TransPro, Inc. Reports Third Quarter Results; Reports Profitable Quarter Before Restructuring And Other Special Charges; Announces Progress on Strategic Initiatives
NEW HAVEN, Conn.--Nov. 5, 2001--TransPro, Inc. today announced results for the third quarter and nine months ended September 30, 2001.Third Quarter Results:
Revenue from continuing operations for the third quarter of 2001 was $57.2 million, a 6.7% increase over $53.6 million in the third quarter of 2000. Revenue from Aftermarket Heating and Cooling Systems was $49.6 million, a 9.6% increase over $45.2 million in the prior year period, primarily due to strong radiator sales. Revenue from OEM Heat Transfer Systems products was $7.6 million, compared with $8.4 million in last year's third quarter reflecting a decline in unit volume, due to continued softness in the heavy-duty truck market.
Consolidated gross margin for the third quarter was $14.9 million, 23.7% higher than $12.1 million a year ago. The gross margin percentage increased to 26.1% from 22.5% in the third quarter of 2000. Gross margins benefited from manufacturing cost reductions, pricing actions implemented during the quarter and reduced raw material costs as a result of the Company's improved relationships with its vendors. In addition, 2001 third quarter margins benefited from improved overhead absorption as production was increased to meet rising Aftermarket segment sales demand, while at the same time the Company continued to reduce inventories.
Operating expenses in the quarter declined 1.4% to $12.6 million or 22.0% of sales, compared to $12.8 million or 23.8% of sales a year ago, reflecting successful cost control management across the Company's operations. Included in the 2001 operating expenses is a $0.3 million provision for the accounts receivable write-off of a customer that recently declared bankruptcy.
The Company recorded restructuring and other special charges of $2.9 million for the third quarter of 2001, associated with its strategic initiatives. The charges and actions that occurred during the quarter include $784 thousand to cover severance and other costs associated with the elimination of salaried and hourly employees and $312 thousand for costs resulting from the transfer of production between manufacturing locations as well as the closure of five facilities as part of the redesign of our distribution system. In addition, due to changes in product demand, the Company has decided to close a plant that produced a portion of the Company's condenser product line in order to transition this product to its Mexico facility, thus allowing adoption of more modern product technology. This action, in addition to lowering overall costs, resulted in the impairment of $1.8 million of goodwill recorded as part of an acquisition in 1996. As previously announced, the remainder of the restructuring charges, in the range of $3 million to $4 million, will be incurred between the fourth quarter of 2001 and the second quarter of 2002. These charges will reflect the write-down of certain assets, the implementation of our redesigned distribution system, severance associated with headcount reductions and further transfer of production between manufacturing facilities.
The Company reported income from continuing operations before interest, taxes, extraordinary item and restructuring and other special charges of $2.3 million in the third quarter of 2001, compared to a loss of $0.7 million in the third quarter of 2000. Excluding the restructuring and other special charges in the quarter, the Aftermarket Heating and Cooling Systems segment posted an operating profit of $4.4 million and the OEM Heat Transfer segment posted an operating loss of $0.6 million. In the 2000 third quarter, excluding restructuring and other special charges, the operating profit of the Aftermarket Heating and Cooling Systems segment was $1.4 million and the operating loss in the OEM Heat Transfer segment was $0.9 million.
Income from continuing operations before extraordinary item, excluding the restructuring and other special charges, was $0.6 million, or $0.09 per diluted share in the 2001 third quarter, compared with a loss of $1.3 million, or $0.20 per diluted share last year. For the third quarter of 2001, the Company reported a loss from continuing operations before extraordinary item of $1.0 million, or $0.16 per diluted share, versus a loss of $1.6 million, or $0.25 per diluted share a year ago.
Charles Johnson, President and Chief Executive Officer of TransPro, stated, "We are extremely pleased with the progress reflected by our third quarter results. Following through on our previously stated initiatives has led us to reach our first profitable quarter on an operating basis in over a year. From an operational standpoint, we have made enormous progress in cutting costs across the entire business, implementing new efficiencies, redesigning our distribution system to better reflect customer needs and to enhance customer service, and in implementing the new organization structure announced during the second quarter."
Mr. Johnson continued, "We are particularly gratified that in less than six months we have effectively implemented major changes in the way the Company conducts business. Our realigned organizational structure allows us to address our customers with a unified focus, and satisfy their requirements with substantially less investment in resources. Going forward, we have identified numerous opportunities for improvement and intend to achieve further gains in operating performance through continued improvement program implementation."
Nine-Month Results:
Revenue for the nine months ended September 30, 2001 was $158.1 million compared to $155.9 million in the same period last year.
Gross margin for the first nine months of 2001 was $32.5 million, or 20.6% of sales, compared to $35.6 million, or 22.8% of sales, in the same period last year. Operating expenses in the first nine-months of 2001 were $37.2 million compared to $35.8 million in the same period a year ago.
The loss from continuing operations before interest, taxes, extraordinary item and restructuring and other special charges in the first nine months of 2001 was $4.7 million, compared to a loss of $0.2 million for the nine months of 2000. In 2001, excluding restructuring and other special charges, the Aftermarket Heating and Cooling Systems segment had operating income of $3.2 million while the OEM Heat Transfer segment had an operating loss of $4.3 million. For the first nine months of 2000, excluding restructuring and other special charges, the operating profit of the Aftermarket Heating and Cooling Systems segment was $3.6 million and the operating loss in the OEM Heat Transfer segment was $1.1 million.
The loss from continuing operations before extraordinary item in the first nine months of 2001 was $7.1 million, or $1.09 per diluted share, versus a loss of $3.3 million, or $0.50 per diluted share in 2000. Excluding the restructuring and other special charges, the loss from continuing operations before extraordinary item was $5.2 million, or $0.81 per diluted share for the first nine months of 2001, compared with a loss of $2.5 million, or $0.38 per diluted share a year ago.
Strategy Update:
The Company provided the following update to the strategic initiatives identified during the second quarter:
| -- | Generate cash by reducing inventory across the Company and ensure that we have the right kind of inventory to serve our customers well: |
| -- | The Company generated a further net reduction of $5.6 million in inventory during the quarter, bringing the total reduction to $15.5 million since the first quarter of 2001. Cash realized from the inventory liquidation was primarily used to reduce indebtedness by $5.5 million in the quarter. We continued to initiate actions to eliminate production of products which add to excess supplies, including local accountability for inventories at our branches, target inventory level guidelines, and improved integration of production schedules with forward forecasts. Notably, inventory turns improved to 2.8 compared to 1.9 last year. |
| -- | While sales in the third quarter increased approximately 7% from a year ago, inventories at September 30, 2001 were 31% below those at the same time last year. |
| -- | Analyze the competitiveness of our products and market participation, exiting businesses where we cannot develop conviction that we can reach attractive profitability: |
| -- | During the quarter, pricing actions and cost reduction programs were implemented in all business segments that favorably impacted gross margins. |
| -- | As mentioned previously, the Company produces condenser products at plants in California and Mexico. Due to changes in the types of products demanded by its customers and in order to concentrate production in the most effective manufacturing setting, the Company decided to close the plant in California. This will result in lower costs and allow TransPro to utilize more modern product technologies available at the Mexico location. |
| -- | As an ongoing process, the Company is exploring new business opportunities in both the OEM and Aftermarket segments. As an example, in its Aftermarket business segment, the Company is identifying heavy-duty customer opportunities which will allow us to grow our already market leading position in 2002. |
| -- | Evaluate and improve our information systems to ensure that we have the capabilities we need to serve our customers well: |
| -- | We are on track to complete the installation of uniform information systems across most of our operations by the second quarter of 2002. In the third quarter, problems with many of our already installed systems were resolved, and we are now focused on rolling systems out to the remainder of our operations. |
| -- | We have implemented the first stage of improvements to our Company web site and will increasingly use it to communicate with our customers and the marketplace. |
| -- | Looking forward, we plan to make full use of our systems development capabilities to further enhance our operating performance. |
| -- | Assess the effectiveness of our current manufacturing plant and branch network to ensure that we are gaining full value for the services provided and to ensure that we are properly meeting the needs of our customers: |
| -- | In the quarter, TransPro completed a full assessment of its branch network and distribution system. The Company determined that it could consolidate many of its branches, and at the same time, maintain or improve upon current levels of customer service. By redesigning its delivery network, the Company is able to offer customers broader inventory coverage through the use of fewer "master" locations. As a result, the following five branches were closed: Wichita, KS, Nashville, TN, Canton, OH, Riviera Beach, CA and San Jose/Santa Clara, CA. These closures will lower operating costs going forward and, in general, customers will be served by other existing distribution locations. |
Other Updates:
The Company also noted that due to the attacks of September 11, 2001, the bank lockbox processing center used by the Company was forced to relocate resulting in a delay in processing customer receipts for the month. The Company estimates that $2 million to $2.5 million of remittances were not processed until early October resulting in a higher level of debt at the end of the quarter than would otherwise have been achieved.
As previously announced, we acquired on October 5, 2001 the aluminum heat exchange producing assets of Hot + Cool Holdings, Inc. This provides TransPro with additional aluminum manufacturing capabilities at its Nuevo Laredo, Mexico production facility that will streamline the supply chain, eliminate outsourcing costs, enable control of production levels and improve quality.
On October 31, 2001, we entered into an agreement for the sale of our New Haven, Connecticut facility. The agreement also provides that the Company will lease its existing office and lab space for a period of six years. The transaction is expected to close by the early part of 2002 and will improve our asset utilization, reduce overhead costs and provide additional availability under our credit facility. Proceeds from the sale will be used primarily to pay-off the Industrial Revenue Bond on the facility.
Mr. Johnson stated, "Going forward, we will continue to execute on the initiatives we have laid out to improve our operations, competitiveness and financial standing in order to allow the Company to operate in any economic climate and face any competitive challenges "head on". Our achievements in the third quarter combined with those of the 2001 second quarter have positioned TransPro to better leverage our strengths and capitalize on opportunities. Our new organizational structure has already led to improved customer service and greater customer focus. We are most excited about the momentum building at the Company, and we are confident that TransPro is headed in the right direction."
Mr. Johnson added, "We are prepared and committed to take on new competitive challenges and to meet the higher customer expectations we face. We are fortunate to have earned an important position with many of the leading players in North American automotive distribution. This progress has resulted from the great effort of our employees. We have asked much of them and they are coming through in great fashion. I would like to take this opportunity to thank our entire Team for their accomplishments...and we believe there is much opportunity ahead."
Mr. Johnson concluded, "While the tragic events of September 11th affected our sales in the latter part of the month, business has subsequently returned to previous levels. Based on today's business environment and the pace of our progress, we anticipate improved operating results in the fourth quarter compared to last year. Further, as we have said in past reports, we expect to return to profitability for the full year 2002."
TransPro, Inc. is a manufacturer and supplier of heating and cooling systems and components for a variety of Aftermarket and OEM automotive, truck and industrial applications.
FORWARD-LOOKING STATEMENTS
Statements included in this news release, 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. 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 forward-looking statements made by the Company. In particular, statements relating to the future financial performance of the Company are subject to business conditions and growth in the general economy and automotive and truck business, the impact of competitive products and pricing, changes in customer product mix, failure to obtain new customers or retain old customers or changes in the financial stability of customers, changes in the cost of raw materials, components or finished products and changes in interest rates.
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Net sales $ 57,224 $ 53,625 $ 158,089 $155,894
Cost of sales 42,303 41,562 125,566 120,305
Gross margin 14,921 12,063 32,523 35,589
Operating expenses 12,586 12,764 37,209 35,827
Restructuring and
other special charges 2,926 425 2,926 1,220
Loss from continuing
operations before
interest, taxes
and extraordinary item (591) (1,126) (7,612) (1,458)
Interest expense 1,261 1,071 3,655 3,500
Loss from continuing
operations before
taxes and
extraordinary item (1,852) (2,197) (11,267) (4,958)
Income tax benefit (821) (577) (4,179) (1,700)
Loss from continuing
operations before
extraordinary
item (1,031) (1,620) (7,088) (3,258)
Loss on debt
extinguishment, net
of taxes 0 0 (380) 0
Income from
discontinued
operation, net of
taxes 0 0 0 440
Gain on sale of
discontinued
operation, net of
taxes 0 187 0 6,189
Net (loss) income $ (1,031) $ (1,433) $ (7,468) $ 3,371
Shares outstanding:
Basic 6,609 6,575 6,593 6,574
Diluted 6,609 6,575 6,593 6,574
Loss per share -
continuing operations:
Basic $ (0.16) $ (0.25) $ (1.09) $ (0.50)
Diluted $ (0.16) $ (0.25) $ (1.09) $ (0.50)
TRANSPRO, INC.
BALANCE SHEET HIGHLIGHTS
(in thousands)
September 30,2001 December 31, 2000
(Unaudited)
Accounts receivable, net $ 39,413 $ 34,154
Inventories, net $ 58,752 $ 75,286
Net property, plant and equipment $ 25,146 $ 26,711
Goodwill, net $ 4,741 $ 6,869
Total assets $144,010 $156,263
Current liabilities $ 67,441 $ 75,054
Total debt $ 42,946 $ 44,338
Total liabilities $ 80,072 $ 84,786
Stockholders' equity $ 63,938 $ 71,477
Capital expenditures, net $ 2,091 $ 4,931
TRANSPRO, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(unaudited, in thousands)
SEGMENT DATA
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Trade Sales:
Aftermarket heating
and cooling systems $ 49,596 $ 45,237 $135,348 $ 126,089
OEM heat transfer
systems 7,628 8,388 22,741 29,805
Inter-segment Sales:
Aftermarket heating
and cooling systems 1,159 1,196 3,605 5,995
OEM heat transfer
systems 281 25 406 47
Eliminations (1,440) (1,221) (4,011) (6,042)
Consolidated Total $ 57,224 $ 53,625 $158,089 $ 155,894
(Loss) Income from
Continuing Operations
Before Interest,
Taxes and Extraordinary
Item:
Aftermarket heating
and cooling systems $ 4,430 $ 1,356 $ 3,161 $ 3,561
Restructuring and other
special charges (2,353) - (2,353) (795)
Aftermarket total 2,077 1,356 808 2,766
OEM heat transfer systems (617) (862) (4,302) (1,100)
Restructuring and other
special charges (573) - (573) -
OEM total (1,190) (862) (4,875) (1,100)
Corporate expenses (1,478) (1,195) (3,545) (2,699)
Restructuring and other
special charges - (425) - (425)
Corporate total (1,478) (1,620) (3,545) (3,124)
Consolidated Total $ (591) $ (1,126) $ (7,612) $ (1,458)