================================================================================ 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 ================================================================================ 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