SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1373
------
MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0482000
--------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1500 DeKoven Avenue, Racine, Wisconsin 53403-2552
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (262) 636-1200
--------------
NOT APPLICABLE
----------------------------------------------------------------------
(Former name or former address, 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 6, 2000
------------------------------- -------------------------------
Common Stock, $0.625 Par Value 29,254,940
MODINE MANUFACTURING COMPANY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 26 and March 31, 2000 3
Consolidated Statements of Earnings -
For the Three Months Ended
September 26, 2000 and 1999
and the Six Months Ended
September 26, 2000 and 1999 4
Consolidated Statements of Cash Flows -
For the Six Months Ended September 26,
2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 19
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
September 26, 2000 and March 31, 2000
(In thousands, except per-share amounts)
(Unaudited)
September 26, 2000 March 31, 2000
------------------ --------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 17,914 $ 31,070
Trade receivables, less allowance
for doubtful accounts of $4,063
and $4,436, respectively 169,229 182,724
Inventories 152,749 168,597
Deferred income taxes and other
current assets 39,180 47,164
--------- ---------
Total current assets 379,072 429,555
--------- ---------
Noncurrent assets:
Property, plant, and equipment -- net 345,802 337,987
Investment in affiliates 27,892 28,440
Goodwill and other intangible
assets -- net 65,945 70,339
Deferred charges and other noncurrent
assets 66,700 64,786
--------- ---------
Total noncurrent assets 506,339 501,552
--------- ---------
Total assets $ 885,411 $ 931,107
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Short-term debt $ 6,437 $ 6,319
Long-term debt -- current portion 3,621 3,128
Accounts payable 72,124 84,893
Accrued compensation and employee
benefits 45,139 46,479
Income taxes 10,421 7,336
Accrued expenses and other current
liabilities 30,434 27,322
--------- ---------
Total current liabilities 168,176 175,477
--------- ---------
Other liabilities:
Long-term debt 155,274 211,112
Deferred income taxes 25,256 24,536
Other noncurrent liabilities 39,740 39,740
--------- ---------
Total noncurrent liabilities 220,270 275,388
--------- ---------
Total liabilities 388,446 450,865
--------- ---------
Shareholders' investment:
Preferred stock, $0.025 par value,
authorized 16,000 shares,
issued - none - -
Common stock, $0.625 par value,
authorized 80,000 shares, issued
30,342 shares 18,964 18,964
Additional paid-in capital 13,863 13,573
Retained earnings 525,618 505,522
Accumulated other comprehensive loss (26,926) (21,629)
Treasury stock at cost: 1,062 and
1,081 shares, respectively (33,030) (34,394)
Restricted stock - unamortized value (1,524) (1,794)
--------- ---------
Total shareholders' investment 496,965 480,242
--------- ---------
Total liabilities and shareholders'
investment $ 885,411 $ 931,107
========= =========
<FN>
(See accompanying notes to consolidated financial statements.)
</FN>
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 26, 2000 and 1999
For the six months ended September 26, 2000 and 1999
(In thousands, except per-share amounts)
(Unaudited)
Three months ended Six months ended
------------------------- -------------------------
September 26 September 26
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net Sales $ 269,775 $ 286,691 $ 556,259 $ 570,538
Cost of sales 198,764 207,103 402,661 408,985
--------- --------- --------- ---------
Gross profit 71,011 79,588 153,598 161,553
Selling, general, and administrative expenses 57,654 54,707 110,942 106,451
--------- --------- --------- ---------
Income from operations 13,357 24,881 42,656 55,102
Interest expense (2,026) (1,921) (4,171) (3,514)
Patent settlements 15,084 - 16,959 1,000
Other income -- net 3,829 921 4,554 2,595
--------- --------- --------- ---------
Earnings before income taxes 30,244 23,881 59,998 55,183
Provision for income taxes 11,226 8,785 23,018 20,578
--------- --------- --------- ---------
Net earnings $ 19,018 $ 15,096 $ 36,980 $ 34,605
========= ========= ========= =========
Net earnings per share of common stock
- Basic $0.65 $0.51 $1.26 $1.17
- Assuming dilution $0.65 $0.51 $1.26 $1.16
========= ========= ========= =========
Dividends per share $0.25 $0.23 $0.50 $0.46
========= ========= ========= =========
Weighted average shares -- basic 29,275 29,536 29,270 29,532
Weighted average shares -- assuming dilution 29,484 29,838 29,434 29,844
========= ========= ========= =========
<FN>
(See accompanying notes to consolidated financial statements.)
</FN>
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months Ended September 26, 2000 and 1999
(Unaudited)
Six months ended September 26
-----------------------------
2000 1999
-------- --------
Net cash provided by operating activities $ 82,068 $ 29,689
Cash flows from investing activities:
Expenditures for property, plant, and
equipment (36,725) (48,390)
Acquisitions, net of cash acquired 249 -
Return of capital/ (investments in
affiliates) 467 (1,500)
Proceeds from dispositions of property,
plant, and equipment 133 151
Other -- net 106 (193)
-------- --------
Net cash used for investing activities (35,770) (49,932)
Cash flows from financing activities:
Increase in short-term debt -- net 542 3,514
Additions to long-term debt 2,386 61,074
Reductions of long-term debt (46,862) (22,683)
Issuance of common stock, including
treasury stock 1,811 2,539
Purchase of treasury stock (2,692) (2,767)
Cash dividends paid (14,639) (13,583)
-------- --------
Net cash (used for)/provided by financing
activities (59,454) 28,094
-------- --------
Net (decrease)/increase in cash and cash
equivalents (13,156) 7,851
Cash and cash equivalents at beginning
of period 31,070 49,163
-------- --------
Cash and cash equivalents at end of period $ 17,914 $ 57,014
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
</FN>
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The amounts of raw material, work in process and finished goods
cannot be determined exactly except by physical inventories.
Based on partial interim physical inventories and percentage
relationships at the time of complete physical inventories,
Management believes the amounts shown below are reasonable
estimates of raw material, work in process and finished goods.
(in thousands)
--------------------------------------------------------------------
September 26, 2000 March 31, 2000
--------------------------------------------------------------------
Raw materials $ 31,637 $ 35,872
Work in process 38,417 39,146
Finished goods 82,695 93,579
-------- --------
Total inventories $152,749 $168,597
======== ========
2. Property, plant, and equipment is composed of:
(in thousands)
--------------------------------------------------------------------
September 26, 2000 March 31, 2000
--------------------------------------------------------------------
Gross property,
plant & equipment $655,083 $634,170
Less accumulated
depreciation (309,281) (296,183)
-------- --------
Net property,
plant & equipment $345,802 $337,987
======== ========
3. Intangible assets include:
(in thousands)
--------------------------------------------------------------------
September 26, 2000 March 31, 2000
--------------------------------------------------------------------
Goodwill $ 88,202 $ 89,815
Patents and product
technology 8,389 8,389
Other intangibles 3,166 3,204
Less accumulated
amortization (33,812) (31,069)
-------- --------
Net intangible assets $ 65,945 $ 70,339
======== ========
4. Segment data:
(In thousands)
--------------------------------------------------------------------
Quarter ended September 26, 2000 1999
---- ----
Sales:
Original Equipment $102,905 $110,400
Distributed Products 105,916 118,140
European Operations 69,122 68,791
--------------------------------------------------------------------
Segment sales 277,943 297,331
Eliminations (8,168) (10,640)
--------------------------------------------------------------------
Total net sales $269,775 $286,691
--------------------------------------------------------------------
Operating income:
Original Equipment $ 12,429 $ 19,007
Distributed Products 9,910 16,479
European Operations 7,546 4,437
--------------------------------------------------------------------
Segment operating income 29,885 39,923
Corporate & administrative
expenses (16,568) (15,017)
Eliminations 40 (20)
Other items not allocated
to segments 16,887 (1,005)
--------------------------------------------------------------------
Earnings before income taxes $ 30,244 $ 23,881
--------------------------------------------------------------------
(In thousands)
--------------------------------------------------------------------
Six Months ended September 26, 2000 1999
---- ----
Sales:
Original Equipment $223,455 $231,473
Distributed Products 202,042 215,728
European Operations 149,324 144,514
--------------------------------------------------------------------
Segment sales 574,821 591,715
Eliminations (18,562) (21,177)
--------------------------------------------------------------------
Total net sales $556,259 $570,538
--------------------------------------------------------------------
Operating income:
Original Equipment $ 36,238 $ 43,889
Distributed Products 19,144 27,742
European Operations 17,906 12,506
--------------------------------------------------------------------
Segment operating income 73,288 84,137
Corporate & administrative
expenses (30,684) (29,026)
Eliminations 52 (6)
Other items not allocated
to segments 17,342 78
--------------------------------------------------------------------
Earnings before income taxes $ 59,998 $ 55,183
--------------------------------------------------------------------
At the end of the fourth quarter in fiscal 2000, several changes
were introduced in the basis for measuring segment profit or loss.
Two changes that affected amounts previously reported for the quarter
and six months ended September 1999 were the relocation of certain
goodwill amortization previously recorded at Corporate to the
Distributed Products segment and the allocation of Corporate
headquarters functions to include only a general building, technical
center, and aircraft use allocation. Another modification from
classifications originally reported last September was a change to
relocate goodwill expense to SG&A expense from other expenses not
allocated to a particular segment. Additionally, in the first quarter
of fiscal 2001, a change was made by management to relocate the
aftermarket business unit of the European Operations segment to the
Distributed Products segment. The quarterly and six-month sales and
operating income information presented above has been restated for
earlier periods to reflect the effects of these changes.
(In thousands)
--------------------------------------------------------------------
September 26, March 31,
Period ending 2000 2000
--------------------------------------------------------------------
Assets:
Original Equipment $249,266 $265,495
Distributed Products 244,843 263,733
European Operations 174,788 189,803
Corporate & Administrative 266,731 264,562
Eliminations (50,217) (52,486)
--------------------------------------------------------------------
Total assets $885,411 $931,107
--------------------------------------------------------------------
In the first quarter of fiscal 2001, management relocated the
aftermarket business unit of the European Operations segment to the
Distributed Products segment. The asset data presented for March 31,
2000 has been restated to reflect the effect of this change.
5. Recent developments concerning legal proceedings reported in Modine
Manufacturing Company ("Modine or Company") Form 10-K report for the
year ended March 31, 2000, are updated in Part II, Other Information,
Item 1, Legal Proceedings. While the outcome of these proceedings is
uncertain, in the opinion of Modine's management, any liabilities that
may result from such proceedings are not reasonably likely to have a
material effect on Modine's liquidity, financial condition, or results
of operations.
6. The net earnings per share of common stock and computation components
of basic and diluted earnings per share are as follows:
(In thousands, except per-share amounts)
-------------------------------------------------------------------------
Three months ended Six months ended
September 26 September 26
-------------------------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------------------------
Net earnings per share of
common stock:
-------------------------
- basic $0.65 $0.51 $ 1.26 $1.17
- assuming dilution $0.65 $0.51 $ 1.26 $1.16
Numerator:
----------
Income available to common
shareholders $19,018 $15,096 $36,980 $34,605
Denominator:
-----------
Weighted average shares
outstanding - basic 29,275 29,536 29,270 29,532
Effect of dilutive
securities - options* 209 302 164 312
------ ------ ------ ------
Weighted average shares
outstanding - assuming
dilution 29,484 29,838 29,434 29,844
-------------------------------------------------------------------------
*There were outstanding options to purchase common stock
at prices that exceeded the average market price for the
income statement period as follows:
Average market price per share $28.00 $30.30 $25.26 $30.37
Number of shares 1,104 740 1,263 740
7. Comprehensive earnings (in thousands), which represents net earnings
adjusted by the change in foreign-currency translation and minimum
pension liability recorded in shareholders' equity for the periods
ended September 26, 2000 and 1999, respectively, were $17,228 and
$15,762 for three months, and $31,683 and $34,716 for six months.
8. In June 2000, Modine purchased for cash the remaining 50-percent
share of Daikin-Modine, Inc. from its joint venture partner Daikin
Industries, Ltd. Daikin-Modine is not considered material to the
financial statements of Modine and, accordingly, pro-forma
information is not presented. The operation has been integrated
into Modine's Commercial HVAC&R Division and its operating results
are being reported on a consolidated basis in the Distributed
Products segment from the date of acquisition.
9. On July 14, 2000, Modine reached an agreement with Showa Aluminum
Corporation to cross-license each other's patents on PF(r) and SC
air-conditioning condensers. As a result of the agreement and
another agreement with Mitsubishi Heavy Industries, Modine received
in the first and second quarter payments totaling $17.0 million
representing partial settlement for past infringement of Modine's
PF(r) Parallel Flow technology. The agreements settle the companies'
respective lawsuits on the subject technology. Contingent royalties
of approximately $27 million may be received in about a year, and
additional contingent royalties that could meet or exceed that amount
may be received over the next eight years. Beyond the initial $17.0
million in payments already received, the future lump-sum payments and
running royalties are contingent on confirmation of the validity of
Modine's PF(r) technology patents in Japan, Europe, and the United
States and on Showa's and Mitsubishi's future sales of the subject
condensers. The reported results of operations for the second quarter
of fiscal 2001 include the initial amount of $15.1 million from the
Showa agreement.
10. The accompanying consolidated financial statements, which have not
been audited by independent certified public accountants, were
prepared in conformity with generally accepted accounting principles
and such principles were applied on a basis consistent with the
preparation of the consolidated financial statements in Modine's
March 31, 2000 Annual Report filed with the Securities and Exchange
Commission. The financial information furnished includes all normal
recurring accrual adjustments that are, in the opinion of Management,
necessary for a fair presentation of results for the interim period.
Results for the first six months of fiscal 2001 are not necessarily
indicative of the results to be expected for the full year.
11. Certain notes and other information have been condensed or omitted
from these interim financial statements which consolidate both
domestic and foreign wholly-owned subsidiaries. Therefore, these
statements should be read in conjunction with the consolidated
financial statements and related notes contained in Modine's
2000 Annual Report to shareholders which were incorporated by
reference in Modine's Form 10-K Report for the year ended
March 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
The following discussion and analysis provides information which
Management believes is relevant to an assessment and understanding
of Modine's consolidated results of operations and financial
condition. This discussion should be read in conjunction with
the consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the Second Quarter of 2000-01 with the Second Quarter
- -------------------------------------------------------------------
of 1999-00
- ----------
Net sales for the second quarter of fiscal 2000-2001 were $269.8
million, down 5.9% from the $286.7 million reported in the second
quarter of last year. Sales would have been approximately $10.7
million higher without the impact of a stronger U.S. dollar in
relation to the Euro.
The quarter's sales results were affected by a number of factors.
Revenues in the Distributed Products segment declined by over 10%.
An extremely soft North American aftermarket and the negative
currency impact on the segment's operations in Europe were the
main factors contributing to the decline. In the Original
Equipment segment, mixed results were recorded for the quarter
with overall revenues down by almost 7%. North American heavy
truck sales decreased from an all-time high in the prior year to
a lower than average level in the current year while North
American automotive results were also weaker than expected due
to lower demand. On the positive side, improved results were
recorded in the off-highway business. Overall, revenues in the
European Operations segment grew by less than 1% for the quarter.
Improved results in the European off-highway and automotive
markets were offset by the negative currency-translation impact
recorded in the quarter which lowered European sales results by
more than 12%.
Gross margin at 26.3%, as a percentage of sales, was down 1.5%
from the second quarter of the previous year. Material costs as
a percentage of sales grew by 1.7% while labor and overhead
declined slightly. Improvements in the European Operations
segment and in the construction and agricultural market of the
Original Equipment segment were more than offset by lower margins
earned in truck and automotive markets of the Original Equipment
segment and by lower margins in the Distributed Products segment
(aftermarket and HVAC).
Selling, general and administrative expenses of $57.7 million
increased 5.4% over last year's second quarter while increasing
to 21.4% from 19.1% as a percentage of sales. On-going litigation
costs to protect Modine's patents around the world, higher
statutory and fringe benefits expenses and higher depreciation
expense from capital expenditures made over the past several
years were some of the items contributing to the increase.
Operating income at 5.0% was 3.7% lower as a percentage of sales
than last year as a result of the higher selling, general and
administrative expenses and lower than expected sales volume.
Interest expense increased $0.1 million, or 5%, from the same
quarter a year ago while average outstanding debt levels during
the quarter decreased from a year ago. Interest expense grew
despite the reduction in debt due to rising interest rates when
compared to the same quarter a year ago. Lower capitalized
interest on major capital projects also contributed to the rise
in interest expense.
Net non-operating income in the current quarter increased $18.0
million from the same quarter of the previous year. The current
year's quarter included a patent settlement with Showa Aluminum
Corporation for $15.1 million as a settlement for past
infringement of Modine's PF(r) parallel flow technology. Also
included in the current year's quarter was a $1.3 million gain
related to the sale of a closed facility in Michigan. Improved
equity earnings for the quarter from the company's Brazilian
joint-venture also contributed to the overall increase.
The effective tax rate increased slightly to 37.1% when compared
to the same period last year.
Net earnings for the second quarter of $19.0 million were 26%
higher than last year's $15.1 million earned in the second
quarter. Earnings per share were $0.65 basic and diluted,
compared to $0.51 basic and diluted in the prior year. The
currency translation effect of a stronger U.S. dollar recorded
during the quarter reduced reported after-tax earnings by $0.02
per diluted share while the impact of the lump-sum patent
infringement settlement recorded in other non-operating income
improved reported after-tax earnings by $0.32 per diluted share.
Comparison of the First Six Months of 2000-01 with the First Six
- ----------------------------------------------------------------
Months of 1999-00
- -----------------
Net sales for the first six months of fiscal 2000-2001 were
$556.3 million, down 2.5% from the $570.5 million reported in the
same period of last year. Sales were negatively impacted by a
stronger U.S. dollar in relation to the Euro by approximately
$24.9 million.
Overall changes in the company's segment sales were very similar
to those reported for the second quarter. The Distributed
Products segment declined by over 6% with major factors being a
very soft North American aftermarket and the negative currency
impact on the segment's European sales. In the Original Equipment
segment, sales declined by almost 3.5%. Improved results in the
North American off-highway markets were offset by reduced demand
in the North American heavy-truck and automotive markets. Overall
revenues in the European Operations segment grew by over 3%.
Improved results in the European automotive and off-highway
markets, were negatively impacted by currency translation.
Excluding the translation impact, European Operations sales would
have grown by more than 17%.
Gross margin of 27.6%, as a percent of sales, was down 0.7% from
the first six months of the previous year. Material costs as a
percentage of sales grew by 1.4%, while overhead and labor
declined in total by 0.7%. Improvements in the European
Operations segment and in the construction and agricultural
market of the Original Equipment segment were more than offset
by lower margins earned in truck and automotive markets of the
Original Equipment segment and by lower margins in the
Distributed Products segment (aftermarket and HVAC).
Selling, general and administrative expenses of $110.9 million
increased 4.2% over the first six months of last year while
increasing to 19.9% from 18.7% as a percentage of sales. On-
going litigation costs to protect Modine's patents around the
world, higher statutory and fringe benefits expenses and higher
depreciation expense from capital expenditures made over the past
several years were items contributing to the increase. Higher
research and development costs were also factor.
Operating income at 7.7% of sales, was down 2% from the 9.7% in
the first half of the previous year. Lower than expected sales
volumes, higher selling, general and administrative expenses and
negative currency translation were all factors contributing to
the reduction.
Interest expense increased $0.7 million, or 18.7% over the same
six month period a year ago. Average outstanding debt levels for
the six months declined from the same period a year ago. The
debt reduction was influenced, in part, by the continuing decline
of the Euro relative to the U.S. dollar. Despite the overall
debt reduction, interest expense grew due to higher interest
rates and lower capitalized interest.
The effective tax rate increased by just over 1.1% when compared
to the same period last year. The rate increase was mainly due to
the differential in foreign tax rates.
Net earnings for the first six months of the current year were
$37.0 million, or $1.26 basic and diluted earnings per share.
This compares to $34.6 million, or $1.17 basic and $1.16 diluted
earnings per share, for the same six month period the year
before. The higher earnings were due to the $17.0 million lump-
sum royalty payments recorded as non-operating income in the
first six months of this year. Annualized return on shareholders'
investment, at 15.1% was within management's target range.
Outlook for the Remainder of the Year
- -------------------------------------
In July, Modine indicated expectation of steady sales for the
fiscal year, with earnings up about five percent because of patent
settlements. Due to unanticipated weakness in several of Modine's
markets, coupled with the continued stagnation of the Euro versus
the U.S. dollar and the deferment of some new programs until
fiscal 2002, the company is updating its forecasts. Modine now
expects fiscal 2001 revenues to be about five to ten percent below
the prior year with net earnings down commensurately. Modine
continues to aggressively address cost and working capital
reductions, which take on even greater importance under current
business conditions. In addition, the company remains optimistic
about future programs. Over the next year, they include some
market share gains and the startup of a new product line, exhaust-
gas-recirculation-coolers. Longer term, the programs include
thermal management of fuel cells, heat-exchange systems for
microturbines, and CO2 (carbon dioxide) air-conditioning systems.
Modine will continue to leverage its technological expertise and
established global relationships to realize the full potential
each of these opportunities represents. Forward looking
statements about sales, earnings, and operations in this Outlook
involve both risks and uncertainties, as detailed in Exhibit 99 to
this Form 10-Q.
FINANCIAL CONDITION
- -------------------
Comparison between September 26, 2000 and March 31, 2000
- --------------------------------------------------------
Current assets
- --------------
Cash and cash equivalents of $17.9 million were $13.2 million lower
than March 31, 2000. Cash provided by operating activities was
more than offset for the first six months by capital expenditures,
debt repayments and the quarterly dividend payments.
Trade receivables of $169.2 million were down $13.5 million
(7.4%) over year-end primarily due to decreased sales volume
(down $16.7 million over the previous quarter).
Overall inventory levels decreased $15.8 million to $152.7
million compared to the prior year-end. The largest item
contributing to the decrease was a reduction in finished goods in
the aftermarket division. The continuing decline of the Euro
relative to the dollar also had a continuing downward impact on
the value of inventory levels.
Deferred income taxes and other current assets declined by $8
million to $39.2 million compared to last year-end. Lower
unbilled tooling to customers recorded in this category and a
reduction in other receivables were two of the larger items
contributing to the overall change.
Working capital of $ 210.9 million decreased 17.0% from year-end.
The current ratio decreased slightly to 2.3 to 1 from 2.4 to 1.
Lower accounts payable were more than offset by lower cash and
cash equivalents, trade receivables, inventories, deferred income
taxes and other assets, and higher income taxes and accrued
expenses payable.
Noncurrent Assets
- -----------------
Net property, plant and equipment increased $7.8 million to $345.8
million as capital expenditures exceeded depreciation, retirements
and foreign currency translation impact. Expenditures for the
European Technical Center, European plant expansions and conversions,
the Racine Technical Center, new Chrysler Jeep programs, a new
International Truck and Engine program, process improvements,
tooling for new products and various new equipment were among the
items contributing to the increase shown. Outstanding commitments
for capital expenditures were $36.9 million at September 26, 2000.
Approximately one-half of the commitments relate to Modine's
European operations. The outstanding commitments will be financed
through a combination of funds generated from continuing operations
and third party borrowing as required.
Intangible assets decreased by $4.4 million. Amortization and
foreign currency translation were the main items contributing to
the change.
Deferred charges and other noncurrent assets increased $1.9
million. The net increase is primarily the result of continuing
recognition of the surplus in Modine's overfunded pension plans.
Current Liabilities
- -------------------
Accounts payable and other current liabilities of $147.7 million
were $11.0 million lower than March 2000. A concerted effort to
reduce inventory levels resulting in lower payables, and normal
timing differences in the level of operating activity were
responsible for the decline. Accrued income taxes increased $3.1
million from timing differences in making estimated payments and
certain federal tax benefits.
Debt
- ----
Outstanding debt decreased by $55.2 million to $165.3 million from
March 31, 2000 balance of $220.6 million. Domestic long-term debt
decreased $42.3 million. The reduction was primarily due to a
decrease in working capital needs and a large lump-sum patent
settlement received in September. Foreign long-term debt
decreased $13.0 million. The foreign portion of short-term debt
decreased $0.9 million, while domestic short-term debt increased
$1.0 million.
Consolidated available lines of credit decreased $6.5 million to
$64.6 million during the quarter. Domestically, Modine's unused
lines of credit were $40.7 million. Foreign unused lines of
credit were $23.9 million. Total debt as a percentage of
shareholders' equity decreased from 45.9% to 33.3%.
Shareholders' Investment
- ------------------------
Total shareholders' investment increased by $16.7 million to a
total of $497.0 million. The net increase came primarily from
net earnings of $37.0 million for the first six months.
Offsetting items included an unfavorable foreign currency
translation impact of $5.3 million during the period and
dividends paid to shareholders of $14.6 million.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, Modine and its subsidiaries
are named as defendants in various lawsuits and enforcement
proceedings by private parties, the Occupational Safety and
Health Administration, the Environmental Protection Agency,
other governmental agencies, and others in which claims, such
as personal injury, property damage, or antitrust and trade
regulation issues, are asserted against Modine. While the outcome
of these proceedings is uncertain, in the opinion of Modine's
Management and counsel, any liabilities that may result from such
proceedings are not reasonably likely to have a material effect on
Modine's liquidity, financial condition or results of operations.
Many of the pending damage claims are covered by insurance and, in
addition, Modine from time to time establishes reserves for
uninsured liabilities.
The Mitsubishi and Showa Litigation
-----------------------------------
Over the last 10 years Modine and Showa Aluminum Corporation (and
Mitsubishi Motors in some cases) have instituted various lawsuits
and legal proceedings against each other pertaining to Modine's
PF(r) Parallel Flow technology and Showa's SC condenser. On
July 14, 2000, Modine and Showa reached a Settlement Agreement and
License with respect to the same. The Agreement calls for cross
licensing of the foregoing technologies between the parties with
Modine receiving an initial payment of $15.1 million representing
partial settlement for past infringement of Modine's PF(r) Parallel
Flow technology. Subsequent payments of twice such amount are
payable to Modine upon confirmation of the validity of Modine's PF
patents in Japan, the United States, and the European Union.
Running royalties are applicable to future sales by Showa for the
use of Modine's PF technology through the expiration of the
corresponding patents in 2006-2008. All legal proceedings between
the parties are being dismissed.
Other previously reported legal proceedings between the parties
have been settled or the issues resolved so as to not merit
further reporting.
Under the rules of the Securities and Exchange Commission,
certain environmental proceedings are not deemed to be ordinary
or routine proceedings incidental to the Company's business and
are required to be reported in the Company's annual and/or
quarterly reports. The Company is not currently a party to any
such proceedings.
Item 5. Other Information.
On October 26, 2000, Ernest T. Thomas was appointed Senior Vice
President and Chief Financial Officer, replacing Alan D. Reid,
Vice President and Chief Financial Officer who retired from the
Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
--------
The following exhibits are included for information only unless
specifically incorporated by reference in this report:
Reference Number
per Item 601 of
Regulation S-K Page
- ---------------- ----
3 Restated By-Laws (as amended)
(filed by reference to the
Registrant's Annual Report on Form
10-K for the fiscal year ended
March 31, 2000).
4(a) Rights Agreement dated as of
October 16, 1986 between the Registrant
and First Chicago Trust Company of New
York (Rights Agent) (filed by reference
to the Registrant's Annual Report on
Form 10-K for the fiscal year ended
March 31, 1997).
4(b)(i) Rights Agreement Amendment No. 1 dated
as of January 18, 1995 between the
Registrant and First Chicago Trust
Company of New York (Rights Agent)
(filed by reference to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 2000).
4(b)(ii) Rights Agreement Amendment No. 2 dated
as of January 18, 1995 between the
Registrant and First Chicago Trust
Company of New York (Rights Agent)
(filed by reference to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 2000).
4(b)(iii) Rights Agreement Amendment No. 3 dated
as of October 15, 1996 between the
Registrant and First Chicago Trust
Company of New York (Rights Agent)
(filed by reference to the exhibit
contained within the Registrant's
Quarterly Report on Form 10-Q dated
December 26, 1996).
Reference Number
per Item 601 of
Regulation S-K Page
- ---------------- ----
4(b)(iv) Rights Agreement Amendment No. 4 dated
as of November 10, 1997 between the
Registrant and Norwest Bank
Minnesota, N.A., [now known as Wells
Fargo Bank Minnesota, N.A.] (Rights
Agent) (filed by reference to the
exhibit contained within the
Registrant's Quarterly Report on
Form 10-Q dated December 26, 1997).
Note: The amount of long-term debt
-----
authorized under any instrument
defining the rights of holders of
long-term debt of the Registrant,
other than as noted above, does not
exceed ten percent of the total assets
of the Registrant and its subsidiaries
on a consolidated basis. Therefore,
no such instruments are required to be
filed as exhibits to this Form. The
Registrant agrees to furnish copies
of such instruments to the Commission
upon request.
27* Financial Data Schedule (electronic
transmission only).
99* Important Factors and Assumptions
Regarding Forwarding-Looking
Statements. 20
*Filed herewith.
(b) Reports on Form 8-K:
-------------------
The Company filed one Report on Form 8-K after the quarter ended
September 26, 2000. The Report announced the appointment of
Ernest T. Thomas as Senior Vice President and Chief Financial
Officer as referenced in Item 5. The date of the Report is
October 26, 2000.
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.
MODINE MANUFACTURING COMPANY
(Registrant)
By: E. T. THOMAS
------------------------------------
E. T. Thomas, Senior Vice President,
and Chief Financial Officer
(Principal Financial Officer)
Date: November 8, 2000 By: W. E. PAVLICK
------------------------------------
W. E. Pavlick, Senior Vice President,
General Counsel and Secretary