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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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
PROLIANCE INTERNATIONAL, 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)
TRANSPRO, INC.
(Former name, former address, and former fiscal year,
if changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]
The number of shares of common stock, $.01 par value, outstanding as of August
11, 2005 was 15,254,318.
Exhibit Index is on page 25 of this report.
Page 1 of 37
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1
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2005 and 2004 3
Condensed Consolidated Balance Sheets at June 30, 2005
and December 31, 2004 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 22
Item 4. Controls and Procedures 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits 25
Signatures 26
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- ---------------------------
2005 2004 2005 2004
------------ ----------- ------------ -------------
Net sales $ 58,962 $ 60,400 $ 107,270 $ 109,836
Cost of sales 47,537 49,460 86,878 90,079
------------ ----------- ------------ ------------
Gross margin 11,425 10,940 20,392 19,757
Selling, general and administrative expenses 10,878 10,188 21,453 19,612
Restructuring and other special charges 1,105 - 1,367 -
------------ ----------- ------------ ------------
Operating (loss) income from continuing operations (558) 752 (2,428) 145
Interest expense 1,892 880 3,349 1,719
------------ ----------- ------------ ------------
Loss from continuing operations before taxes (2,450) (128) (5,777) (1,574)
Income tax (benefit) provision (359) 33 (1,414) (29)
------------ ----------- ------------ ------------
Loss from continuing operations (2,091) (161) (4,363) (1,545)
Income from discontinued operation, net tax of $0, $32,
$506, and $41, respectively - 964 848 1,705
Gain on sale of discontinued operation, net of income
tax of $2,331 - - 3,899 -
------------ ----------- ------------ ------------
Net (loss) income $ (2,091) $ 803 $ 384 $ 160
============ =========== ============ ============
Basic (loss) income per common share:
From continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
From discontinued operation - 0.14 0.12 0.24
From gain on sale of discontinued operation - - 0.55 -
------------ ----------- ------------ ------------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
============ =========== ============ ============
Diluted (loss) income per common share:
From continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
From discontinued operation - 0.14 0.12 0.24
From gain on sale of discontinued operation - - 0.55 -
------------ ----------- ------------ ------------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
============ =========== ============ ============
Weighed average common shares - Basic 7,107 7,106 7,107 7,106
============ =========== ============ ============
- Diluted 7,107 7,106 7,107 7,106
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
(in thousands, except share data)
ASSETS June 30, December 31,
2005 2004
--------------- --------------
(unaudited)
Current assets:
Cash and cash equivalents $ 313 $ 297
Accounts receivable (less allowances of $3,206 and $2,746) 42,887 34,429
Inventories:
Raw material and component parts 16,401 16,437
Work in process 54 3
Finished goods 68,315 54,771
------------ ------------
Total inventories 84,770 71,211
------------ ------------
Other current assets 2,282 4,198
------------ ------------
Current assets of discontinued operation - 11,403
------------ ------------
Total current assets 130,252 121,538
------------ ------------
Property, plant and equipment 51,848 48,290
Accumulated depreciation and amortization (33,004) (32,155)
------------ ------------
Net property, plant and equipment 18,844 16,135
------------ ------------
Other assets 6,247 5,621
------------ ------------
Long-term assets of discontinued operation - 6,565
------------ ------------
Total assets $155,343 $149,859
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit debt and current portion of long-term debt $ 49,767 $ 43,904
Accounts payable 35,591 26,647
Accrued liabilities 15,466 17,453
Current liabilities of discontinued operation - 8,176
------------ ------------
Total current liabilities 100,824 96,180
------------ ------------
Long-term liabilities:
Long-term debt 970 120
Other long-term liabilities 6,351 6,724
------------ ------------
Total long-term liabilities 7,321 6,844
------------ ------------
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 June
30, 2005 and December 31, 2004 - -
Series B convertible preferred stock, $.01 par value: Authorized 30,000 shares;
issued and outstanding; -- 12,781 shares at June 30, 2005 and December
31, 2004 (liquidation preference $1,278) - -
Common Stock, $.01 par value: Authorized 17,500,000 shares; 7,150,459
shares issued at June 30, 2005; 7,147,959 shares issued at December 31,
2004; 7,108,523 shares outstanding at June 30, 2005; 7,106,023 shares
outstanding at December 31, 2004 71 71
Paid-in capital 55,052 55,041
Accumulated deficit (1,501) (1,853)
Accumulated other comprehensive loss (6,409) (6,409)
Treasury stock, at cost, 41,936 shares at June 30, 2005 and December 31, 2004 (15) (15)
------------ ------------
Total stockholders' equity 47,198 46,835
------------ ------------
Total liabilities and stockholders' equity $155,343 $149,859
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
PROLIANCE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
(Unaudited) Six Months
(Amounts in thousands) Ended June 30,
----------------------------------
2005 2004
--------------- ---------------
Cash flows from operating activities:
Net income $ 384 $ 160
Adjustments to reconcile net income to net cash (used in) provided by
operating activities from continuing operations:
Income from discontinued operation (1,354) (1,746)
Gain on sale of discontinued operation (6,230) -
Depreciation and amortization 2,222 2,386
Deferred income taxes 1,376 -
Provision for uncollectible accounts receivable 616 269
Non-cash restructuring charges 419 -
Gain on sale of building (138) (138)
Changes in operating assets and liabilities:
Accounts receivable (9,074) (6,052)
Inventories (13,559) (2,401)
Accounts payable 8,944 6,587
Accrued expenses (2,053) 1,532
Other (982) 1,545
--------------- ---------------
Net cash (used in) provided by operating activities of continuing operations (19,429) 2,142
Net cash provided by operating activities of discontinued operation 852 1,018
--------------- ---------------
Net cash (used in) provided by operating activities (18,577) 3,160
--------------- ---------------
Cash flows from investing activities:
Capital expenditures, net of normal sales and retirements (3,754) (1,663)
Capital expenditures by discontinued operation - (870)
Proceeds from sale of discontinued operation 17,000 -
--------------- ---------------
Net cash provided by (used in) investing activities 13,246 (2,533)
--------------- ---------------
Cash flows from financing activities:
Dividends paid (32) (48)
Net borrowings under revolving credit facility 6,216 131
Repayments of term loan and capital lease obligations (848) (646)
Proceeds from stock option exercise 11 -
--------------- ---------------
Net cash provided by (used in) financing activities 5,347 (563)
--------------- ---------------
Increase in cash and cash equivalents 16 64
Cash and cash equivalents at beginning of period 297 171
--------------- ---------------
Cash and cash equivalents at end of period $ 313 $ 235
=============== ===============
Non-cash investing and financing activity:
Entered into capital lease obligation $ 1,345 $ 288
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,920 $ 1,307
=============== ===============
Income taxes $ 656 $ 137
=============== ===============
The accompanying notes are an integral part of these statements.
</TABLE>
5
PROLIANCE INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 including the audited financial statements and notes thereto
included therein.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America 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 accounting
principles generally accepted in the United States of America 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. Results for
the quarter ended June 30, 2005 are not necessarily indicative of results for
the full year.
Prior period amounts have been reclassified to conform to current year
classifications.
NOTE 2 - SALE OF HEAVY DUTY OEM BUSINESS UNIT
On March 1, 2005, the Company completed the sale of its Heavy Duty OEM
business to Modine Manufacturing Company for $17 million in cash. The sale was
made pursuant to the OEM acquisition agreement, dated January 31, 2005, as
amended on March 1, 2005. The Company recorded a gain of $3.9 million, which is
net of $2.3 million of tax, which is reported as a gain on sale of discontinued
operation in the Consolidated Statements of Operations. The Heavy Duty OEM
business manufactured and distributed heat exchangers to heavy duty truck and
industrial and off-highway original equipment manufacturers. Net proceeds from
the sale were used to reduce borrowings under the Company's Revolving Credit and
Term Loan Agreements.
Heavy Duty OEM results for all periods are shown in the attached
Consolidated Statements of Operations as results of discontinued operation. Net
sales for the Heavy Duty OEM business were $9.3 million for the period January
1, 2005 through the date of the sale, March 1, 2005, while net sales for the
three and six months ended June 30, 2004 were $11.8 million and $22.3 million,
respectively. Income from discontinued operation for the period January 1, 2005
through the date of the sale, March 1, 2005, was $0.8 million, which is net of
$0.5 million of tax, compared to $1.0 million and $1.7 million for the three and
six months ended June 30, 2004.
At December 31, 2004, discontinued operation's current assets of $11.4
million included accounts receivable, net of $5.8 million; inventories, net of
$5.2 million; and other current assets of $0.4 million. Discontinued operation's
non-current assets reflect gross property, plant and equipment of $22.5 million,
less $15.9 million of accumulated depreciation. Discontinued operation's current
liabilities included $6.5 million of accounts payable and $1.7 million of
accrued expenses.
6
NOTE 3 - STOCK COMPENSATION COSTS
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized in the financial
statements with respect to stock options. 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", as amended by SFAS
No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure", the
pro forma net (loss) income and (loss) income per share would have been as
follows:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- ------------------------
2005 2004 2005 2004
------------ ---------- ----------- -----------
(in thousands, except per share amounts)
Net (loss) income:
As reported $(2,091) $ 803 $ 384 $ 160
Stock-based compensation costs, net of tax (53) (52) (97) (104)
------------ ---------- ----------- -----------
Pro forma $(2,144) $ 751 $ 287 $ 56
============ ========== =========== ===========
Basic net (loss) income per common share:
As reported $ (0.30) $0.11 $0.05 $ 0.02
Pro forma $ (0.30) $0.10 $0.04 $ -
Diluted net (loss) income per common share:
As reported $ (0.30) $0.11 $0.05 $ 0.02
Pro forma $ (0.30) $0.10 $0.04 $ -
</TABLE>
NOTE 4 - COMPREHENSIVE (LOSS) INCOME
For the three and six months ended June 30, 2005 and 2004, "Accumulated
other comprehensive (loss) income" was comprised of the reported net (loss)
income for the period of $(2.1) million and $0.4 million in 2005 and $0.8
million and $0.2 million in 2004, respectively.
NOTE 5 - RESTRUCTURING AND OTHER SPECIAL CHARGES
On March 30, 2005 the Company announced that it would be closing two
warehousing operations and a returns processing facility in Memphis, Tennessee
in connection with the opening of a new distribution facility in Southaven,
Mississippi. The Company is taking these actions in order to streamline its
distribution network and enhance its commitment to customer service. The closing
and relocation activities were completed by June 30, 2005 and resulted in the
Company incurring approximately $0.5 million of restructuring costs. No
employees were terminated as a result of this relocation.
7
On April 8, 2005 the Company announced that it would close its aluminum
heater manufacturing facility in Buffalo, New York and move all its aluminum
heater production to its Nuevo Laredo, Mexico facility. The Company is taking
these actions in order to improve its product cost position. The closing and
relocation activities are expected to be completed by September 30, 2005 and
will result in the Company incurring approximately $0.9 million to $1.2 million
of restructuring costs. This closure resulted in the termination of 54
employees.
The remaining reserve balance at June 30, 2005 is classified in other
accrued liabilities. A summary of the reserve activity is as follows:
<TABLE>
Balance at Charge to Cash Non-Cash Balance at
December 31, 2004 Operations Payments Write-off June 30, 2005
-------------------- ------------------ --------------- --------------- -------------------
Workforce related $ - $ 627 $ (290) $ - $337
Facility consolidations - 321 (321) - -
Asset write-down - 419 - (419) -
------- --------- ------------ ---------- -------
Total $ - $1,367 $ (611) $ (419) $337
======= ========= ============ ========== =======
</TABLE>
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued a revised SFAS No. 123(R),
"Share-Based Payment". SFAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services or incurs liabilities in exchange for goods or services that are based
on the fair value of the entity's equity instruments, focusing primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) requires public entities to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award (with limited
exceptions) and recognize the cost over the period during which an employee is
required to provide service in exchange for the award. The Company will be
required to adopt SFAS No. 123(R) as of January 1, 2006. The Company is
evaluating the impact of SFAS No. 123(R) and expects that it will record
non-cash stock compensation expenses. The ultimate impact on the results of
operations is not determinable as it is dependent on the number of options
granted after the effective date.
8
NOTE 7 - (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted (loss)
income per share:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
------------- --------------- -------------- -------------
(in thousands, except per share data)
Numerator:
(Loss) from continuing operations $ (2,091) $ (161) $ (4,363) $ (1,545)
Deduct preferred stock dividend (16) (16) (32) (32)
------------- -------------- -------------- -------------
(Loss) from continuing operations attributable to
common stockholders - basic and diluted (2,107) (177) (4,395) (1,577)
Income from discontinued operation, net of tax - 964 848 1,705
Gain on sale of discontinued operation, net of tax - - 3,899 -
------------- -------------- -------------- -------------
Net (loss) income attributable to common
stockholders - basic and diluted $ (2,107) $ 787 $ 352 $ 128
============= ============== ============== =============
Denominator:
Weighted average common shares - basic and
diluted 7,107 7,106 7,107 7,106
============= ============== ============== =============
Basic (loss) income per common share:
From continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
From discontinued operation - 0.14 0.12 0.24
From gain on sale of discontinued operation - - 0.55 -
------------- -------------- -------------- -------------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
============= ============== ============== =============
Dilutive (loss) income per common share:
From continuing operations $ (0.30) $ (0.03) $ (0.62) $ (0.22)
From discontinued operation - 0.14 0.12 0.24
From gain on sale of discontinued operation - - 0.55 -
------------- -------------- -------------- -------------
Net (loss) income $ (0.30) $ 0.11 $ 0.05 $ 0.02
============= ============== ============== =============
</TABLE>
The weighted average basic common shares outstanding were used in the
calculation of the diluted loss per common share for the three and six months
ended June 30, 2005 and 2004 as the use of weighted average diluted common
shares outstanding would have an anti-dilutive effect on loss per share for the
periods.
Certain options to purchase common stock were outstanding during the
three and six months ended June 30, 2005 and 2004, but were not included in the
computation of diluted loss per share because their exercise prices were greater
than the average market price of common shares for the period. The anti-dilutive
options outstanding and their exercise prices are as follows:
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
------------------- -------------------- -------------------- -------------------
2005 2004 2005 2004
------------------- -------------------- -------------------- -------------------
Options outstanding 56,400 58,900 56,400 87,300
Range of exercise prices $7.75 - $11.75 $5.88 - $11.75 $7.75 - $11.75 $5.25 - $11.75
</TABLE>
9
NOTE 8 - BUSINESS SEGMENT DATA
The Company is organized into two segments, also referred to herein as
strategic business groups ("SBG") based on the type of customer served --
Automotive and Light Truck, and Heavy Duty. The Automotive and Light Truck SBG
is comprised of a Heat Exchange Unit and a Temperature Control Products Unit,
both serving the aftermarket. The Heavy Duty SBG consists only of an Aftermarket
unit after the Heavy Duty OEM business unit sale. The table below sets forth
information about the reported segments after adjustments to reflect the Heavy
Duty OEM business unit results as a discontinued operation:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------- --------------------------------
2005 2004 2005 2004
--------------- ---------------- ---------------- ---------------
(in thousands)
Net sales:
Automotive and Light Truck $48,572 $51,284 $ 88,976 $ 93,363
Heavy Duty 10,390 9,116 18,294 16,473
--------------- ---------------- ---------------- ---------------
Total net sales $58,962 $60,400 $107,270 $109,836
=============== ================ ================ ===============
Operating (loss) income from continuing operations:
Automotive and Light Truck $ 2,527 $ 2,169 $ 3,505 $ 3,986
Restructuring and other special charges (1,105) - (1,367) -
--------------- ---------------- ---------------- ---------------
Automotive and Light Truck total 1,422 2,169 2,138 3,986
--------------- ---------------- ---------------- ---------------
Heavy Duty 351 73 93 (704)
Restructuring and other special charges - - - -
--------------- ---------------- ---------------- ---------------
Heavy Duty total 351 73 93 (704)
--------------- ---------------- ---------------- ---------------
Corporate expenses (2,331) (1,490) (4,659) (3,137)
--------------- ---------------- ---------------- ---------------
Total operating (loss) income from
continuing operations $ (558) $ 752 $ (2,428) $ 145
=============== ================ ================ ===============
</TABLE>
10
NOTE 9 - RETIREMENT AND POST-RETIREMENT PLANS
The components of net periodic benefit costs for the three and six
months ended June 30, 2005 and 2004 are as follows:
<TABLE>
THREE MONTHS ENDED JUNE 30
---------------------------------------------------------------------------
RETIREMENT PLANS POSTRETIREMENT PLANS
------------------------------- -------------------------------------
2005 2004 2005 2004
------------- -------------- ---------------- ----------------
(in thousands)
Service cost $ 150 $ 214 $ 1 $ 1
Interest cost 372 456 10 10
Expected return on plan assets (453) (559) -- --
Amortization of net loss 94 59 1 1
------------- -------------- ---------------- ----------------
Net periodic benefit cost 163 170 12 12
Allocated to discontinued operation -- 62 -- --
------------- -------------- ---------------- ----------------
Allocated to continuing operations $ 163 $ 108 $ 12 $12
============= ============== ================ ================
SIX MONTHS ENDED JUNE 30
---------------------------------------------------------------------------
RETIREMENT PLANS POSTRETIREMENT PLANS
------------------------------- -------------------------------------
2005 2004 2005 2004
------------- -------------- ---------------- ----------------
(in thousands)
Service cost $ 382 $ 428 $ 2 $ 2
Interest cost 948 912 20 20
Expected return on plan assets (1,154) (1,119) -- --
Amortization of net loss 239 118 2 2
------------- -------------- ---------------- ----------------
Net periodic benefit cost 415 339 24 24
Allocated to discontinued operation 66 158 -- --
------------- -------------- ---------------- ----------------
Allocated to continuing operations $ 349 $ 181 $ 24 $24
============= ============== ================ ================
</TABLE>
The 2005 pension contribution is currently estimated to be $0.6
million.
NOTE 10 - SUBSEQUENT EVENT- MERGER WITH MODINE AFTERMARKET BUSINESS
On July 22, 2005, following receipt of approval of the Company's
stockholders, the Company completed its merger transaction pursuant to which
Modine Aftermarket Holdings, Inc. merged into the Company. Modine Aftermarket
was spun off from Modine immediately prior to the merger and held Modine's
aftermarket business. Upon effectiveness of the merger, the Company changed its
name to "Proliance International, Inc.". In connection with the merger, the
Company has issued a total of 8,145,795 shares of its common stock to Modine
shareholders, or 0.235681 shares for each outstanding Modine common share.
Immediately after the effectiveness of the merger, prior Transpro, Inc.
shareholders owned 48% of the combined company on a fully diluted basis, while
Modine shareholders owned the remaining 52%. For accounting purposes, Transpro
will be the acquirer. As disclosed in the Company's Registration Statement on
Form S-4 concerning the merger, it is
11
anticipated that the net assets acquired in the merger will be significantly in
excess of the total consideration for the transaction. This excess will first be
utilized to write-down fixed assets to zero and any remainder will be included
in the results of operations as negative goodwill. The actual amounts will be
determined based upon the final acquisition balance sheet. This transaction will
be reflected in the financial statements issued for the period ended September
30, 2005.
At the Company's Annual Shareholders' meeting, held on July 22, 2005,
shareholders approved an increase in the Company's authorized common stock from
17.5 million to 47.5 million.
On July 25, 2005 the Company announced it will close its Emporia,
Kansas manufacturing facility and move its radiator and oil cooler production to
two existing facilities in Mexico. In addition, two heavy duty regional plants
and branch distribution centers in Denver, Colorado and Seattle, Washington will
also be closed and consolidated into existing facilities. The Company is taking
these actions in order to improve its product cost position and streamline its
manufacturing capabilities. The closing and relocation actions related to the
Emporia, Kansas facility are expected to be completed by the end of 2005. The
closure and relocation of the regional plant and branch distribution facilities
are expected to be completed by September 30, 2005 and result in the Company
incurring approximately $3.5 million to $4.5 million of restructuring costs.
These closure activities are part of the previously announced restructuring
program associated with the merger with Modine Manufacturing Company's
aftermarket business, which is expected to total $10 million to $14 million in
restructuring charges over the next 12 to 18 months.
On July 29, 2005 the Company announced it will be closing twenty-two
branch locations throughout the United States as another phase of its merger
restructuring program. These facilities are being combined into other existing
Company branch locations. These actions are being taken in order to eliminate
duplicate facilities and lower distribution costs. The closure and consolidation
actions are expected to commence over the next ninety days and will be completed
by the end of 2005. They are expected to result in between $0.7 million and $1.0
million of restructuring costs. Of these costs, between $0.6 million and $0.8
million will be associated with moving inventory and fixed assets and for
facility exit costs and between $0.1 million and $0.2 million will be one-time
personnel related termination expenses. It is expected that all costs will
result in future cash expenditures
12
NOTE 11 - SUBSEQUENT EVENT-AMENDMENT TO DEBT AGREEMENT
On July 22, 2005, in connection with the merger of the Company with the
aftermarket business of Modine, the Company amended its $80.0 million credit
facility with Wachovia Capital Financial Corporation (New England), formerly
known as Congress Financial Corporation (New England) effective July 21, 2005.
The amended credit facility consists of a revolving credit line with maximum
borrowings of $78.3 million and a $1.7 million term loan, each of which was
amended to expire on July 21, 2009 (subject to renewal on an annual basis
thereafter). Under the amended credit facility, the interest rate is 2% over a
Eurodollar-based rate through April 21, 2006 and ranges from 1.75% to 2.25% over
such rate thereafter. The amended credit facility also provides that the Company
may pay dividends or repurchase capital stock of up to $3.0 million annually, so
long as excess availability is at least $18.0 million for the 30 consecutive
days both prior to and following the payment date. The amended credit facility
also amends the borrowing base calculation such that (i) up to $55.0 million in
respect of eligible inventory may be counted and (ii) availability reserves may
be revised for dilution in respect of the Company's accounts. The amended
facility adds financial covenants for (i) minimum EBITDA (tested quarterly
commencing September 30, 2005 and not required if excess availability exceeds
$15.0 million), (ii) minimum excess availability ($5.0 million at all times
through June 30, 2006 and $13.0 million immediately after giving effect to the
merger), and (iii) capital expenditures (not to exceed $12.0 million in any
calendar year, if financed under the credit facility). The Company was required
to, and did, satisfy customary conditions to the amendment of the credit
facility and obtained Wachovia's consent to the merger.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company designs, manufactures and markets heat transfer products
(consisting of radiators, radiator cores, heater cores and condensers) and
temperature control (air conditioning) products (including compressors,
accumulators and evaporators) for the automotive and light truck aftermarket. In
addition, subsequent to the sale of the Company's Heavy Duty OEM business on
March 1, 2005, as described in Note 2 of the attached Notes to Condensed
Consolidated Financial Statements, the Company designs, manufactures and
distributes radiators, radiator cores, charge air coolers, oil coolers and other
specialty heat exchangers for the heavy duty heat exchanger aftermarket.
The Company is currently organized into two strategic business groups
based upon the type of customer served - Automotive and Light Truck and Heavy
Duty. Management evaluates the performance of its reportable segments based upon
operating income (loss) before taxes, as well as cash flow from operations,
which reflects operating results and asset management. As a result of the merger
with the aftermarket business of Modine Manufacturing Company ("Modine"), as
described in Note 10 of the attached Notes to Condensed Consolidated Financial
Statements, the Company is evaluating the segments which it will use to organize
and manage the business going forward. In order to evaluate market trends and
changes, management utilizes a variety of economic and industry data including
miles driven by vehicles, average age of vehicles, gasoline usage and pricing
and automotive and light truck vehicle population data. In the heavy duty
segment, we also utilize Class 7 and 8 truck production data and industrial and
off-highway equipment production.
Management looks to grow the business through a combination of internal
growth, including the addition of new customers and new products, and strategic
acquisitions. On February 1, 2005, the Company announced that it had signed
definitive agreements, subject to customary closing conditions including
shareholders' approval, providing for the merger of the aftermarket business of
Modine into Transpro and Modine's acquisition of Transpro's Heavy Duty OEM
business unit. Note 10 of the Notes to Condensed Consolidated Financial
Statements contained in this Form 10-Q, describes the merger with the
aftermarket business of Modine which occurred on July 22, 2005. The transaction
will likely increase the Company's consolidated annual sales to over $400
million and add manufacturing and distribution locations in the U.S., Europe and
Mexico. In addition, the Company will now be focused solely on supplying heating
and cooling components and systems to the automotive and heavy duty aftermarkets
in North and Central America and Europe. As a result of this transaction the
Company has a stronger balance sheet and is better positioned to face the market
challenges of the future. In conjunction with the merger, the Company's name was
changed from Transpro, Inc. to Proliance International, Inc. The Company has
also announced that in conjunction with the merger, it was undertaking a
restructuring program, which is expected to total $10 million to $14 million
over the next 12 to 18 months and will generate savings in excess of $30 million
on an annualized basis, when completed.
As discussed in Note 2 of the Notes to Condensed Consolidated Financial
Statements contained in this Form 10-Q, the Company completed the sale of its
Heavy Duty OEM Business to Modine Manufacturing Company on March 1, 2005 for
$17.0 million in cash. The gain from the sale of the business of $6.2 million
before taxes of $2.3 million has been included in the operating results for the
six months ended June 30, 2005.
14
Operating results of the Heavy Duty OEM business unit for periods prior to the
sale are shown as a discontinued operation in the Consolidated Statement of
Operations included herein. The proceeds from the sale were utilized to reduce
outstanding borrowings under the Company's revolving credit and term loan
agreements.
In 2005, the Company commenced a new round of cost reduction activities
with the opening of a new distribution facility in Southaven, Mississippi and
the closure of two warehousing locations and a returns good facility in Memphis,
Tennessee, and the closure of an aluminum heater manufacturing plant in Buffalo,
New York, and the relocation of this production to an existing facility in
Mexico. Restructuring expenses associated with these relocations are estimated
to be $1.3 million to $1.7 million, while the benefits to be realized are
expected to exceed these costs on an annualized basis.
Operating performance in any given quarter is not necessarily
indicative of performance for the full year as the Company's business is subject
to seasonal fluctuations. Sales peak during the second and third quarters due to
increased demand for replacement radiator and air conditioning components in the
Automotive & Light Truck segment.
OPERATING RESULTS
QUARTER ENDED JUNE 30, 2005 VERSUS QUARTER ENDED JUNE 30, 2004
Sales of continuing operations for the second quarter of 2005 of $59.0
million were $1.4 million or 2.4% below the second quarter of 2004. The
Automotive and Light Truck segment had sales of $48.6 million, which were $2.7
million or 5.3% below the second quarter of 2004. Heat exchange product sales
decreased 11.9%, while temperature control product sales were 27.3% above the
prior year period. Heat exchange product sales were impacted by increased
competitive pricing pressure and a soft start to the normal selling season. Unit
volume has been impacted by changes in customer buying habits and their desires
to lower inventory levels, combined with rising gasoline prices which
contributed to little or no year over year growth in miles driven. The
competitive pricing pressure, which we are currently experiencing, is
anticipated to continue in the future. Temperature control product sales
increased due to sales demand from a customer added during the year. Volume
across the Automotive and Light Truck segment was also adversely impacted by a
delay in the start of the seasonal selling season due to cooler weather
conditions across the country, however, from mid-June onward, we have begun to
see some strengthening in orders with the onset of warmer weather. Heavy Duty
Aftermarket Unit sales of $10.4 million were 14.0% above the second quarter of
2004 due to the impact of new product lines recently introduced into the
marketplace, pricing actions and an increase in unit volume caused by the
positive effects of an improving economy.
Gross margin, as a percentage of net sales, was 19.4% in the second
quarter of 2005 versus 18.1% in the second quarter of 2004. The improvement
reflects the benefits of cost savings initiatives executed by the Company over
the past several years. The Company continues to experience the impact of rising
commodity prices. While aluminum costs have returned almost to their levels of a
year ago, copper prices remain approximately 25% above a year ago, and continue
to rise. Within the Automotive and Light Truck segment, the Company has been
unable to recover these costs by market action; however, in the Heavy Duty
segment, it has had some success. In addition, as noted below, gross margin has
been impacted by the increasing pricing pressure being experienced within the
Automotive and Light Truck segment. While the Company will continue
15
to be focused on cost reduction actions in order to offset the impacts of these
rising costs, there can be no assurance that it will be able to do so in the
future.
Selling, general and administrative expenses increased as a percentage
of net sales to 18.4% in the second quarter of 2005 from 16.9% in the second
quarter of 2004. Actual spending levels increased $0.7 million or 6.8%. This
increase is mainly attributable to the impact of the initiation of the
Sarbanes-Oxley compliance activities, which added approximately $0.4 million and
activities associated with the planning for the merger with the aftermarket
business of Modine Manufacturing. Employee health care costs, which had
increased during the first quarter of 2005, returned to historical levels during
the period.
Restructuring costs in the second quarter of 2005 of $1.1 million were
associated with the closure of two warehousing locations and a return goods
facility in Memphis, Tennessee, in conjunction with the opening of a new
distribution facility in Southaven, Mississippi, which was announced in the
first quarter of 2005, along with the closure of the Company's aluminum heater
manufacturing facility in Buffalo, New York and the relocation of these
activities to an existing facility in Nuevo Laredo, Mexico, which was announced
in the second quarter of 2005. The expenses reflect the cost to relocate
inventory and fixed assets, the write-down to net realizable value of certain
fixed assets being disposed, facility exit costs, and one time employee
severance costs. The closure of the Buffalo manufacturing facility resulted in
the termination of 54 employees while no employees were terminated as a result
of relocating the distribution facility. When completed, prior to the end of the
calendar year, these activities are expected to result in restructuring costs of
approximately $1.3 million to $1.7 million. It is anticipated that future
benefits from these activities will exceed the amount expended for restructuring
costs.
Interest expense was $1.0 million above levels incurred a year ago due
to the impact of higher discounting charges from the Company's participation in
customer-sponsored vendor payment programs and higher average interest rates,
which more than offset the impact of lower average debt levels. Discounting
expense was $1.0 million in the second quarter compared to $0.1 million in the
same period last year, reflecting higher levels of customer receivables being
collected utilizing these programs and rising factoring rates, which fluctuate
in conjunction with the LIBOR interest rate. Average interest rates on the
Company's revolving credit and term loan borrowings were 5.82% in the second
quarter of 2005 compared with 4.0% last year. Average debt levels were $45.5
million in the 2005 second quarter compared to $49.1 million in the same period
in 2004. Year-over-year interest levels will continue to be higher as a result
of expected future increases in interest rates and the Company's continued
utilization of the customer-sponsored vendor payment programs.
The effective tax rate in 2005 reflects a foreign provision and the
realization of a portion of the deferred tax asset recorded in 2004. A federal
tax benefit on the full amount of losses from continuing operations was not
recorded due to the existence of the Company's tax valuation reserve. In 2004,
the effective tax rate included only a foreign provision, as the reversal of the
Company's deferred tax valuation allowances offset a majority of the state and
any federal income tax provisions.
The loss from continuing operations for the second quarter of 2005 was
$2.1 million, or $0.30 per basic and diluted share, compared to a loss of $0.2
million, or $0.03 per basic and diluted share for the second quarter of 2004.
16
As a result of the sale of the Heavy Duty OEM business on March 1,
2005, as described in Note 2 of the accompanying Notes to Condensed Consolidated
Financial Statements, the results of this business are treated as a discontinued
operation. For the second quarter of 2004, the discontinued operation reported
income after taxes of $1.0 million or $0.14 per basic and diluted share.
Net loss for the three months ended June 30, 2005 was $2.1 million or
$0.30 per basic and diluted share, compared to a net income of $0.8 million, or
$0.11 per basic and diluted share for the same period a year ago.
SIX MONTHS ENDED JUNE 30, 2005 VERSUS JUNE 30, 2004
For the six months ended June 30, 2005, net sales from continuing
operations of $107.3 million were 2.3% below the prior year. Automotive and
Light Truck segment sales were down 4.7% as the 16.5% gain in the temperature
control unit, resulting from the addition of a new customer, was more than
offset by an 8.3% decline in the heat exchange unit, reflecting competitive
pricing pressure and lower volume. The lower volume reflects changes in customer
buying habits and a slow start to the normal selling season due to weather,
which also had an impact on temperature control products. Heavy Duty Aftermarket
sales were 11.1% above levels for the first six months of 2004 due to new
product introductions, pricing actions and the impacts of a stronger economy on
the marketplaces served by this business unit.
Gross margins, as a percentage of net sales, for the first six months
of 2005 were 19.0% compared with 18.0% a year ago. The improvement in 2005
reflects lower product costs due to improved efficiency and the impact of cost
reduction programs implemented during the past several years. These offset the
impacts of rising commodity costs and lower margins caused by competitive
pricing pressure impacting the Automotive and Light Truck segment. Gross margins
for the remainder of 2005 will be adversely impacted by the ongoing competitive
pricing pressure discussed above, continued high material costs and lower
absorption of overhead costs due to production cutbacks as the Company attempts
to rebalance its inventory levels as a result of completing its merger with the
Modine aftermarket business. In addition, margins will be lowered by the
write-off of the opening balance sheet adjustment to reflect the acquisition
inventory at fair market value.
Selling, general and administrative expenses for the six months
increased by $1.8 million to 20.0% of sales versus 17.9% of sales a year ago.
The increase is primarily attributable to the impact of the initiation of
Sarbanes-Oxley compliance activities, higher employee health care costs incurred
in the first quarter of 2005 and new hires and other costs associated with
planning for the merger with the aftermarket business of Modine.
Restructuring and other special charges of $1.4 million for the first
six months of 2005 represent costs associated with the closure of two
warehousing locations and a return goods facility in Memphis, Tennessee, in
conjunction with the opening of a new distribution facility in Southaven,
Mississippi, which was announced in the first quarter of 2005, along with the
closure of the Company's aluminum heater manufacturing facility in Buffalo, New
York and the relocation of these activities to an existing facility in Nuevo
Laredo, Mexico, which was announced in the second quarter of 2005. No
restructuring costs were recorded in 2004.
Interest costs were $1.6 million above last year for the first six
months of 2005, due to higher discounting fees associated with participating in
customer sponsored vendor payment programs, and higher average interest rates
which offset the impact of lower average debt levels. Discounting fees for the
first six months of 2005 were $1.7 million compared to $0.2 million in 2004.
This reflects increased participation in the
17
programs offered by our customers and rising interest rates. Average interest
rates on our revolving credit facility were 5.6% in 2005 compared to 4.0% in
2004, while average debt levels were $44.8 million in 2005 vs. $50.9 million in
2004.
The effective tax rate in 2005 reflects the realization of a deferred
tax asset established in 2004 and a foreign tax provision. A federal tax benefit
on the entire loss from continuing operations was not recorded in 2005 due to
the existence of the Company's tax valuation reserve. In 2004, the effective tax
rate included only a state and foreign provision, as no federal benefit was
recorded due to the existence of the valuation reserve.
The loss from continuing operations for the first six months of 2005
was $4.4 million, or $0.62 per basic and diluted share, compared to a loss of
$1.5 million, or $0.22 per basic and diluted share for the first six months of
2004.
As a result of the sale of the Heavy Duty OEM business on March 1,
2005, as described in Note 2 of the accompanying Notes to Condensed Consolidated
Financial Statements, the results of this business are treated as a discontinued
operation. For the period prior to the sale in 2005, the discontinued operation
reported income after taxes of $0.8 million or $0.12 per basic and diluted
share, compared to income of $1.7 million, or $0.24 per basic and diluted share,
for the six months ended June 30, 2004.
The difference between the $17.0 million selling price and the net book
value of the Heavy Duty OEM assets, which were sold less transaction costs,
resulted in the recording of a gain on sale after tax of $3.9 million or $0.55
per basic and diluted share in 2005.
Net income for the six months ended June 30, 2005 was $0.4 million or
$0.05 per basic and diluted share, compared to a net income of $0.2 million, or
$0.02 per basic and diluted share for the same period a year ago.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $18.6 million in the first six
months of 2005. This was comprised of $19.4 million utilized by continuing
operations and $0.9 million generated by the discontinued Heavy Duty OEM
business prior to its sale. Continuing operations accounts receivable levels
increased by $9.0 million due to the seasonal increase in receivable balances
over year end levels. This impact was partially offset as the Company continued
to accelerate the collection of customer receivables utilizing a cost effective
customer-sponsored vendor program administered by a financial institution and by
working directly with other customers. This accelerated collection was done in
an effort to offset the continuing trend towards longer customer dating terms by
"blue chip" customers. Inventory levels grew $13.6 million reflecting a build up
in anticipation of demand adjustments as a result of the merger transaction and
restructuring activities, increases associated with the relocation of aluminum
heater manufacturing operations from Buffalo to Mexico and higher than planned
levels due to the drop in Automotive and Light Truck sales demand attributable
to the delayed start of the normal selling season. The Company believes that
inventories are higher than necessary and will remain focused on managing
inventory levels to better align inventory with changes in customer demand and
to reflect the impact of the merged Modine aftermarket business throughout the
remainder of 2005. Production cutbacks associated with these efforts to lower
inventory levels will result in lower operating gross margins in future periods.
Accounts payable rose by $8.9 million as a result of the growth in inventory
levels as well as our
18
efforts to balance payables with the ongoing shift in customer receivables mix
toward longer payment cycles. During the first six months of 2004, operations
generated $3.2 million of cash. Continuing operations generated $2.1 million
while the discontinued HD-OEM business generated $1.1 million. Continuing
operations accounts receivable in 2004 rose by $6.1 million due to seasonal
increases in receivable balances. Inventories rose by $2.4 million in 2004 due
to the start-up of new customer programs and increases related to typical
seasonal buying patterns. Accounts payable rose by $6.6 million in 2004, as a
result of the growth in inventory levels, as well as our efforts to balance
payables with the ongoing shift in customer receivable mix towards longer
payment cycles.
The $3.8 million of capital spending during the first six months of
2005 was primarily associated with the opening of a new distribution center
located in Southaven, Mississippi. In addition, the Company entered into a
long-term capital lease for the purchase of racking to be used in the
distribution center. The Company expects that capital expenditures for the year
will be between $7.0 million and $8.0 million, exclusive of any spending
requirements associated with the merger with Modine's aftermarket business.
On March 1, 2005, the Company completed the sale of its Heavy Duty OEM
business for $17 million in cash. These proceeds were utilized to lower
outstanding borrowings under the revolving credit agreement and increase the
amount available for future borrowings.
Total debt at June 30, 2005 was $50.7 million, compared to $44.0
million at the end of 2004 and $50.7 million at June 30, 2004. The increase in
debt levels from year-end reflects the utilization of cash generated by the sale
of the Heavy Duty OEM business offset by borrowings to meet the operating
requirements of continuing operations. At June 30, 2005 the Company had $6.1
million available for future borrowings under its Loan Agreement.
On July 22, 2005, in connection with the merger of the Company with the
aftermarket business of Modine, the Company amended its $80.0 million credit
facility (the "Loan Agreement") with Wachovia Capital Financial Corporation (New
England), formerly known as Congress Financial Corporation (New England)
effective July 21, 2005. The amended credit facility consists of a revolving
credit line with maximum borrowings of $78.3 million and a $1.7 million term
loan, each of which was amended to expire on July 21, 2009 (subject to renewal
on an annual basis thereafter). Under the amended credit facility, the interest
rate is 2% over a Eurodollar-based rate through April 21, 2006 and ranges from
1.75% to 2.25% over such rate thereafter. The amended credit facility also
provides that the Company may pay dividends or repurchase capital stock of up to
$3.0 million annually, so long as excess availability is at least $18.0 million
for the 30 consecutive days both prior to and following the payment date. The
amended credit facility also amends the borrowing base calculation such that (i)
up to $55.0 million in respect of eligible inventory may be counted and (ii)
availability reserves may be revised for dilution in respect of the Company's
accounts. The amended facility adds financial covenants for (i) minimum EBITDA
(tested quarterly commencing September 30, 2005 and not required if excess
availability exceeds $15.0 million), (ii) minimum excess availability ($5.0
million at all times through June 30, 2006 and $13.0 million immediately after
giving effect to the Modine merger), and (iii) capital expenditures (not to
exceed $12.0 million in any calendar year end, if financed under the credit
facility). The Company was required to, and did, satisfy customary conditions to
the amendment of the credit facility and obtained Wachovia's consent to the
merger.
19
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 existing Loan Agreement. The Company's
working capital requirements peak during the second and third quarters,
reflecting the normal seasonality in the Automotive and Light Truck segment. In
addition, the Company's future cash flow may be impacted by continued
competitive pricing pressures and industry trends lengthening customer payment
terms or the discontinuance of currently utilized customer sponsored payment
programs. The loss of one or more of the Company's significant customers or
changes in payment terms to one or more major suppliers could also have a
material adverse effect on the Company's results of operations and future
liquidity. The Company utilizes customer-sponsored programs administered by
financial institutions in order to accelerate the collection of funds and offset
the impact of these lengthening customer payment terms. The Company intends to
continue utilizing these programs as long as they are a cost effective tool to
accelerate cash flow. 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, such as significant acquisitions. 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.
As a result of the merger with the aftermarket business of Modine, the
Company's liquidity is expected to improve as the assets being acquired will be
debt free and the acquired balance sheet will include at least $6.3 million in
cash. We presently estimate that the costs of the business realignment and other
actions necessary to effectively integrate the business will be funded from cash
transferred in the merger, generated by the operations acquired, including cost
savings, or result from borrowings under the Company's Loan Agreement.
CRITICAL ACCOUNTING ESTIMATES
The critical accounting estimates utilized by the Company remain
unchanged from those disclosed in its Annual Report on Form 10-K for the year
ended December 31, 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued a revised SFAS No. 123(R),
"Share-Based Payment". SFAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services or incurs liabilities in exchange for goods or services that are based
on the fair value of the entity's equity instruments, focusing primarily on
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) requires public entities to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award (with limited
exceptions) and recognize the cost over the period during which an employee is
required to provide service in exchange for the award. The Company will be
required to adopt SFAS No. 123(R) as of January 1, 2006. The Company is
evaluating the impact of SFAS No. 123(R) and expects that it will record
non-cash stock compensation expenses. The ultimate impact on the results of
operations is not determinable as it is dependent on the number of options
granted after the effective date.
20
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
Statements included in this filing, which are not historical in nature,
are forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Statements relating to the
future financial performance of the Company are subject to business conditions
and growth in the general economy and automotive and truck business, the impact
of competitive products and pricing, changes in customer product mix, failure to
obtain new customers or retain old customers or changes in the financial
stability of customers, changes in the cost of raw materials, components or
finished products and changes in interest rates. Such statements are based upon
the current beliefs and expectations of Proliance management and are subject to
significant risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements. When used in this filing the terms
"anticipate," "believe," "estimate," "expect," "may," "objective," "plan,"
"possible," "potential," "project," "will" and similar expressions identify
forward-looking statements.
In addition, the following factors relating to the merger with the
Modine Manufacturing Company aftermarket business, among others, could cause
actual results to differ from those set forth in the forward-looking statements:
(1) the risk that the businesses will not be integrated successfully; (2) the
risk that the cost savings and any revenue synergies from the transaction may
not be fully realized or may take longer to realize than expected; (3)
disruption from the transaction making it more difficult to maintain
relationships with clients, employees or suppliers; (4) the transaction may
involve unexpected costs; (5) increased competition and its effect on pricing,
spending, third-party relationships and revenues; (6) the risk of new and
changing regulation in the U.S. and internationally; (7) the possibility that
Proliance's historical businesses may suffer as a result of the transaction and
(8) other uncertainties and risks beyond the control of Proliance. Additional
factors that could cause Proliance's results to differ materially from those
described in the forward-looking statements can be found in the Company's Annual
Report on Form 10-K. The forward-looking statements contained herein are made as
of the date hereof, and we do not undertake any obligation to update any
forward-looking statements, whether as a result of future events, new
information or otherwise.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in
interest rates and foreign currency exchange rates, a concentration of credit
risk primarily with trade accounts receivable and the price of commodities used
in our manufacturing processes. 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, 2004.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of June 30, 2005. Based upon the foregoing, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2005.
There have been no changes in the Company's internal control over
financial reporting during the quarter ended June 30, 2005 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
22
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on July 22,
2005 six proposals were voted upon and approved by the Company's stockholders. A
brief discussion of each proposal voted upon at the Annual Meeting and the
number of votes cast for, against and withheld, as well as the number of
abstentions to each proposal and broker non-votes are set forth below.
A vote was taken for the election of seven Directors of the Company to
hold office until their respective successors shall have been duly elected. The
aggregate numbers of shares of Common Stock voted in person or by proxy for each
nominee were as follows:
Nominee For Withheld
- ---------------------------------- -------------- --------------
Barry R. Banducci 6,089,683 472,989
William J. Abraham, Jr. 5,736,665 826,007
Philip Wm. Colburn 6,090,687 471,985
Charles E. Johnson 6,067,440 495,232
Paul R. Lederer 6,091,212 471,460
Sharon M. Oster 6,090,162 472,510
F. Alan Smith 6,091,742 470,930
A vote was taken on the proposal to ratify the appointment of BDO
Seidman, LLP as Transpro's independent registered public accounting firm for the
year ending December 31, 2005. The aggregate numbers of shares of Common Stock
voted in person or by proxy were as follows:
For Against Abstain Broker Non-Vote
- ------------------ ------------ ------------ ----------------------
6,551,890 4,159 6,622 0
A vote was taken on the approval of the Company's Equity Incentive
Plan. The aggregate numbers of shares of Common Stock voted in person or by
proxy were as follows:
For Against Abstain Broker Non-Vote
- ------------------ ------------ ------------ ----------------------
3,885,285 869,851 17,808 1,789,728
A vote was taken on the approval of the merger of the Company with
Modine Aftermarket Holdings, Inc. by adopting the merger agreement. The
aggregate numbers of shares of Common Stock voted in person or by proxy were as
follows:
For Against Abstain Broker Non-Vote
- ------------------ ------------ ------------ ----------------------
4,740,501 26,258 6,185 1,789,728
23
A vote was taken on the approval of an adjournment of the annual
meeting to another time or place to permit further solicitation of proxies if
necessary to obtain additional votes in favor of the merger proposal. The
aggregate numbers of shares of Common Stock voted in person or by proxy were as
follows:
For Against Abstain Broker Non-Vote
- ------------------ ------------ ------------ ----------------------
5,855,611 669,994 37,066 0
A vote was taken on the approval of the increase in the number of
authorized shares of the Company's common stock from 17.5 million to 47.5
million. The aggregate numbers of shares of Common Stock voted in person or by
proxy were as follows:
For Against Abstain Broker Non-Vote
- ------------------ ------------ ------------ ----------------------
5,972,516 574,245 15,911 0
The foregoing proposals are described more fully in the Company's proxy
statement/prospectus-information statement dated June 21, 2005, filed with the
Securities and Exchange Commission pursuant to Section 14 (a) of the Securities
Act of 1934, as amended, and the rules and regulations promulgated thereunder.
24
ITEM 6. EXHIBITS
10.1 Director's Replacement Option Agreement
31.1 Certification of CEO in accordance with Section 302 of the
Sarbanes-Oxley Act.
31.2 Certification of CFO in accordance with Section 302 of the
Sarbanes-Oxley Act.
32.1 Certification of CEO in accordance with Section 906 of the
Sarbanes-Oxley Act.
32.2 Certification of CFO in accordance with Section 906 of the
Sarbanes-Oxley Act.
25
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.
PROLIANCE INTERNATIONAL, INC.
(Registrant)
Date: August 12, 2005 By: /s/ Charles E. Johnson
----------------------------------------------
Charles E. Johnson
President and Chief Executive Officer (Principal
Executive Officer)
Date: August 12, 2005 By: /s/ Richard A. Wisot
----------------------------------------------
Richard A. Wisot
Vice President, Treasurer, Secretary, and Chief
Financial Officer (Principal Financial and
Accounting Officer)
26
