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 June 26, 2001
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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
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(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 August 3, 2001
------------------------------ -------------------------------
Common Stock, $0.625 Par Value 33,031,568
MODINE MANUFACTURING COMPANY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 26 and March 31, 2001 3
Consolidated Statements of Earnings -
For the Three Months Ended
June 26, 2001 and 2000 4
Consolidated Condensed Statements of Cash
Flows - For the Three Months Ended
June 26, 2001 and 2000 5
Notes to Consolidated Condensed Financial
Statements 6-12
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 13-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Recent Sales of Unregistered Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17-19
Signatures 20
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share amounts)
June 26, 2001 and March 31, 2001
(Unaudited)
June 26, 2001 March 31, 2001
------------- --------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 30,337 $ 21,744
Trade receivables, less allowance for
doubtful accounts of $2,664 and $2,459 185,354 177,972
Inventories 149,055 153,096
Deferred income taxes and other current
assets 43,319 55,248
-------- --------
Total current assets 408,065 408,060
-------- --------
Noncurrent assets:
Property, plant, and equipment -- net 357,428 366,854
Investment in affiliates 24,187 26,403
Goodwill and other intangible assets -- net 62,735 64,886
Deferred charges and other noncurrent assets 71,032 70,975
-------- --------
Total noncurrent assets 515,382 529,118
-------- --------
Total assets $923,447 $937,178
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt $ 2,378 $ 27,281
Long-term debt -- current portion 12,511 17,879
Accounts payable 78,481 80,028
Accrued compensation and employee benefits 47,784 49,161
Income taxes 9,888 6,590
Accrued expenses and other current
liabilities 32,364 29,071
-------- --------
Total current liabilities 183,406 210,010
-------- --------
Noncurrent liabilities:
Long-term debt 158,814 137,766
Deferred income taxes 31,853 31,796
Other noncurrent liabilities 38,150 38,909
-------- --------
Total noncurrent liabilities 228,817 208,471
-------- --------
Total liabilities 412,223 418,481
-------- --------
Shareholders' equity:
Preferred stock, $0.025 par value,
authorized 16,000 shares, issued - none -- --
Common stock, $0.625 par value, authorized
80,000 shares, issued 33,670 and 33,663
shares, respectively 21,043 21,039
Additional paid-in capital 17,682 17,468
Retained earnings 529,253 528,653
Accumulated other comprehensive loss (35,731) (23,651)
Treasury stock at cost: 718 and 812 shares,
respectively (19,941) (23,564)
Restricted stock - unamortized value (1,082) (1,248)
-------- --------
Total shareholders' equity 511,224 518,697
-------- --------
Total liabilities and shareholders'
equity $923,447 $937,178
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended June 26, 2001 and 2000
(In thousands, except per-share amounts)
(Unaudited)
Three months ended June 26
--------------------------
2001 2000
-------- --------
Net sales $280,631 $300,441
Cost of sales 206,668 212,554
-------- --------
Gross profit 73,963 87,887
Selling, general, and administrative expenses 56,521 56,432
-------- --------
Income from operations 17,442 31,455
Interest expense (2,065) (2,292)
Patent settlement -- 1,875
Other income --net 1,537 756
-------- --------
Earnings before income taxes 16,914 31,794
Provision for income taxes 6,696 12,581
-------- --------
Net earnings $ 10,218 $ 19,213
======== ========
Net earnings per share of common stock
- Basic $0.31 $0.60
- Assuming dilution $0.31 $0.59
======== ========
Dividends per share $0.25 $0.25
======== ========
Weighted average shares - basic 32,884 32,168
Weighted average shares - assuming dilution 33,198 32,783
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months Ended June 26, 2001 and 2000
(Unaudited)
Three months ended June 26
--------------------------
2001 2000
------- -------
Net cash provided by operating activities $30,184 $42,760
Cash flows from investing activities:
Expenditures for property, plant, and equipment (13,212) (16,765)
Investment in affiliates -- (124)
Proceeds from dispositions of assets 516 (1)
Other -- net 357 40
------- -------
Net cash (used for) investing activities (12,339) (16,850)
Cash flows from financing activities:
(Decrease)in short-term debt -- net (24,171) (3,213)
Additions to long-term debt 32,567 771
Reductions of long-term debt (11,724) (21,879)
Issuance of common stock, including treasury stock 2,660 546
Purchase of treasury stock (362) (747)
Cash dividends paid (8,222) (7,316)
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Net cash (used for) financing activities (9,252) (31,838)
------- -------
Net increase/(decrease) in cash and cash
equivalents 8,593 (5,928)
Cash and cash equivalents at beginning of period 21,744 31,242
------- -------
Cash and cash equivalents at end of period $30,337 $25,314
======= =======
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. On April 27, 2001, Modine Manufacturing Company (Modine)
acquired Thermacore International, Inc. (Thermacore) in a
business combination accounted for as a pooling of interests.
Thermacore, which provides advanced cooling solutions for
customers in the electronics and telecommunications
industries, became a wholly owned subsidiary of Modine
through the initial exchange of approximately 3.3 million
shares of Modine common stock for all of the outstanding
common and preferred stock of Thermacore International,
Inc. In addition, approximately 0.3 million shares of
Modine common stock were allocated to cover outstanding
Thermacore stock options which were converted to Modine
stock options as part of the transaction. The accompanying
financial statements are based upon the assumption that
the companies were combined for the first quarter of
fiscal 2002, and the financial statements of prior periods
have been restated to give effect to the combination.
Prior to the date of the combination, there were no
business transactions between Modine and Thermacore. No
significant adjustments have been made to conform the
accounting policies of the combining companies. No
adjustments to retained earnings were required to conform
Thermacore to Modine's March 31st year-end.
Summarized results of operations of the separate companies
for the period prior to acquisition, April 1, 2001 through
April 27, 2001, and included in the current fiscal year's
operations are as follows:
(Unaudited in 000's)
------------------------------
Modine Thermacore
------ ----------
Net sales $86,065 $3,496
Net income 3,368 (1,655)
Included in the operating results shown for April are $351,000
and $2,468,000 in pre-tax acquisition costs recorded for Modine
and Thermacore, respectively.
Following is a reconciliation of the amounts of net sales and
net income previously reported for the quarter ended June 26,
2000 with the restated amounts.
(Unaudited in 000's)
June 26, 2000
-------------
Net sales
Modine $286,484
Thermacore 13,957
--------
Combined $300,441
========
Net income
Modine $ 17,962
Thermacore 1,251
--------
Combined $ 19,213
========
2. Raw Material, Work in Progress and Finished Goods. 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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June 26, 2001 March 31, 2001
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Raw materials $ 28,892 $ 32,774
Work in process 36,501 37,321
Finished goods 83,662 83,001
-------- --------
Total inventories $149,055 $153,096
======== ========
3. Property, Plant, and Equipment.
(In thousands)
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June 26, 2001 March 31, 2001
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Gross, property,
plant & equipment $692,012 $697,063
Less accumulated
depreciation (334,584) (330,209)
-------- --------
Net property,
plant & equipment $357,428 $366,854
======== ========
4. Intangible assets.
(In thousands)
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June 26, 2001 March 31, 2001
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Goodwill $ 89,263 $ 90,361
Patents and product technology 6,901 6,901
Other intangibles 2,905 2,925
Less accumulated
amortization (36,334) (35,301)
-------- --------
Net intangible assets $ 62,735 $ 64,886
======== ========
5. Segment data.
(In thousands)
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Quarter ended June 26, 2001 2000
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Sales :
Original Equipment $ 112,288 $ 129,304
Distributed Products 101,787 109,174
European Operations 84,537 81,998
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Segment sales 298,612 320,476
Eliminations (17,981) (20,035)
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Total net sales $ 280,631 $ 300,441
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Operating income:
Original Equipment $ 17,878 $ 27,424
Distributed Products 4,614 9,367
European Operations 10,141 10,206
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Segment operating income 32,633 46,997
Corporate & administrative
expenses (15,190) (15,554)
Eliminations (1) 12
Other items not allocated
to segments (528) 339
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Earnings before income taxes $ 16,914 $ 31,794
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In the first quarter of fiscal 2002, Modine acquired
Thermacore International, Inc. in a business combination
accounted for as a pooling of interests. Sales and
operating income results for the periods presented above
have been restated to include Thermacore in the Distributed
Products segment. Included in the reported results for
Thermacore in the June 2001 quarter are $2.6 million of
acquisition costs. In addition to the Thermacore
acquisition, management also introduced other changes in the
current year to the segment reporting structure. Two changes
made in the first quarter of the current fiscal year that
affected operating results previously reported in the June
2000 quarter were the relocation of the Goch, Germany
facility previously reported in the Original Equipment
segment to the European Operations segment and the Emporia,
Kansas facility previously reported in the Distributed
Products segment to the Original Equipment segment. These
revisions were made to align the plants with the current
management reporting structure. Sales and operating income
presented for the June 2000 quarter has been restated for
the realignment of these two manufacturing facilities. Other
less significant changes also made in the current year that
affected Corporate and administrative expenses reported in
the June 2001 quarter were the relocation of the Fuel Cell
group to the Original Equipment segment and the relocation
of the Engine Products staff to Corporate from the Original
Equipment segment. Sales and operating income data
presented for the June 2000 quarter were not restated for
these two changes due to their insignificance.
(In thousands)
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June 26, March 31,
Period ending 2001 2001
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Assets:
Original Equipment $ 213,801 $ 201,906
Distributed Products 268,689 260,446
European Operations 200,641 214,186
Corporate & Administrative 252,464 274,575
Eliminations (12,148) (13,935)
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Total assets $ 923,447 $ 937,178
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Assets for Thermacore are reported in the Distributed
Products segment. Two changes made in the current year that
affected assets previously reported at March 31, 2001 were
the relocation of the Goch, Germany facility (previously
reported in the Climate Systems division) from the Original
Equipment segment to the European Operations segment and the
Emporia, Kansas facility (previously reported in the
Aftermarket division) from the Distributed Products segment
to the Original Equipment segment. The asset data presented
has been restated for March 31, 2001 to reflect the
acquisition and the segment relocation of the two
manufacturing facilities.
6. Recent developments concerning legal proceedings reported in
the Modine Manufacturing Company ("Modine or the Company")
Form 10-K report for the year ended March 31, 2001, 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.
7. The computational components of basic and diluted earnings
per share are as follows:
(In thousands, except per-share amounts)
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Three months ended June 26
2001 2000
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Net earnings per share of common stock:
--------------------------------------
- basic $0.31 $0.60
- assuming dilution $0.31 $0.59
Numerator:
---------
Income available to common shareholders $10,218 $19,213
Denominator:
-----------
Weighted average shares
outstanding - basic 32,884 32,168
Effect of dilutive securities - options* 314 615
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Weighted average shares outstanding -
assuming dilution 33,198 32,783
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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 $26.47 $23.57
Number of shares 1,179 1,752
8. Comprehensive (loss)/earnings, which represents net earnings
adjusted by the change in foreign-currency translation and
minimum pension liability recorded in shareholders' equity for
the 3 months ended June 26, 2001 and 2000, were $(1,862,000) and
$15,627,000 respectively.
9. In June 2001, the Financial Accounting Standards Board
issued SFAS 141 "Business Combinations" and SFAS 142
"Goodwill and Other Intangible Assets". SFAS 141 requires
that all business combinations initiated after June 30, 2001
be accounted for under the purchase method. With the
adoption of SFAS 142, goodwill is no longer subject to
amortization over its estimated useful life. Instead,
goodwill will be subject to at least an annual assessment
for impairment by applying a fair-value-based test.
Similarly, goodwill associated with equity method
investments is no longer amortized. Equity-method goodwill
is not, however, subject to the new impairment rules; the
impairment guidance in existing pronouncements for equity-
method investments will continue to apply. In addition,
under the new rules, acquired intangible assets will be
separately recognized if the benefit of the intangible asset
is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to
do so. The provisions of Statement 142 must be applied with
fiscal years beginning after December 15, 2001. Modine will
adopt SFAS No. 142 beginning April 1, 2002. Due to the
recent issuance of the SFAS 141 and 142 by the Financial
Accounting Standards Board, final rules and definitive
application guidance are currently unavailable. Accordingly,
management has not yet determined the effect, if any, the
new rules will have on the financial position or results
of operations. Any adjustments arising from the initial
impairment assessment would be reported as the cumulative
effect of a change in accounting principle.
10. On April 1, 2001, Modine adopted Statement of Financial
Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities" and Statement
of Financial Accounting Standards No. 138 "Accounting For
Certain Derivative Instruments and Certain Hedging
Activities". No adjustments to the June 26, 2001 financial
statements were necessary as a result of applying the new
regulations set forth in SFAS 133 and 138. Modine maintains
a foreign risk-management strategy that uses derivative
instruments in a limited way to protect assets and
obligations already held by Modine and to protect its
cashflows. Derivative instruments are not used for the
purpose of generating income or speculative activity.
Leverage derivatives are prohibited by Company policy.
Modine's derivative/hedging activity can be generally
categorized into three main areas:
Hedges of Net Investments in Foreign Subsidiaries
-------------------------------------------------
The Company has a number of investments in wholly owned
foreign subsidiaries and non-consolidated foreign joint
ventures. The net assets of these subsidiaries are exposed
to currency exchange-rate volatility. The Company uses non-
derivative financial instruments to hedge this exposure.
The currency exposure related to the net assets of Modine's
European subsidiaries and its joint venture in Japan are
managed partially through foreign-currency-denominated debt
agreements entered into by the parent. For the quarter
ended June 26, 2001, $1.2 million of net gains related to
the foreign-currency-denominated debt agreements were
included in the cumulative translation adjustment.
Foreign-Exchange Contracts Hedging Foreign Denominated Trade
------------------------------------------------------------
Receivables
-----------
The Company routinely exports its products to Europe in
sales transactions, some of which result in foreign-currency-
denominated trade receivables. The Company enters into
foreign exchange contracts, generally with terms of 90 days
or less, to hedge these specific foreign-currency-
denominated trade receivables. These contracts do not
subject Modine to significant risk due to the exchange-rate
movements because gains and losses on these contracts offset
gains and losses on the trade receivables being hedged. As
of June 26, 2001, the company had approximately $1.0 million
in outstanding forward foreign-exchange contracts
denominated in Euros. The difference between these
contracts' values and the fair value of these instruments in
aggregate was not material.
Sales and Purchase Contracts
----------------------------
The Company on a regular basis enters into long-term sales
and purchase contracts with vendors and customers that link
the prices charged for materials such as copper and aluminum
to certain published commodity indices. These transactions
are routine in nature and provide no net settlement
provision and no market mechanism to facilitate net
settlement. As a result management has determined that
these transactions fall outside of the provisions of SFAS
133 and 138.
Certain subsidiaries have transactions in currencies other
than their functional currencies and, from time to time,
enter into forward and option contracts to hedge the
purchase of inventory or to sell nonfunctional currency
receipts. These transactions are infrequent and immaterial
to the results of operations and financial condition of the
Company.
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, 2001 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
statement of results for the interim period. Results for the
first three months of fiscal 2002 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. Therefore, such
statements should be read in conjunction with the consolidated
financial statements and related notes contained in Modine's 2001
Annual Report to shareholders, which statements and notes were
incorporated by reference in Modine's Form 10-K Report for the
year ended March 31, 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
The following discussion and analysis provides information that
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. All period comparisons presented below include
Thermacore International, Inc. which was acquired in a pooling
transaction on April 27, 2001.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the First Quarter of 2001-02 with the First Quarter
- -----------------------------------------------------------------
of 2000-01
- ----------
First quarter net sales of $280.6 million were 6.6% lower than
the $300.4 million reported in the first quarter of last year.
Sales would have been approximately $5.1 million higher if the
U.S. dollar had not strengthened to well above last year's level,
relative to the Euro.
Revenues from the European operations segment grew by more than
3% from the same quarter last year. Volume increases in Europe
were partially offset by the continuing strength of the U.S.
dollar. Revenues recorded in the Original Equipment segment
declined by over 13% from one year ago. Sales to markets served
by the Original Equipment segment were down across the board. In
the Distributed Products segment, revenue declines approached 7%.
All markets served by this segment were also down from one year
ago.
Gross margin, as a percentage of sales, was 26.4%. This was a
2.9% decline as a percentage of sales from the 29.3% earned in
the first quarter of the previous year. Lower gross margins were
earned across all segments of the Company, reflecting the weakened
market conditions in the U.S. and the strengthening of the dollar
in relation to the Euro from the same quarter one year ago.
Selling, general and administrative expenses of $56.5 million
remained virtually unchanged from last year's first quarter while
increasing to 20.1% from 18.8% as a percentage of sales. Without
the one-time pre-tax charges of $3.1 million related to the
Thermacore acquisition recorded in the quarter, selling, general
and administrative expenses would have been only 19.0% as a
percentage of sales.
Average outstanding debt levels decreased $38.4 million, or
approximately 17.7%, from the same quarter a year ago while
interest expense decreased 9.9%, or $0.2 million. Interest
expense declined at a slower rate primarily due to lower
capitalized interest amounts associated with capital projects.
Net non-operating income declined by $1.1 million from the same
quarter of the previous year. Included in last year's first
quarter was a patent settlement with Mitsubishi Heavy Industries
for $1.9 million as a partial settlement for past infringement of
Modine's PF technology. The other large item influencing the
overall change were higher equity earnings in affiliates in the
current fiscal year.
The provision for income taxes in the current quarter was $6.7
million compared to last years' first quarter expense of $12.6
million. The effective tax rate in both years was 39.6%.
Net earnings for the quarter of $10.2 million were 47% lower than
the same quarter a year ago at $0.31 basic, and $0.31 diluted
earnings per share compared to last year's first quarter net
earnings of $19.2 million, or $0.60 basic and $0.59 diluted
earnings per share. Return on shareholders' equity was 7.9
percent.
Outlook for the Remainder of the Year
- -------------------------------------
For the fiscal year, management anticipates that overall revenues
will be close to fiscal 2001 levels, with the first half down from
the year before, but with improvement coming in the second half of
the year. Earnings, excluding prior year patent settlement gains,
are expected to follow this same pattern, gaining momentum during
the year. Modine will continue to focus on cash flow through
improved working capital management, which should help the company
once again generate operating cash flows near fiscal 2001's record
levels. In addition, Modine expects capital expenditures to
continue their downward trend in fiscal 2002, falling below last
year's total. These forward-looking statements regarding sales,
earnings, and operations are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those projected. See "Important Factors and Assumptions
Regarding Forward-Looking Statements" attached hereto as Exhibit
99 and incorporated herein by reference.
FINANCIAL CONDITION
- -------------------
Comparison between June 26, 2001 and March 31, 2001
- ---------------------------------------------------
Current assets
- --------------
Cash and cash equivalents of $30.3 million increased $8.6 million
from the March 31, 2001 balance. Cash provided by operating
activities during the quarter exceeded capital expenditures, debt
reductions and the quarterly dividend payment.
Trade receivables of $185.4 million were up $7.4 million (4%)
over year-end primarily due to increased sales volumes, up $9.1
million over the previous quarter, and an increase of two
collection days when compared to the fourth quarter of fiscal
2001.
Inventory levels of $149.1 million dropped by $4.0 million from
year-end and $25.4 million from the same quarter a year ago. On-
going management programs to reduce inventory levels and the
exchange rate impact of the U.S. dollar relative to the Euro were
the main factors contributing to the reduction from a year ago.
Deferred income taxes and other current assets declined by $11.9
million from year-end. The largest single item contributing to
the change was a reduction in unbilled customer tooling. Other
items also contributing to the overall change were lower foreign
currency contracts hedging trade receivables in foreign currencies,
receipt of a dividend from the company's joint venture in Japan
which was classified as a receivable at year-end and a reduction
in receivables arising from stock transactions with employees.
The current ratio increased from 2.0 to 1 to 2.2 to 1. Net
working capital increased $26.6 million to $224.7 million. Major
items influencing the change were higher cash and cash
equivalents, higher trade receivables, and lower short-term debt
and the current portion of long-term debt. These were offset in
part by lower inventories, lower other current assets, higher
income taxes payable and higher accrued expenses.
Noncurrent assets
- -----------------
Net property, plant and equipment of $357.4 million declined by
$9.4 million over year-end. Capital expenditures during the
quarter were lower than depreciation, retirements, and foreign
currency translation. Expenditures for European production,
administrative, and technical center facilities, new programs for
automotive and truck OEM customers, process and facility
improvements, tooling for new products and other new equipment
purchases were among the larger capital expenditures.
Outstanding commitments for capital expenditures were $22.4
million at June 26, 2001. 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 operations and third party borrowing as
required.
Investments in unconsolidated affiliates of $24.2 million
declined by $2.2 million from year-end. The largest item
contributing to the decrease in the quarter was the unfavorable
currency translation effect on Modine's Brazilian joint venture
company, Radiadores Visconde, Ltda. Higher equity earnings
partially offset this negative translation effect.
Intangible assets decreased by $2.2 million. Amortization and
foreign currency translation were the main items contributing to
the change.
Current Liabilities
- -------------------
Accounts payable and other current liabilities of $158.6 million
were $0.4 million higher than March 2001. Normal timing
differences in the level of operating activity were responsible
for changes in the various components. Accrued income taxes
increased $3.3 million from timing differences in making
estimated payments.
Debt
- ----
Outstanding debt decreased $9.2 million to $173.7 million from
the March 2001 balance of $182.9 million. Domestic long-term
debt increased $15.4 million with existing lenders.
Approximately $7.0 million of long-term debt, originally secured
during the construction of the Company's Pontevico, Italy
manufacturing facility, was refinanced in Europe. Total short-
term borrowing decreased $24.9 million to $2.4 million. The
domestic portion of the reduction in short-term debt totaled
$18.5 million and the foreign portion was $6.4 million. Total
debt assumed in the Thermacore acquisition of $14.0 million was
refinanced using current lines of credit with an existing lender
at more favorable interest rates.
Consolidated available lines of credit decreased $13.9 million to
$53.8 million during the quarter. Domestically, Modine's unused
lines of credit were $25.6 million. Foreign unused lines of
credit were $28.2 million. Total debt as a percentage of
shareholders' equity decreased from 35.3% to 34.0%.
Shareholders' Equity
- --------------------
Total shareholders' equity decreased by $7.5 million to a total
of $511.2 million. The net decrease resulted primarily from
unfavorable foreign currency translation impact of $12.1 million
during the quarter as the dollar continued to strengthen against
the Euro and from dividends paid to shareholders of $8.2 million.
These changes were offset in part by net earnings of $10.2
million for the first three months and a reduction in treasury
shares held by the company resulting in a decrease of $3.6
million in treasury stock. A corresponding decrease in retained
earnings of $1.4 million to record the losses on the issuances of
treasury shares to satisfy stock option exercises and employee
stock plan requirements was also recorded in the quarter.
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 and license
agreement. The Agreement calls for cross-licensing of these
technologies between the parties. As a result of the agreement and
another with Mitsubishi Heavy Industries, Modine received, in the
first and second quarters of fiscal 2001, payments totaling $17
million representing partial settlement for past infringement of
Modine's PF technology. Subsequent payments of approximately $27
million are payable to Modine subject to 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 and Mitsubishi for the use of Modine's PF technology
through the expiration of the corresponding patents in 2006-2008.
All legal proceedings between the parties have been dismissed.
In February 2000, Modine filed a complaint against Delphi
Automotive Systems Corporation in the U.S. District Court in
Milwaukee, Wisconsin, alleging infringement of its PF patent.
Other previously reported legal proceedings 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 2. Recent Sales of Unregistered Securities
On June 13, 2001, Modine issued 7,619 shares of its common
stock to a former employee of Thermacore International, Inc.
("Thermacore") upon the exercise of options to acquire Modine
common stock held by such former employee. The exercise price of
the options was $5.67 per share of Modine common stock. The
offer and sale of Modine common stock upon exercise of those
options was not registered under the Securities Act of 1933, as
amended. Modine acquired Thermacore on April 27, 2001, at which
time all options to acquire shares of Thermacore common stock
held by employees and two former employees of Thermacore
(including the one referenced above) were converted into options
to acquire Modine common stock. Neither offers nor sales of
common stock to those two persons who were not employees of
Thermacore at the time that it became a subsidiary of Modine are
eligible for registration on Form S-8. Those offers and the sale
of 7,619 shares of Modine common stock that is the subject of
this paragraph are being made in reliance upon the private
placement exemption under Section 4(a) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
The following are the results of voting by stockholders present or
represented at the Annual Meeting of Stockholders on July 18, 2001:
1. Election of Directors. The following were elected to
---------------------
serve as directors of the Company until 2004 or until their
successors are elected:
Votes For Votes Withheld
--------- --------------
Donald R. Johnson 25,978,415 2,074,276
Gary L. Neale 27,675,968 376,723
Richard J. Doyle 27,678,842 373,849
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).
Reference Number
per Item 601 of
Regulation S-K Page
- ---------------- ----
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 Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 2001).
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 four reports on Form 8-K, described as follows:
1. Dated April 27, 2001 to report the closing of the Thermacore
and Modine Manufacturing Company Merger.
2. Dated June 8, 2001 to report that certain forward looking
statements regarding forecasts of sales and earnings growth
are subject to certain risks and uncertainties as explained
therein.
3. Dated July 10, 2001 to report the Condensed Consolidated
Results of Operations for Thermacore and Modine.
4. Dated July 18, 2001 to report the projected earnings for the
coming fiscal year.
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: August 6, 2001 By: D. R. ZAKOS
-------------------------------------
D. R. Zakos, Vice President, General
Counsel and Secretary