) earnings per common share $ (0.22) $ 0.23 $ 0.51 $ 1.08 ------- ------- ------- ------- Diluted (loss) earnings per common share(1): From continuing operations $ (0.25) $ 0.18 $ (0.50) $ 0.86 From discontinued operations -- 0.03 0.07 0.14 Gain on sale of discontinued operations 0.03 -- 0.94 -- ------- ------- ------- ------- Diluted (loss) earnings per common share $ (0.22) $ 0.21 $ 0.51 $ 1.00 ======= ======= ======= ======= (1) The weighted average basic common shares outstanding was used in the calculation of the diluted loss per common share from continuing operations, as well as the diluted earnings per share from discontinued operations and from gain on sale of discontinued operations for the three and nine month periods ended September 30, 2000 as the use of weighted average diluted common shares outstanding would have an anti-dilutive effect on net earnings per share for the three and nine month periods ended September 30, 2000.

9 10 Certain options to purchase common stock were outstanding during the three months and nine months ended September 30, 2000 and 1999, but were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price for the common shares for the period. The anti-dilutive options outstanding and their exercise prices are as follows:

THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------- -------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Options outstanding 500,304 347,115 500,304 437,178 Range of exercise prices $5.50 - $11.75 $7.50 - $11.75 $5.50 - $11.75 $5.88 - $11.75

NOTE 6 - DEBT In July 1998, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") with five banking institutions, which provided for secured borrowings or the issuance of letters of credit in an aggregate amount not to exceed $75 million. The Revolving Credit Agreement is secured by a blanket first perfected security interest in substantially all of the Company's assets plus a pledge of the stock of the Company's subsidiaries. The Revolving Credit Agreement expires on July 1, 2003. Prior to the Limited Waiver and Fourth Amendment to Revolving Credit Agreement (described below), the security interest in the Company's assets and the pledge of the Company's subsidiaries' stock was eligible for release if the Company achieved certain senior debt ratings or if certain financial ratios were met and maintained. Available borrowings under the Revolving Credit Agreement are determined by a borrowing base consisting of the Company's eligible (i) accounts receivable, (ii) inventory and (iii) fixed assets, as adjusted by an advance rate. The aggregate amount of borrowings under the Revolving Credit Agreement was automatically reduced by $0.5 million at the end of each calendar quarter through June 30, 1999; and then by $1.25 million at the end of each calendar quarter through December 31, 1999. Amounts borrowed under the Revolving Credit Agreement bear interest at variable rates based, at the Company's option on either (a) a Eurodollar loan rate, plus an applicable margin based upon the ratio of the Company's total funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), or (b) the higher of (i) the BankBoston, N.A. base lending rate and (ii) one-half of one percent above the Federal Funds Effective Rate, as defined, plus an applicable margin based upon the ratio of the Company's total funded debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's total funded debt to EBITDA on the average daily unused portion of the Revolving Credit Agreement is payable quarterly, in arrears. The Revolving Credit Agreement contains financial covenants which, among other things, require maintenance of a minimum tangible net worth and interest coverage ratio and a maximum leverage ratio and level of debt to net worth, as well as covenants which place limits on dividend payments in excess of $2.0 million per year and capital expenditures in excess of 140% of such year's depreciation expense. On December 31, 1999, the Company entered into the Third Amendment to the Revolving Credit Agreement (the "Third Amendment") to return the amount of secured borrowings or the issuance of letters of credit to the initial aggregate amount of $75.0 million, and reschedule the automatic reductions and amend the leverage coverage ratio covenant. Pursuant to the Third Amendment, the aggregate amount of borrowings was to be automatically reduced by $5.0 million on November 30, 2000 and December 31, 2000 and by $1.5 million at the end of each quarter beginning March 31, 2001 through June 30, 2003. On May 1, 2000, the Company entered into the Limited Waiver and Fourth Amendment to Revolving Credit Agreement (the "Limited Waiver and Fourth Amendment"). The Limited Waiver and Fourth Amendment reduces the aggregate amount of secured borrowings or the issuance of letters of credit to $55.0 million, reschedules the automatic reductions, eliminates the eligibility 10 11 for early security release and contains certain other amendments, which were effective with the sale of the Crown Divisions in May 2000. Pursuant to the Limited Waiver and Fourth Amendment, the aggregate amount of borrowings is automatically reduced by $5.0 million on December 31, 2000, by $5.0 million on December 31, 2001 and by $7.5 million on December 31, 2002. The Limited Waiver and Fourth Amendment also consented to the sale of the Crown Divisions, released any security interest in the Crown assets, released Crown Canada as a guarantor and provides for the elimination of the borrowing base if, on April 10, 2001, no Default or Event of Default exists. Pursuant to the Limited Waiver and Fourth Amendment, the lenders agreed to waive compliance with the leverage ratio, the interest coverage ratio and the liabilities to net worth ratio covenants for the quarter ended March 31, 2000. At June 30, 2000, the Company was in violation of its interest coverage and leverage ratio covenants. On August 18, 2000, the Company entered into a Forbearance Agreement with the lenders, whereby the lenders agreed to allow the violation of the interest coverage and leverage ratio covenants to continue to exist until September 30, 2000, provided the Company's borrowings and outstanding letters of credit under the Revolving Credit Agreement did not exceed $52 million and the Company met certain other conditions. Pursuant to the Forbearance Agreement, outstanding borrowings under the Revolving Credit Agreement during the forbearance period bore interest as set forth in the Revolving Credit Agreement plus 1/2% per annum. On September 29, 2000, the Company entered into the Second Forbearance Agreement with the lenders, whereby the lenders agreed to allow the violation of the interest coverage and leverage ratio covenants to continue to exist until November 15, 2000, provided the Company's borrowings and outstanding letters of credit under the Revolving Credit Agreement do not exceed $52 million, the borrowing base exceeds the sum of the Company's borrowings plus outstanding letters of credit under the Revolving Credit Agreement by $20 million and the Company meets certain other conditions. At September 30, 2000, the borrowing base exceeded the sum of the Company's borrowings plus outstanding letters of credit under the Revolving Credit Agreement by $21.7 million. Pursuant to the Second Forbearance Agreement, outstanding borrowings under the Revolving Credit Agreement during the forbearance period bear interest as set forth in the Revolving Credit Agreement plus 1/2% per annum. The Company believes it is in violation of the interest coverage and leverage ratios at September 30, 2000. The Company is in the process of seeking alternate sources of capital from other lenders to replace the Revolving Credit Agreement. Accordingly, borrowings under the Revolving Credit Agreement are classified as a current liability in the accompanying condensed consolidated balance sheet as of September 30, 2000. Although no assurance can be given, the Company believes that it will be successful in securing alternate sources of capital from other lenders. Simultaneously, the Company is in the process of seeking a third forbearance to allow the time necessary for the Company to secure the alternate sources of capital from other lenders to replace the Revolving Credit Agreement. Although no assurance can be given, the Company believes that it will be successful in obtaining a third forbearance. At September 30, 2000, borrowings under the Company's Revolving Credit Agreement were $36.1 million. The Company also has $5.0 million of borrowings under floating rate industrial revenue bonds, which bear interest based upon a short-term tax-exempt bond index and mature in the year 2013. At September 30, 2000, deferred debt expense of $0.4, and $0.2 was associated with the Revolving Credit Agreement and the floating rate industrial revenue bonds, respectively. Outstanding letters of credit totaled $9.2 million at September 30, 2000, including $5.0 million to support borrowings under the floating rate industrial revenue bonds. At November 6, 2000, borrowings under the Revolving Credit Agreement were $40.7 million and outstanding letters of credit totaled $9.2 million. NOTE 7 - SERIES B CONVERTIBLE PREFERRED STOCK In connection with the acquisition of Evap, Inc. in July 1998, the Company issued 30,000 shares of TransPro, Inc. Series B Convertible Preferred Stock (the "Series B Preferred Stock"). The Series B Preferred 11 12 Stock has an initial liquidation preference of $3.0 million, which is reflected in paid-in capital on the Company's condensed consolidated balance sheet. There is a potential additional payout for the Evap acquisition based on the future earnings performance of the Evap business for the period January 1, 1999 through December 31, 2000 that will take the form of an increase in the liquidation preference of the Series B Preferred Stock with a maximum additional payout of $3.75 million. Increases to the liquidation preference of the Series B Preferred Stock, if any, are effective on April 1, 2000 and April 1, 2001 based upon the earnings of the Evap business for the prior calendar year. The Company is currently in the process of finalizing the determination of the initial additional payout amount, in accordance with the purchase agreement. The final payout amount will be determined during 2001. The Series B Preferred Stock is non-transferable and is entitled to cumulative dividends of 2% per annum during the first year after acquisition, 3.5% per annum during the second year and 5.0% per annum thereafter. The Series B Preferred Stock is convertible into TransPro common stock at the rate of 50% on the third anniversary of the acquisition, an additional 25% on the fourth anniversary and the remaining 25% on the fifth anniversary; it is redeemable after the fifth anniversary at the liquidation preference at the time of redemption. The Series B Preferred Stock is convertible into TransPro common stock based upon the liquidation preference and the market value of TransPro common stock at the time of conversion, as further described in the purchase agreement. The aggregate number of shares of TransPro common stock to be issued upon conversion of all the Series B Preferred Stock may not exceed 7% of the total number of shares of TransPro common stock outstanding, after giving effect to the conversion, as further described in the purchase agreement. The average market value of the TransPro common stock in excess of the 7% limitation, if any, will be paid in cash. NOTE 8 - ACQUISITION Effective February 1, 1999, the Company purchased 100% of the outstanding stock of A/C Plus, Inc., ("A/C Plus") an air conditioning compressor remanufacturer located in Arlington, Texas. A/C Plus had sales of approximately $2.9 million in fiscal 1998. The transaction was structured with a purchase price of $2.25 million in cash, plus transaction costs, and a promissory note of $0.25 million payable on the second anniversary of the closing. Concurrent with the purchase, the Company repaid $0.5 million in working capital debt on behalf of A/C Plus. The purchase price and working capital repayment were financed through the Company's Revolving Credit Agreement. The acquisition was accounted for as a purchase. Goodwill of $2.2 million was recorded in connection with the transaction and is being amortized over 20 years. A/C Plus results are included in the Company's consolidated financial statements from the date of acquisition. 12 13 NOTE 9 - DISPOSITION OF BUSINESS SEGMENT Effective May 5, 2000, the Company sold substantially all of the assets and liabilities of its Crown Division Specialty Metal Fabrication segment to Leggett & Platt, Incorporated in a transaction valued at $37.5 million, comprised of $28.65 million in cash and the assumption of $8.0 million of Industrial Revenue Bonds due 2010 and an unfunded pension liability of $0.85 million. The Company recorded a gain of $6.2 million, net of tax, which is reported as gain on sale of discontinued operations in the condensed consolidated statements of income. Crown designs and manufactures precision specialty fabricated metal enclosures and components for a variety of telecommunications and industrial applications and designs, manufactures and installs specialized interiors and components for a variety of vans, utility trucks and other specialized vehicles. Net proceeds from the sale were used to reduce outstanding borrowings under the Company's Revolving Credit Agreement. The following table presents the consolidated results of continuing operations for the periods indicated on a pro forma basis, assuming the reduction in debt resulting from the disposition of the Specialty Metal Fabrication segment as if it had occurred on January 1, 1999.

(unaudited) THREE MONTHS ENDED NINE MONTHS ENDED (in thousands) SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Sales $ 53,625 $58,163 $155,894 $159,748 Cost of sales 41,562 42,662 120,305 116,482 -------- ------- -------- -------- Gross margin 12,063 15,501 35,589 43,266 Selling, general and administrative expenses 12,764 12,121 35,827 34,120 Plant closure and severance costs 425 - 1,220 325 -------- ------- -------- -------- Income (loss) from continuing operations before interest and taxes (1,126) 3,380 (1,458) 8,821 Interest expense, net 1,071 655 2,975 1,578 -------- ------- -------- -------- Income (loss) from continuing operations before taxes (2,197) 2,725 (4,433) 7,243 Provision (benefit) for income taxes (577) 1,179 (1,521) (239) -------- ------- -------- -------- Net income (loss) from continuing operations $ (1,620) $1,546 $(2,912) $7,482 ======== ======= ======= ======== Basic earnings (loss) from continuing operations per common share $ (0.25) $0.24 $(0.44) $1.14 ======= ====== ====== ===== Diluted earnings (loss) from continuing operations per common share(1) $ (0.25) $0.22 $(0.44) $1.06 ======= ====== ====== ===== (1) The weighted average basic common shares outstanding was used in the calculation of the diluted loss per common share from continuing operations for the three month and nine month periods ended September 30, 2000 as the use of weighted average diluted common shares outstanding would have an anti-dilutive effect on the loss per share for the three month and nine month periods ended September 30, 2000.

NOTE 10 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging contracts. The FASB issued Statement of Financial Accounting Standards No. 137 ("SFAS No. 137") "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," in June 1999, deferring the effective date of SFAS No. 133 to be fiscal years beginning after June 15, 2000. The effect of adopting SFAS No. 133 is being assessed. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE MONTHS ENDED SEPTEMBER 30, 1999 Net sales for the three months ended September 30, 2000 declined 7.8% to $53.6 million compared with $58.2 million for the three months ended September 30, 1999. Sales in the Aftermarket Heating and Cooling Systems segment declined $3.2 million, or 6.7%, from the comparable 1999 quarter. This reflects lower unit volume in complete radiators and heaters to major retail customers, lower radiator core sales to the direct market and flat sales of air conditioning parts. Demand for the Company's Aftermarket Heating and Cooling Systems products during the quarter continued to be affected negatively by inventory adjustments on the part of the large retailers, coupled with mild weather conditions in most parts of the country. Sales of OEM Heat Transfer Systems products declined $1.3 million, or 13.5%, from the prior-year third quarter primarily due to the recent decline in demand in the overall heavy-duty truck market. In the third quarter of 2000, consolidated gross margins were $12.1 million compared with $15.5 million in the year ago third quarter. As a percentage of sales, gross margins were 22.5% in the 2000 third quarter compared with 26.7% in the third quarter of 1999. In the Aftermarket Heating and Cooling Systems segment, gross margins continued to be affected negatively by lower manufacturing cost absorption resulting from the Company's decision to reduce production levels in order to lower inventory and debt levels more aggressively by the end of the year. Pricing actions taken earlier in the year to respond to competitive pressures for Aftermarket products also continued to impact gross margins negatively during the third quarter. Gross margins in the OEM Heat Transfer Systems segment were negative primarily due to the lack of absorption of manufacturing costs as a result of the sudden decline in sales and production volume. Selling, general and administrative expenses increased $0.6 million, or 5.3%, due to a $0.3 million charge for doubtful collection reserves, higher professional fees and the comparative impact of a reduction of employee medical insurance accruals in the third quarter of 1999. These increases were partially offset by the comparative affect of a $0.3 million charge recorded in the third quarter of 1999 for legal fees and settlement costs associated with the settlement of an employment-related lawsuit. During the third quarter of 2000, the Company recorded a severance charge of $0.4 million related to the previously announced departure of the Company's President and CEO. Net interest expense declined $0.1 million, or 9.2%, for the three months ended September 30, 2000 compared with the three months ended September 30, 1999. As a result of applying the proceeds from the May 5, 2000 sale of the Specialty Metal Fabrication segment to reduce debt, average debt outstanding during the third quarter of 2000 declined compared with average debt outstanding during the third quarter of 1999. The impact of lower average outstanding debt was partially offset by higher effective interest rates during the third quarter of 2000 compared with the third quarter of 1999. The Company's effective tax rate of 26.3% for the third quarter of 2000 is comprised of the U. S. Federal Income tax rate, plus the estimated aggregate effective rate for state and local income taxes. The third quarter 2000 rate reflects an adjustment to the year-to-date tax rate to reduce the tax benefit arising from the loss from continuing operations for the impact of non-deductible expenses for tax purposes. The rate decreased from the third quarter 1999 rate of 43.3%, reflecting the reduction of the tax benefit from the loss from continuing operations resulting from non-tax deductible expenses expected in 2000. 14 15 The loss from continuing operations in the third quarter of 2000 was $1.2 million, or $0.17 per basic and diluted common share, excluding the effect of the severance and doubtful collection charges. This compares with earnings from continuing operations in the third quarter of 1999 of $1.4 million, or $0.21 per basic common share and $0.20 per diluted common share, excluding the effect of legal settlement costs. Including the effect of the severance and doubtful collection charges, the loss from continuing operations for the third quarter of 2000 was $1.6 million, or $0.25 per basic and diluted common share. Including the effect of legal settlement costs, income from continuing operations for the third quarter of 1999 was $1.2 million, or $0.18 per basic common share and $0.18 per diluted common share. The Company sold its Crown Specialty Metal Fabrication segment to Leggett & Platt, Incorporated on May 5, 2000 and, accordingly, the Specialty Metal Fabrication segment is accounted for as a discontinued operation. In the third quarter of 2000, the Company adjusted the estimated effective tax rate on the gain on the sale of discontinued operations and, accordingly recorded $0.2 million, or $0.03 per basic and diluted common share, of additional gain for the three months ended September 30, 2000. Income from discontinued operations was $0.2 million, or $0.04 per basic common share and $0.03 per diluted common share for the third quarter of 1999. The net loss for the third quarter of 2000 was $1.4 million, or $0.22 per basic and diluted common share, compared with net income of $1.5 million, or $0.23 per basic common share and $0.21 per diluted common share in the third quarter of 1999. NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1999 Net sales for the nine months ended September 30, 2000 declined 2.4% to $155.9 million compared with $159.7 million for the nine months ended September 30, 1999. Sales in the Aftermarket Heating and Cooling Systems segment declined $4.9 million, or 3.7%, from the comparable 1999 period. Complete radiator unit volume was essentially flat year over year as volume declines to the retail channel were offset by volume increases to warehouse distributors and the direct market. Radiator core sales declined as the market continues to shift to complete radiators. Heater sales declined during the first nine months of 2000 as heater shipments to the retail channel have been moved into the fourth quarter. Compared with the comparable nine month period last year, condenser sales increased as a result of a large shipment to a retail customer during the first quarter, while sales of other air conditioning parts were essentially flat. Sales for the first nine months were negatively impacted by lower volume due to lower market demand and pricing actions in response to competitive pressures. Sales in the OEM Heat Transfer Systems segment increased by $1.0 million, or 3.6%, compared with the comparable 1999 period due to strong demand in the class 8 truck and specialty vehicle and industrial application markets in the first half of the year. Consolidated gross margins for the nine months ended September 30, 2000 were $35.6 million compared to $43.3 million for the nine months ended September 30, 1999. As a percent of sales, gross margins declined to 22.8% in the first nine months of this year from 27.1% in the prior year first nine months. Gross margins for the nine months ended September 30, 2000 reflect lower margins in the Aftermarket Heating and Cooling Systems segment primarily due to lower production rates implemented as part of the inventory and debt reduction plan, which have resulted in decreased manufacturing cost absorption. In addition, the start up of production in Mexico of two new products, plastic tank aluminum core radiators and six-millimeter condensers, resulted in temporary manufacturing inefficiencies in the 2000 nine-month period. Pricing activity in response to competitive pressures in the Aftermarket also negatively affected gross margins during this period. Gross margins in the OEM Heat Transfer Systems segment were basically flat compared with the prior year nine-month period as the significant slowing of demand negated the impact of improvements in manufacturing efficiencies and cost management. Selling, general and administrative expenses increased $1.7 million or 5.0%, as a result of higher freight costs resulting from higher fuel prices, higher professional fees associated with certain strategic initiatives and a 15 16 $0.3 million charge for doubtful collections. Increased headcount to position the Aftermarket air conditioning parts operation for future growth, inflation-related employee cost increases in the Aftermarket Heating and Cooling Systems segment and the comparative impact of reducing employee medical insurance accruals in the third quarter of 1999 also contributed to the increase. Plant closure costs of $0.8 million were incurred during the nine months ended September 30, 2000 related to actions taken in the Aftermarket Heating and Cooling Systems segment to close the Houston, Texas regional radiator manufacturing plant and to consolidate the Santa Fe Springs, California distribution center into the existing distribution facility in Memphis, Tennessee. In addition, a severance charge of $0.4 million related to the previously announced departure of the Company's President and CEO was recorded during the nine months ended September 30, 2000. Plant closure costs of $0.3 million related to the closure of the Company's Philadelphia, Pennsylvania and Atlanta, Georgia replacement automotive air conditioning condenser manufacturing plants and legal and settlement costs related to an employment-related lawsuit were recognized during the nine months ended September 30, 1999. Net interest expense increased $0.3 million for the nine months ended September 30, 2000 compared with the nine months ended September 30, 1999. This increase resulted from higher average debt levels associated with higher working capital levels in the Aftermarket Heating and Cooling Systems segment, coupled with higher effective interest rates. The impact of these factors was partially offset by lower debt levels resulting from the application of the proceeds from the May 2000 sale of the Specialty Metal Fabrication segment to reduce debt. The Company's effective tax rate of 34.3% for the nine months ended September 30, 2000 is comprised of the U. S. Federal income tax rate plus the estimated aggregate effective rate for state and local income taxes. The rate decreased from the 1999 rate of 42.8%, reflecting the reduction of the tax benefit arising from the loss from continuing operations for the expected impact in 2000 of non-deductible expenses for tax purposes. During the nine months ended September 30, 1999, the Company recognized a non-recurring, non-cash deferred tax benefit of $2.9 million related to the change in the organizational structure of its GO/DAN Industries operation from a partnership to a corporation. Excluding plant closure and severance costs, the loss from continuing operations for the nine months ended September 30, 2000 was $2.3 million, or $0.35 per basic and diluted common share. Including plant closure and severance costs, the loss from continuing operations for the nine months ended September 30, 2000 was $3.3 million, or $0.50 per basic and diluted common share. This compares with income from continuing operations of $3.6 million, or $0.55 per basic common share and $0.51 per diluted common share, for the nine months ended September 30, 1999, excluding plant closure and legal settlement costs and the non-recurring, non-cash deferred tax benefit. Including the effect of plant closure and legal settlement costs and the non-recurring, non-cash deferred tax benefit, income from continuing operations for the first nine months of 1999 was $6.1 million, or $0.93 per basic common share and $0.86 per diluted common share. The Company sold its Crown Specialty Metal Fabrication segment to Leggett & Platt, Incorporated on May 5, 2000 and, accordingly, the Specialty Metal Fabrication segment is accounted for as a discontinued operation. As a result of the sale, the Company reported a net gain on the sale of discontinued operations of $6.2 million, or $0.94 per basic and diluted common share for the nine months ended September 30, 2000. Income from discontinued operations for the nine months ended September 30, 2000 was $0.4 million, or $0.07 per basic and diluted common share, compared with $1.0 million, or $0.15 per basic common share and $0.14 per diluted common share, for the nine months ended September 30, 1999. Net income for the nine months ended September 30, 2000 was $3.4 million, or $0.51 per basic and diluted common share, compared with net income of $7.1 million, or $1.08 per basic common share and $1.00 per diluted common share, in the comparable period of 1999. 16 17 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES In July 1998, the Company entered into a Revolving Credit Agreement (the "Revolving Credit Agreement") with five banking institutions, which provided for secured borrowings or the issuance of letters of credit in an aggregate amount not to exceed $75 million. The Revolving Credit Agreement is secured by a blanket first perfected security interest in substantially all of the Company's assets plus a pledge of the stock of the Company's subsidiaries. The Revolving Credit Agreement expires on July 1, 2003. Prior to the Limited Waiver and Fourth Amendment to Revolving Credit Agreement (described below), the security interest in the Company's assets and the pledge of the Company's subsidiaries' stock was eligible for release if the Company achieved certain senior debt ratings or if certain financial ratios were met and maintained. Available borrowings under the Revolving Credit Agreement are determined by a borrowing base consisting of the Company's eligible (i) accounts receivable, (ii) inventory and (iii) fixed assets, as adjusted by an advance rate. The aggregate amount of borrowings under the Revolving Credit Agreement was automatically reduced by $0.5 million at the end of each calendar quarter through June 30, 1999; and then by $1.25 million at the end of each calendar quarter through December 31, 1999. Amounts borrowed under the Revolving Credit Agreement bear interest at variable rates based, at the Company's option on either (a) a Eurodollar loan rate, plus an applicable margin based upon the ratio of the Company's total funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), or (b) the higher of (i) the BankBoston, N.A. base lending rate and (ii) one-half of one percent above the Federal Funds Effective Rate, as defined, plus an applicable margin based upon the ratio of the Company's total funded debt to EBITDA. A commitment fee of .25% or .375% based upon the ratio of the Company's total funded debt to EBITDA on the average daily unused portion of the Revolving Credit Agreement is payable quarterly, in arrears. The Revolving Credit Agreement contains financial covenants which, among other things, require maintenance of a minimum tangible net worth and interest coverage ratio and a maximum leverage ratio and level of debt to net worth, as well as covenants which place limits on dividend payments in excess of $2.0 million per year and capital expenditures in excess of 140% of such year's depreciation expense. On December 31, 1999, the Company entered into the Third Amendment to the Revolving Credit Agreement (the "Third Amendment") to return the amount of secured borrowings or the issuance of letters of credit to the initial aggregate amount of $75.0 million, and reschedule the automatic reductions and amend the leverage coverage ratio covenant. Pursuant to the Third Amendment, the aggregate amount of borrowings was to be automatically reduced by $5.0 million on November 30, 2000 and December 31, 2000 and by $1.5 million at the end of each quarter beginning March 31, 2001 through June 30, 2003. On May 1, 2000, the Company entered into the Limited Waiver and Fourth Amendment to Revolving Credit Agreement (the "Limited Waiver and Fourth Amendment"). The Limited Waiver and Fourth Amendment reduces the aggregate amount of secured borrowings or the issuance of letters of credit to $55.0 million, reschedules the automatic reductions, eliminates the eligibility for early security release and contains certain other amendments, which were effective with the sale of the Crown Divisions in May 2000. Pursuant to the Limited Waiver and Fourth Amendment, the aggregate amount of borrowings is automatically reduced by $5.0 million on December 31, 2000, by $5.0 million on December 31, 2001 and by $7.5 million on December 31, 2002. The Limited Waiver and Fourth Amendment also consented to the sale of the Crown Divisions, released any security interest in the Crown assets, released Crown Canada as a guarantor and provides for the elimination of the borrowing base if, on April 10, 2001, no Default or Event of Default exists. Pursuant to the Limited Waiver and Fourth Amendment, the lenders agreed to waive compliance with the leverage ratio, the interest coverage ratio and the liabilities to net worth ratio covenants for the quarter ended March 31, 2000. 17 18 At June 30, 2000, the Company was in violation of its interest coverage and leverage ratio covenants. On August 18, 2000, the Company entered into a Forbearance Agreement with the lenders, whereby the lenders agreed to allow the violation of the interest coverage and leverage ratio covenants to continue to exist until September 30, 2000, provided the Company's borrowings and outstanding letters of credit under the Revolving Credit Agreement did not exceed $52 million and the Company met certain other conditions. Pursuant to the Forbearance Agreement, outstanding borrowings under the Revolving Credit Agreement during the forbearance period bore interest as set forth in the Revolving Credit Agreement plus 1/2% per annum. On September 29, 2000, the Company entered into the Second Forbearance Agreement with the lenders, whereby the lenders agreed to allow the violation of the interest coverage and leverage ratio covenants to continue to exist until November 15, 2000, provided the Company's borrowings and outstanding letters of credit under the Revolving Credit Agreement do not exceed $52 million, the borrowing base exceeds the sum of the Company's borrowings plus outstanding letters of credit under the Revolving Credit Agreement by $20 million and the Company meets certain other conditions. At September 30, 2000, the borrowing base exceeded the sum of the Company's borrowings plus outstanding letters of credit under the Revolving Credit Agreement by $21.7 million. Pursuant to the Second Forbearance Agreement, outstanding borrowings under the Revolving Credit Agreement during the forbearance period bear interest as set forth in the Revolving Credit Agreement plus 1/2% per annum. The Company believes it is in violation of the interest coverage and leverage ratios at September 30, 2000. The Company is in the process of seeking alternate sources of capital from other lenders to replace the Revolving Credit Agreement. Accordingly, borrowings under the Revolving Credit Agreement are classified as current liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2000. Although no assurance can be given, the Company believes that it will be successful in securing alternate sources of capital from other lenders. Simultaneously, the Company is in the process of seeking a third forbearance to allow the time necessary for the Company to secure the alternate sources of capital from other lenders to replace the Revolving Credit Agreement. Although no assurance can be given, the Company believes that it will be successful in obtaining a third forbearance. At September 30, 2000, borrowings under the Company's Revolving Credit Agreement were $36.1 million. The Company also has $5.0 million of borrowings under floating rate industrial revenue bonds, which bear interest based upon a short-term tax-exempt bond index and mature in the year 2013. At September 30, 2000, deferred debt expense of $0.4 million and $0.2 million was associated with the Revolving Credit Agreement and the floating rate industrial revenue bonds, respectively. Outstanding letters of credit totaled $9.2 million at September 30, 2000, including $5.0 million to support borrowings under the floating rate industrial revenue bonds. At November 6, 2000, borrowings under the Revolving Credit Agreement were $40.7 million and outstanding letters of credit totaled $9.2 million. During the first nine months of 2000, the Company required $9.0 million of cash to support its operations. Cash was required to fund a $8.9 million inventory build up and to support the seasonal increase of $4.0 million in accounts receivable the Aftermarket Heating and Cooling Systems segment. Cash of $2.1 million was required to fund the net loss plus total adjustments to reconcile net income to net cash used in operating activities. The additional minimum pension liability declined by $0.6 million and the current deferred tax asset increased by $0.6 million. An increase in accounts payable and accrued expenses provided $7.8 million of cash. Capital spending during the first nine months of 2000 totaled $3.7 million. The Company paid two cash dividends of $0.05 per common share totaling $0.7 million in the aggregate during the first nine months of 2000. On September 15, 2000, the Company announced that the Board of Directors had elected to discontinue the quarterly cash dividend on the Company's common stock in order to improve financial liquidity and support strategic growth initiatives such as the air conditioning Aftermarket business. During the nine months ended September 30, 2000, the Company paid cash dividends to its preferred stockholder of $0.1 million. Net proceeds 18 19 from the sale of the Specialty Metal Fabrication segment totaled $26.8 million. Net borrowings under the Revolving Credit Agreement decreased by $13.4 million from December 31, 1999. The future liquidity and ordinary capital needs of the Company in the near term are expected to be met from a combination of cash flow from operations and borrowings under the Revolving Credit Agreement. As previously discussed, the Company is in the process of seeking alternate sources of capital from other lenders to replace the Revolving Credit Agreement. Although no assurance can be given, the Company believes that it will be successful in securing alternate sources of capital from other lenders. However, the capital for major growth initiatives may exceed the aggregate amount of borrowings available to the Company from lenders. If this were to occur, the Company would have to seek additional sources of capital. However, no assurance can be given that the Company would be successful in securing additional sources of capital. FORWARD-LOOKING STATEMENTS - CAUTIONARY FACTORS Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical in nature, are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's Annual Report on Form 10-K contains certain detailed factors that could cause the Company's actual results to materially differ from the forward-looking statements made by the Company. In particular, statements relating to the future financial performance of the Company, including inventory and debt reductions, are subject to business conditions and growth in the general economy and the automotive and truck business, the impact of competitive products and pricing, changes in customer product mix, failure to obtain new customers or retain old customers or changes in the financial stability of customers, changes in the cost of raw materials, components or finished products and changes in interest rates. Improvements in manufacturing efficiencies and reduction of costs are subject to a number of factors, including but not limited to, the ability of management to implement improvements in workforce efficiencies and the timing of such improvements. Obtaining additional capital is dependent on market conditions and the Company's financial condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has certain exposures to market risk related to changes in interest rates, foreign currency exchange rates and commodities. There have been no material changes in market risk since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. 19 20 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits (2.1) Asset Purchase Agreement dated as of April 17, 2000 by and among TransPro, Inc. and Leggett & Platt, Incorporated(1) (10.1) Limited Waiver and Fourth Amendment to Revolving Credit Agreement dated May 1, 2000(2) (10.2) Forbearance agreement dated as of August 18, 2000 (10.3) Forbearance agreement dated as of September 29, 2000 (27) Financial Data Schedule ------------------------ (1) Incorporated by reference to the Company's Form 8-K filed May 2, 2000 (File No. 1-13894) (2) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2000 (File No. 1-13894) b) Reports on Form 8-K. On September 19, 2000 the Company filed a Current Report on Form 8-K announcing the discontinuation of its quarterly dividend to shareholders. On September 29, 2000 the Company filed a Current Report on Form 8-K announcing the resignation of its President and Chief Executive Officer. 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSPRO, INC. (Registrant) Date: November 14, 2000 By: /s/ Henry P. McHale -------------------------------------- Henry P. McHale President, Chief Executive Officer and Director Date: November 14, 2000 By: /s/ Timothy E. Coyne -------------------------------------- Timothy E. Coyne Vice President, Treasurer, Secretary, Controller and Chief Financial Officer (Principal Financial and Accounting Officer) 21