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 December 26, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1373
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MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0482000
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 DeKoven Avenue, Racine, Wisconsin 53403-2552
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (262) 636-1200
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NOT APPLICABLE
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(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 February 6, 2001
------------------------------ -------------------------------
Common Stock, $0.625 Par Value 29,395,511
MODINE MANUFACTURING COMPANY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 26 and March 31, 2000 3
Consolidated Statements of Earnings -
For the Three Months Ended
December 26, 2000 and 1999
and the Nine Months Ended
December 26, 2000 and 1999 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended December 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 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
December 26, 2000 and March 31, 2000
(In thousands, except per-share amounts)
(Unaudited)
December 26, 2000 March 31, 2000
----------------- --------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 19,855 $ 31,070
Trade receivables, less allowance for
doubtful accounts of $4,225 and $4,436,
respectively 158,986 182,724
Inventories 148,391 168,597
Deferred income taxes and other current
assets 36,913 47,164
--------- ---------
Total current assets 364,145 429,555
--------- ---------
Noncurrent assets:
Property, plant, and equipment -- net 350,989 337,987
Investment in affiliates 26,954 28,440
Goodwill and other intangible assets -- net 64,606 70,339
Deferred charges and other noncurrent assets 68,616 64,786
--------- ---------
Total noncurrent assets 511,165 501,552
--------- ---------
Total assets $ 875,310 $ 931,107
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt $ 8,766 $ 6,319
Long-term debt -- current portion 17,233 3,128
Accounts payable 70,297 84,893
Accrued compensation and employee benefits 46,618 46,479
Income taxes 7,438 7,336
Accrued expenses and other current
liabilities 33,569 27,322
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Total current liabilities 183,921 175,477
--------- ---------
Other liabilities:
Long-term debt 137,547 211,112
Deferred income taxes 25,293 24,536
Other noncurrent liabilities 39,281 39,740
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Total noncurrent liabilities 202,121 275,388
--------- ---------
Total liabilities 386,042 450,865
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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 13,990 13,573
Retained earnings 522,760 505,522
Accumulated other comprehensive loss (34,912) (21,629)
Treasury stock at cost: 987 and 1,081
shares, respectively (30,147) (34,394)
Restricted stock - unamortized value (1,387) (1,794)
--------- ---------
Total shareholders' investment 489,268 480,242
--------- ---------
Total liabilities and shareholders'
investment $ 875,310 $ 931,107
========= =========
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 26, 2000 and 1999
For the nine months ended December 26, 2000 and 1999
(In thousands, except per-share amounts)
(Unaudited)
Three months ended Nine months ended
------------------------ ------------------------
December 26 December 26
------------------------ ------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
Net Sales $ 252,346 $ 283,520 $ 808,605 $ 854,058
Cost of sales 186,884 205,184 589,545 614,169
--------- -------- --------- ---------
Gross profit 65,462 78,336 219,060 239,889
Selling, general, and administrative expenses 53,507 57,016 164,449 163,467
--------- -------- --------- ---------
Income from operations 11,955 21,320 54,611 76,422
Interest expense (1,758) (2,490) (5,929) (6,004)
Patent settlements - - 16,959 1,000
Other income -- net 1,012 772 5,566 3,367
--------- -------- --------- ---------
Earnings before income taxes 11,209 19,602 71,207 74,785
Provision for income taxes 5,100 3,407 28,118 23,985
--------- -------- --------- ---------
Net earnings $ 6,109 $ 16,195 $ 43,089 $ 50,800
========= ========= ========= =========
Net earnings per share of common stock
- Basic $0.21 $0.55 $1.47 $1.72
- Assuming dilution $0.20 $0.55 $1.46 $1.71
========= ========= ========= =========
Dividends per share $0.25 $0.23 $0.75 $0.69
========= ========= ========= =========
Weighted average shares -- basic 29,486 29,494 29,275 29,519
Weighted average shares -- assuming dilution 29,809 29,657 29,426 29,781
========= ========= ========= =========
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Nine Months Ended December 26, 2000 and 1999
(Unaudited)
Nine months ended December 26
-----------------------------
2000 1999
---------- ----------
Net cash provided by operating activities $114,905 $ 59,237
Cash flows from investing activities:
Expenditures for property, plant, and equipment (54,671) (73,638)
Acquisitions, net of cash acquired 249 -
Return of capital/ (investments in affiliates) 467 (2,100)
Proceeds from dispositions of property, plant,
and equipment 313 288
Other -- net (1,864) (2,249)
-------- --------
Net cash used for investing activities (55,506) (77,699)
Cash flows from financing activities:
Increase in short-term debt -- net 2,959 3,888
Additions to long-term debt 46,602 63,436
Reductions of long-term debt (98,575) (42,643)
Issuance of common stock, including treasury stock 4,582 2,675
Purchase of treasury stock (4,228) (6,888)
Cash dividends paid (21,954) (20,365)
-------- --------
Net cash (used for)/provided by financing
activities (70,614) 103
-------- --------
Net decrease in cash and cash equivalents (11,215) (18,359)
Cash and cash equivalents at beginning of period 31,070 49,163
-------- --------
Cash and cash equivalents at end of period $ 19,855 $ 30,804
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
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)
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December 26, 2000 March 31, 2000
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Raw materials $ 32,412 $ 35,872
Work in process 36,260 39,146
Finished goods 79,719 93,579
-------- --------
Total inventories $148,391 $168,597
======== ========
2. Property, plant, and equipment is composed of:
(in thousands)
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December 26, 2000 March 31, 2000
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Gross property,
plant & equipment $664,543 $634,170
Less accumulated
depreciation (313,554) (296,183)
-------- --------
Net property,
plant & equipment $350,989 $337,987
======== ========
3. Intangible assets include:
(in thousands)
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December 26, 2000 March 31, 2000
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Goodwill $ 88,370 $ 89,815
Patents and product
technology 8,389 8,389
Other intangibles 3,307 3,204
Less accumulated
amortization (35,460) (31,069)
-------- --------
Net intangible assets $ 64,606 $ 70,339
======== ========
4. Segment data:
(In thousands)
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Quarter ended December 26, 2000 1999
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Sales:
Original Equipment $ 99,813 $120,979
Distributed Products 87,809 95,299
European Operations 73,379 78,640
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Segment sales 261,001 294,918
Eliminations (8,655) (11,398)
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Total net sales $252,346 $283,520
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Operating income:
Original Equipment $ 13,563 $ 22,257
Distributed Products 5,097 7,086
European Operations 8,732 8,348
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Segment operating income 27,392 37,691
Corporate & administrative
expenses (15,479) (16,427)
Eliminations 42 52
Other items not allocated
to segments (746) (1,714)
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Earnings before income taxes $ 11,209 $ 19,602
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(In thousands)
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Nine Months ended December 26, 2000 1999
-------- --------
Sales:
Original Equipment $323,268 $352,452
Distributed Products 289,851 311,028
European Operations 222,704 223,155
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Segment sales 835,823 886,635
Eliminations (27,218) (32,577)
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Total net sales $808,605 $854,058
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Operating income:
Original Equipment $ 49,801 $ 66,146
Distributed Products 24,241 34,828
European Operations 26,634 20,860
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Segment operating income 100,676 121,834
Corporate & administrative
expenses (46,163) (45,453)
Eliminations 98 40
Other items not allocated
to segments 16,596 (1,636)
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Earnings before income taxes $ 71,207 $ 74,785
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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 nine months ended December 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 December 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 nine-month sales and
operating income information presented above has been
restated for earlier periods to reflect the effects of these
changes.
(in thousands)
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December 26, March 31,
Period ending 2000 2000
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Assets:
Original Equipment $241,314 $265,495
Distributed Products 233,109 263,733
European Operations 181,816 189,803
Corporate & Administrative 270,436 264,562
Eliminations (51,365) (52,486)
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Total assets $875,310 $931,107
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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)
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Three months ended Nine months ended
December 26 December 26
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2000 1999 2000 1999
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Net earnings per share of
common stock:
- basic $0.21 $0.55 $1.47 $1.72
- assuming dilution $0.20 $0.55 $1.46 $1.71
Numerator:
---------
Income available to
common shareholders $6,109 $16,195 $43,089 $50,800
Denominator:
-----------
Weighted average shares
outstanding - basic 29,486 29,494 29,275 29,519
Effect of dilutive
securities - options* 323 163 151 262
Weighted average shares
outstanding -
assuming dilution 29,809 29,657 29,426 29,781
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*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 $25.65 $24.82 $25.37 $27.99
Number of shares 1,263 1,458 1,263 1,149
7. Comprehensive earnings/(loss) (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 December 26, 2000 and 1999, respectively,
were $(1,877) and $12,707 for three months, and $29,806 and
$47,423 for nine 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.
10. On December 14, 2000, Modine announced an agreement to
acquire Thermacore International, Inc. a privately-held
corporation based in Lancaster, Pa., that provides advanced
thermal solutions for the electronics industry. The total
transaction is valued at $110 million, including
approximately $93.5 million for Thermacore common stock and
Modine's assumption of approximately $16.5 million in
Thermacore liabilities. The transaction is expected to be
accounted for as a pooling of interests.
Under the terms of the Agreement and Plan of Merger (the
"Merger Agreement"), the consideration to be paid per share
of Thermacore common stock is approximately $26.20 (the
"Per Share Consideration"), which was derived by dividing
the aggregate consideration to be paid in the Merger by
the number of shares of Thermacore Common stock outstanding
as of the date of the Merger Agreement, on a fully diluted
basis, after giving effect to the conversion of the
outstanding Thermacore convertible preferred stock and the
exercise of all outstanding options to acquire Thermacore
common stock.
Under the terms of the Merger Agreement, each share of
Thermacore common stock will be converted, in the merger,
into that number of shares, or fraction of a share, of
Modine common stock equal to the Per Share Consideration
divided by the unweighted average of the last-sale prices
of Modine's common stock as reported on The Nasdaq Stock
Market for the 20 trading days ending on the fifth trading
day preceding the effective date of the Merger; provided,
however, that that average may not be more than $32.00 nor
less than $22.08. Each share of Thermacore convertible
preferred stock will be converted into that number of shares
of Modine common stock that the holder would have been
entitled to receive had such share of convertible preferred
stock been converted into Thermacore common stock immediately
prior to the merger. Outstanding options to acquire shares
of Thermacore common stock will be converted into options to
acquire Modine common stock, based on the exchange ratio used
in the merger for the exchange of Thermacore common stock.
Pending regulatory approval and the approval of Thermacore
shareholders, the transaction is expected to close in early 2001.
11. 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 adjustments
that are, in the opinion of Management, necessary for a fair
presentation of results for the interim period. Results for
the first nine months of fiscal 2001 are not necessarily
indicative of the results to be expected for the full year.
12. 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 Third Quarter of 2000-01 with the Third Quarter
- -----------------------------------------------------------------
of 1999-00
- ----------
Net sales for the third quarter of fiscal 2000-2001 were $252.3
million, down 11% from the $283.5 million reported in the third
quarter of last year. Sales would have been approximately $19.8
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 almost
8%. 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 over 17%. A sharply lower
North American heavy truck market and slowing light-vehicle sales
overshadowed improved sales to off-highway customers and building-
HVAC customers. Overall revenues in the European Operations
segment declined by less than 7% 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 18%.
Gross margin at 25.9%, as a percentage of sales, was down from
27.6% recognized in the third quarter of the previous year.
Material costs as a percentage of sales grew by 1.7 percentage
points. Labor remained steady as a percentage of sales at 7.9%.
Manufacturing overhead also remained essentially unchanged as a
percentage of sales despite one-time charges recorded in the
quarter to exit an unprofitable product line in Europe. Looking
at an analysis on a business segment basis, 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 the 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 (SG&A) expenses of $53.5 million
decreased 6.2% over last year's third quarter despite the one-time
severance charges recorded in North America for staff reductions
made in the quarter. As a percentage of sales, selling, general and
administrative costs increased to 21.2% from 20.1%. The largest
reduction in the quarter was in overall compensation costs resulting
from lower management incentive and stock award expenses. Reductions
in a number of other cost categories within SG&A expenses also
contributed to the $3.5 million decrease shown for the quarter.
Operating income at 4.7% of sales was 2.8 percentage points lower
than last year. Non-recurring charges for severance and the
exiting of an unprofitable product line in Europe accounted for
approximately one-half of the decrease in operating income as a
percentage of sales. Material costs together with selling,
general and administrative expenses declined at a slower rate
than sales, also contributing to the decrease shown.
Interest expense decreased $0.7 million, or 29%, from the same
quarter a year ago while average outstanding debt levels during
the quarter decreased 36% from a year ago. Interest expense
declined at a slower rate than debt due to increased borrowing
rates from a year ago.
Net non-operating income in the current quarter increased $0.2
million from the same quarter of the previous year.
The effective tax rate of 45.5% increased 28.1 percentage points
when compared to the same period last year. A change in tax-loss
carryforwards at a foreign subsidiary was one of the main factors
contributing to the increase. The carryforward benefit of $4
million was recognized for the first time in the third fiscal
quarter last year. A change in the German statutory rate in the
third fiscal quarter this year resulted in a $1.0 million charge,
effectively reducing a portion of the tax benefit recognized
in the prior year.
Net earnings for the third quarter of $6.1 million were 62%
lower than last year's $16.2 million earned in the third quarter.
Earnings per share were $0.21 basic and $0.20 diluted, compared
to $0.55 basic and diluted in the prior year. Net earnings in
the quarter were negatively impacted by $3.3 million in
nonrecurring, pre-tax charges related to exiting an unprofitable
product line in Europe and severance charges related to staff
reductions in North America. The currency translation effect of
a stronger U.S. dollar recorded during the quarter also reduced
reported after-tax earnings by $0.04 per diluted share.
Comparison of the First Nine Months of 2000-01 with the First
- -------------------------------------------------------------
Nine Months of 1999-00
- ----------------------
Net sales for the first nine months of fiscal 2000-2001 were
$808.6 million, down 5.3% from the $854.1 million reported in the
same period of last year. Sales would have been $44.7 million
higher without the impact of a stronger U.S. dollar.
Overall changes in the company's segment sales were very similar
to those reported for the third quarter. The Distributed Products
segment declined by almost 7% 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 a little over 8%. 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 were essentially the
same as in the prior year. Improved sales volumes 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 16%.
Gross margin of 27.1%, as a percent of sales, was down 1.0 percentage
point from the first nine months of the previous year. Material
costs as a percentage of sales grew by 1.5 percentage points, while
overhead declined by 0.5 percentage point. Improvements in the
European Operations segment, despite the one-time charge to
manufacturing overhead taken in the third quarter for exiting an
unprofitable product line, and improvement shown 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, which included one-
time severance charges recorded in the third quarter, increased
0.6% to 164.4 million, or $1.0 million over the first nine months
of last year while increasing to 20.3% from 19.1% as a percentage
of sales. Other significant changes influencing the overall
change were higher depreciation expense from capital expenditures
made in the past several years, higher research and development
costs, on-going litigation costs to protect Modine's patents
around the world, and higher statutory and fringe benefits
expenses. These increases were offset, in part, by smaller
reductions in a number of other expense categories.
Operating income at 6.8% of sales, was down 2.1 percentage points
from the 8.9% in the first nine months of the previous year. As
mentioned above, special third quarter charges for severance
related to staff reductions and Modine exiting an unprofitable
product line in Europe were two items contributing to the change.
Lower sales volumes, higher material costs as a percentage of sales
and negative currency translation were also factors contributing to
the reduction.
Interest expense decreased $0.1 million, or 1.2% over the same
nine month period a year ago. Average outstanding debt levels for
the nine months declined 19% from the same period a year ago.
The debt reduction was influenced, in part, by the decline of the
Euro relative to the U.S. dollar in the current year. Despite
the overall debt reduction, interest expense remained essentially
unchanged due to higher interest rates and lower amounts of
capitalized interest.
Net non-operating income rose $18.2 million over the prior year
as a result of patent settlements received totaling $17.0 million
in the current year, a $1.3 million gain related to the sale of a
closed facility in Michigan and higher joint venture earnings.
Modine's effective tax rate increased over last's year's first
nine months by 7.4 percentage points to 39.5%. A change in tax-loss
carryforwards at a foreign subsidiary was one of the main factors
contributing to the increase. The carryforward benefit was recognized
for the first time in the third fiscal quarter last year. A change in
the German statutory rate in the third fiscal quarter of this year
resulted in a $1.0 million charge, effectively reducing a portion of
the tax benefit recognized in the prior year.
Net earnings for the first nine months of the current year were
$43.1 million, or $1.47 basic and $1.46 diluted earnings per
share. This compares to $50.8 million, or $1.72 basic and $1.71
diluted earnings per share, for the same nine- month period the
year before. The impact of a stronger U.S. dollar compared to
the prior year lowered reported after-tax earnings by $0.10 per
diluted share. Annualized return on shareholders' investment, at
11.9% was below management's target range.
Outlook for the Remainder of the Year
- -------------------------------------
On November 30, 2000, Modine revised its outlook for the fiscal
year ending March 31, 2001. The new forecast estimated annual
sales to be 7- to 10-percent lower and earnings 25- to 30 percent
below the previous year. The primary factors behind the revised
projection included: a sharply lower heavy-truck market; slowing
light-vehicle sales plus a delay in the startup of a new business
program; continued softness in the North American aftermarket; and
protracted weakness in the Euro versus the U.S. dollar. With the
exception of the Euro, which recently has strengthened somewhat,
there have been no appreciable changes in these external market
forces, and Modine anticipates similar market conditions to
prevail for the balance of this fiscal year. 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 December 26, 2000 and March 31, 2000
- -------------------------------------------------------
Current assets
- --------------
Cash and cash equivalents of $19.9 million were $11.2 million
lower than March 31, 2000. Record operating cash flows of $114.9
million were more than offset for the first nine months by
capital expenditures totaling $54.7 million, net debt repayments
of $49.0 million and $22.0 million in quarterly dividend payments.
Trade receivables of $159.0 million were down $23.7 million (13%)
over year-end primarily due to decreased sales volume (down $17.4
million over the previous quarter). A stronger U.S. dollar
relative to the Euro also contributed to the reduction in the
outstanding balances at the end of the third quarter.
Overall inventory levels decreased $20.2 million to $148.4
million compared to the prior year-end. The largest item
contributing to the decrease was a reduction in finished goods
in the aftermarket division. Smaller reductions in raw material
and work-in-process inventories were recorded in a number of the
operating divisions as well. In addition, the decline of the
Euro relative to the dollar, a decrease of almost 16%, also
had a continuing downward impact on the value of inventory
levels.
Deferred income taxes and other current assets declined by
$10.3 million to $36.9 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 $180.2 million decreased 29% from year-end.
The current ratio decreased to 2.0 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 current assets, and higher balances in the
current portion of long-term debt and accrued expenses payable.
Noncurrent Assets
- -----------------
Net property, plant and equipment increased $13.0 million to
$351.0 million as capital expenditures exceeded depreciation,
retirements and foreign currency translation impact. Current
year capital expenditures are 26% below spending levels for the
same period last year. 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, a new Caterpillar EGR program, process
improvements, tooling for new products and various new equipment
were among the items contributing to the $13.0 million increase
shown. Outstanding commitments for capital expenditures were
$35.0 million at December 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 $5.7 million. Amortization and
foreign currency translation were the main items contributing to
the change.
Investments in subsidiaries and affiliates decreased by $1.5
million with foreign currency translation responsible for the
majority of the change.
Deferred charges and other noncurrent assets increased $3.8
million. The net increase is primarily the result of continuing
recognition of the surplus in Modine's overfunded pension plans.
Partially offsetting the pension increase was a reduction in long-
term deferred tax assets.
Current Liabilities
- -------------------
Accounts payable and other current liabilities of $150.5 million
were $8.2 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 remained
essentially unchanged from March 2000.
Debt
- ----
Outstanding debt decreased by $57.1 million to $163.5 million
from March 31, 2000 balance of $220.6 million. Domestic long-
term debt decreased $43.1 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 $11.6 million. Short-term debt increased $2.4 million,
with $2.0 million of the increase taking place domestically.
Consolidated available lines of credit increased $7.3 million to
$71.9 million during the quarter, bringing the year-to-date
increase to $38.3 million. Domestically, Modine's unused lines
of credit were $45.7 million. Foreign unused lines of credit
were $26.2 million. Total debt as a percentage of shareholders'
equity decreased to 33.4% from 45.9%.
Shareholders' Investment
- ------------------------
Total shareholders' investment increased by $9.0 million to a
total of $489.3 million. The net increase came primarily from
net earnings of $43.1 million for the first nine months.
Offsetting items included an unfavorable foreign currency
translation impact of $13.3 million during the period and
dividends paid to shareholders of $22.0 million. Treasury
stock activity and stock options exercised during the period
also influenced the overall change.
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. Thomas joined Modine in
August 1998 as a Group Vice President with experience in various
financial staff and operations positions at previous companies.
On December 14, Modine announced its entry into the fastest-
growing segment of the electronics-cooling market through the
proposed acquisition of Thermacore International, Inc.
Thermacore provides customized thermal-management solutions for
high-end servers, telecommunications equipment, and other
electronics applications. The total transaction of $110 million
is expected to be accounted for as a pooling of interests of the
two companies. The closing date is anticipated to occur in early
2001.
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
- -------------- ----
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).
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.
99* Important Factors and Assumptions Regarding
Forwarding-Looking Statements. 21
*Filed herewith.
(b) Reports on Form 8-K:
-------------------
The Company filed three (3) Reports on Form 8-K during the
quarter ended December 26, 2000.
Form 8-K dated October 26, 2000 naming E. T. Thomas
Senior Vice President and Chief Financial Officer.
Form 8-K dated November 30, 2000 revising sales and
earnings outlooks.
Form 8-K dated December 13, 2000 announcing Thermacore
Agreement and Plan of Merger.
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 and
Principal Accounting Officer)
Date: February 9, 2001 By: W. E. PAVLICK
-------------------------------------
W. E. Pavlick, Senior Vice President,
General Counsel and Secretary