EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Modine Manufacturing Company continued its growth momentum during
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the fiscal year.
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Modine Manufacturing Company continued its growth momentum during
the fiscal year ended March 31, 1995. For the fifth consecutive
year, every quarter advanced in sales, compared with the prior
year. Approximately half of the fiscal year's 36.4-percent sales
increase came from two European acquisitions that were made
towards the end of the year before. The rest of the increase was
due to strong growth across all of Modine's operations.
Operating income rose to 12.3 percent of sales in fiscal 1995,
the fourth consecutive percentage increase. Important factors in
continuation of this trend included: fixed costs spread over higher
volume; a greater proportion of sales to original-equipment
manufacturers (OEMs); continuing benefits from cost-reduction efforts;
and productivity increases.
Modine's performance was up despite the adverse impact on
operating profit from the rise in costs for two major raw
materials. Copper prices rose steadily throughout fiscal 1995,
ending up 58-percent higher than at the prior year end. After
peaking in January, aluminum was up 44 percent in March compared
with twelve months earlier. Because of the high material content
of Modine's sales, these cost changes must be passed through to
our customers, but with somewhat of a delay and, therefore, a
dampening effect on operating margins.
The company's 1994-95 revenues from its top ten customers were 35
percent of total sales, the same as the year before. No single
customer dominated. Modine's sales to its largest customer were
less than seven percent in both fiscal 1995 and 1994.
Fiscal-year sales by market
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The aftermarket is still the largest of the company's major
markets. This business was 24 percent of total sales in the
latest fiscal year, down from 29 percent in 1994 despite growing
14 percent year-over-year to record levels. The expansion of
Modine's OEM sales through the European acquisitions late in
fiscal 1994 caused the decrease in the proportion of sales that
went to aftermarket customers in fiscal 1995.
Primarily selling radiators and radiator cores as replacements in
passenger-car markets, the aftermarket business benefited from a
record number of vehicles in operation as well as of those in the
prime repair age, with the bulk of these sales in North America.
Modine's European aftermarket operations saw large percentage
increases during fiscal 1995. The new Mexican and Spanish
acquisitions will boost Modine's share of the worldwide
aftermarket in this new fiscal year.
The major market with the greatest percentage growth consisted of
sales to OEM customers for passenger-car and light-truck
applications. Most of the 70-percent growth year-over-year was
due to the full-year effect of fiscal 1994's acquisitions. At 22
percent of total revenues, this was Modine's second largest
market. Some of the future growth in this market will come from
new products such as the aluminum Donut oil cooler and a latent-
heat battery that would help decrease emissions by enabling
immediate warm-up of a vehicle's engine, from increased sales of
PF air-conditioning components, and from the addition of climate-
control systems for vehicles through the impending Signet
acquisition.
OEMs of medium and heavy trucks made up the third largest market
for Modine with 17 percent of total sales. Company shipments grew
48 percent during fiscal 1995, aided considerably by the full
year's sales from the earlier European acquisitions. In North
America, a new Truck Division was created by splitting the
Automotive Division in two, to better focus resources and long-
term initiatives on the specific needs of each of these important
markets. Fiscal 1995 sales were aided by another record sales
year for the large, Class-8 trucks -- up 20 percent in the United
States and Canada. The ability to offer complete heating and
cooling systems in the future will provide additional impetus to
Modine's sales growth to this market.
Modine's sales to the industrial market grew 36 percent last year
to end up at 14 percent of the company's total. The inclusion of
L,ngerer & Reich (L&R) for a full 12 months was a large factor in
the growth, although sales to most parts of this diverse market
were stronger than in the previous year. Engine manufacturers
make up part of the industrial market; and, once again, some of
the market's growth came from increased truck sales in North
America because a part of the OEM engine output goes to various
truck manufacturers.
Sales to the building-HVAC (heating, ventilating, air-
conditioning) market were up 12 percent, reversing a small
decline in fiscal 1994. A strong U.S. economy and growth in
commercial-industrial construction combined with a recovery in
sales to OEMs for residential markets to effect Modine's results.
Despite a substantial increase overall in the fiscal year, this
market made up only nine percent of total revenues because of the
higher growth in other areas. The transfer of PF technology from
vehicular to building-HVAC markets plus new sales to
international customers should bolster expansion in the future.
Modine shipments to the off-highway-equipment market grew 23
percent with essentially no help from acquisitions. This category
was eight percent of overall sales in fiscal 1995. Shipments to
OEMs of construction and agricultural equipment improved with the
help of rising economies in most Western, developed countries.
The trend toward partnerships with customers continued, with
Modine assuming more responsibility for overall cooling design in
return for long-term agreements as a supplier. Customers also
continued their trend of purchasing more assembled cooling-system
modules, which will become even more important as Modine adds
expertise for entire systems. Looking to the near future, the
initial phases of off-highway emission regulations begin in the
United States in January 1996. As this progresses, it should
result in more charge-air cooling sales as well as the need for
more efficient heat exchangers.
Sales by product in fiscal 1995
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As mentioned earlier, modules consisting of several different
heat exchangers are gaining importance in satisfying customer
needs. The sales of these packaged assemblies has contributed to
Modine's recent success and will likely be even more significant
in the future. Entering the complete systems business will
accelerate this trend and Modine's overall sales in coming years.
Radiator sales in fiscal 1995 were two and a half times as large
as the next biggest product category. This product line,
consisting of both complete radiators and cores, made up 42
percent of total sales, with a year-over-year growth rate of 27
percent. The proportion going to OEM customers, as opposed to the
aftermarket, rose from 41 percent in fiscal 1994 to 48 percent
last year. The increase was due to L&R operations being a part of
Modine for a longer period in fiscal 1995.
Oil coolers constituted 16 percent of Modine's latest annual
sales. The product category grew 47 percent over the prior year's
total. Donut oil coolers made up the largest single type, and
future sales will be helped by the introduction of aluminum Donut
oil coolers and expanded applications of PF oil-cooling products.
The largest percentage increase in sales came from vehicular air-
conditioning condensers and evaporators. Shipments of these
products grew 55 percent in fiscal 1995 to reach 14 percent of
Modine's overall sales. The growth stemmed from the acquisition
of Austria W,rmetauscher GmbH as well as strong increases for
products such as PF condensers.
Modine's sales of charge-air coolers benefited from the L&R
acquisition, continuing their long growth trend as a major
product line. These heat exchangers were 12 percent of total
company revenues, based on a 47-percent increase over the
previous fiscal year.
Building-HVAC products grew 12 percent year-over-year and
represented nine percent of Modine's sales, as discussed earlier
in this report.
Capital expenditures and R&D
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Capital expenditures of $34.1 million in fiscal 1995 were almost
17-percent higher than the prior year. Significant investments
were made at a number of locations, including: the Logansport,
Indiana, oil-cooler plant; the Trenton, Missouri, radiator
facility; and the Clinton, Tennessee, air-conditioning-components
plant.
Outstanding commitments for capital expenditures at March 31,
1995, were approximately $13.6 million. Most relate to plant
expansions, process improvements, tooling for new products, and
various new equipment. About $5.1 million of the outstanding
commitments cover facility improvements and equipment upgrades
for the L&R locations. A year earlier, there were outstanding
commitments of $5.8 million. Capital expenditures are financed
from cash generated internally.
Modine's investment in research and development grew 14.7 percent
last year to $10.9 million, due in part to the L&R acquisition.
Coordinated R&D activities are underway in Europe and North
America, giving Modine the ability to efficiently serve its
customers' needs. The acquisition of Signet Systems will bring
additional valuable capabilities including a second full-vehicle
wind tunnel.
The primary focus of R&D continues to be the development of new
or improved products and processes in order to maintain Modine's
technological leadership in the heat-transfer industry. Among 11
U.S. patents issued last year was one that extends the range of
applications for PF technology. The company now owns 790 patents
worldwide.
Other operational activities
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Modine expanded its international presence last year by opening
sales offices in: Yokohama, Japan; Gdansk, Poland; and Milan,
Italy. The Uden plant in The Netherlands was restarted for the
production of vacuum-brazed aluminum products.
Subsequent to the year end, Modine acquired a plant in Granada,
Spain; signed a letter of intent to purchase an operation in
Mexico City, Mexico; and announced its intention to sell the
Dowagiac, Michigan, copper-tubing extrusion business that came as
part of an October 1990 acquisition. The anticipated purchase of
Signet Systems will add plants in Harrodsburg, Kentucky, and
G"ch, Germany, plus a sales and engineering office in Detroit,
Michigan. The company intends to finance these acquisitions
through a combination of internally generated cash, proceeds from
the sale of the copper-tubing extrusion business, and some
additional debt.
Total worldwide employment at Modine expanded 10.7 percent to
7,551 because of increased production demands that resulted from
the 36.4-percent increase in sales.
During the last fiscal year, nine Modine plants earned a total of
18 new awards from new or existing customers. Nine plants also
received 18 recertifications from eight different customers.
Three building-HVAC plants maintained product certifications from
seven agencies on nine product types.
Fourteen U.S. manufacturing facilities have individually met or
exceeded their goals from a 1991 waste minimization program. The
objective was to reduce overall waste by 65 percent by December 1995.
The companywide results as of December 1994 reached a 58.7-percent
reduction and Modine expects to meet its ambitious goal. Waste-
minimization efforts continue at all plants because the programs
reduce costs as well as benefit the environment.
Accounting changes
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In the first quarter of fiscal 1994, the company adopted FASB
Statement 109, "Accounting for Income Taxes," with a resulting
increase in earnings of $0.9 million.
The company adopted FASB 106, relating to postretirement
benefits, in the 1993 fiscal year, as explained in Note 4.
Hedging and foreign currency exchange contracts
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On a limited basis, the company enters into foreign-exchange options
and forward contracts on foreign currencies and copper futures as hedges
against the impact of currency and raw-material price fluctuations.
See Note 14.
Environmental matters
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In fiscal 1995, the company set up additional reserves of
$415,000 for a Superfund assessment and $44,000 for the estimated
total environmental cleanup cost at a specific location in Missouri.
During the prior fiscal year, the company established reserves of
$533,000 for the estimated total environmental cleanup costs to
be incurred at specified locations in California and Illinois.
During fiscal 1993, the company reached a tentative agreement with
the Federal Environmental Protection Agency to pay a penalty of $750,000
and incur other expenses to change the effluent discharge system at the
McHenry, Illinois, manufacturing facility. See Note 20.
It is likely that the company will, in the future, incur additional
charges for environmental programs relating to past operations, but such
costs at this time are unknown and indeterminable. There are no other
currently known liabilities that would have a significant effect on the
company's consolidated financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Sales
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Sales of $913.0 million were up $243.5 million or 36.4 percent.
European acquisitions made late in the prior fiscal year were major
contributors to the continuing sales growth, accounting for approximately
one-half of the percentage increase for the year. European sales results
were also positively impacted by the strengthening value of the Deutsche
mark and other European currencies against the dollar. Strong sales growth
across all of Modine's domestic and other foreign operations contributed to
the remaining sales increase.
Sales for the previous fiscal year were $669.6 million, up $98.7 million
or 17.3 percent. Acquisitions made in Europe, together with significant
sales increases to truck and engine manufacturers and to the passenger-
car aftermarket, were the major contributors to the sales growth.
Sales for the fiscal year ended March 1993 were also up, by $44.3 million
or 8.4 percent, with the majority of the improvement arising from increased
penetration in the medium- and heavy-truck markets.
Gross Profit
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Gross profit margin, at 29.4 percent of sales, declined 0.9 percentage
points. Higher raw material costs in two major component metals, copper
and aluminum, contributed to a portion of the reduction, as did higher
labor cost. While improvements have been made, the gross profit margins
generated by the recently acquired companies in Europe are not at the level
generally earned domestically. The full-year effect of including these
lower margins was also a factor in the overall gross-profit percentage
decrease.
Gross profit margin in the previous fiscal year, at 30.3 percent of
sales, was up 1.2 percent, largely as a result of increased sales volume
in most markets Modine serves.
Gross profit margin in fiscal 1993, at 29.1 percent, was up from 28.6
percent, mainly due to improved volume, particularly in the truck market,
and also from increased sales for European passenger cars. Cost of sales
was impacted by a reserve for a penalty of $750,000 plus other expenses
related to an action by the U.S. Environmental Protection Agency relative
to a manufacturing plant in Illinois.
Selling, general and administrative (SG&A)
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SG&A expenses for the year totaled $156.2 million, up $29.5 million
or 23.2 percent from the previous year. Over 75 percent of the overall
dollar increase can be attributed to the full-year impact of the two
European companies acquired in fiscal 1994. SG&A expenses continued
to trend downward as a percentage of sales, declining to 17.1 percent
from 18.9 percent of sales the year before. Ongoing sales volume
increases, together with the careful monitoring of costs, are the
primary reasons for this positive trend.
SG&A expenses for the previous year totaled $126.7 million, an $18.4-
million or 17.0-percent increase. More than half of the dollar increase
came from the European acquisitions made during the year. As a percentage
of sales, SG&A declined to 18.9 percent from 19.0 percent the prior year.
SG&A in fiscal 1993 increased by $1.8 million or 1.7 percent while
decreasing as a percentage of sales from 20.2 percent to 19.0 percent.
Income from operations
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Fiscal 1995 income from operations, at $112.1 million, was up 47.0
percent from the prior year. Growing sales volumes and close monitoring
of overhead costs by management contributed to the continuation of this
favorable trend.
Income from operations in fiscal 1994 and 1993 were $76.2
million and $57.5 million, respectively. On a percentage basis,
the two years increased by 32.5 percent and 30.5 percent,
respectively. As in the current year, volume increases and
continuing control over cost increases were the main factors
leading to the improvements shown.
Interest expense
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Interest expense in the last year grew by 6.2 percent. The
full-year impact of foreign-denominated borrowing made in
conjunction with the prior year's acquisitions and the declining
dollar in relation to the Deutsche mark and other European
currencies increased interest expense. These increases were
offset in part by scheduled and discretionary reductions in
domestic borrowing and by a declining European interest-rate
environment, which the company utilized to restructure certain
foreign debt arrangements.
Interest expense for each of the previous two years was $6.0
million. Although outstanding debt at the end of fiscal 1994
increased by $32.6 million, interest expense remained essentially
unchanged. Scheduled repayments of domestic debt carrying higher
interest rates offset the increase in lower-rate foreign-
denominated debt that was outstanding for only four months of the
year. In fiscal 1993, discretionary debt repayments from
available cash led to a $1.2-million reduction in interest
expense.
Other income, net
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Other income of $3.2 million remained relatively consistent
when compared with the prior years' totals of $2.8 million and
$2.5 million. Positively influencing the current year results
were foreign-currency transaction gains recorded as the result of
the declining dollar.
Provision for income taxes
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In the 1994-95 fiscal year, the income-tax rate was 37.1
percent, down 3.9 percent from the 41.0-percent level before the
effect of adopting FASB 109 the year before. The main items
leading to the rate reduction were: the net utilization of
certain foreign operating-loss-carryforwards and a reduction in
foreign joint-venture dividends, which are taxed on receipt.
In the prior year, the income-tax rate before the effect of
adopting FASB 109 was 41.0 percent, up from 38.2 percent in the
previous year. The increase was caused mainly by two factors: the
one-percent increase in the U.S. federal income-tax rate and the
fact that the recent European acquisitions placed a significantly
larger portion of the company's business in foreign countries.
The net income-tax rate in fiscal 1993, before the effect of
FASB 106, was 37.7 percent, up from the previous year's 35.5
percent. The major factors driving this increase were: reduced
earnings in foreign joint ventures, which are booked on an after-
tax basis; and decreased earnings in a foreign subsidiary, which
was not subject to tax because of past losses.
Change in accounting for income taxes
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In the first quarter of fiscal 1994, Modine adopted FASB 109
recognizing a gain of $0.9 million, or 3 cents per share, which
was the net impact of adopting this accounting standard.
Change in accounting for postretirement benefits other than pensions
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Modine adopted FASB 106 (effective as of the first quarter
of fiscal 1993) to recognize an after-tax charge of $13.7
million, or 46 cents per share, for all prior years' obligations.
Net earnings before the impact of accounting changes
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Net earnings were $68.4 million, or 7.5 percent of sales, up
58.8 percent from the prior year net earnings before the
accounting change. This continued the string of record-setting
years for the company and is indicative of the wide success
experienced in the domestic and foreign markets that are being
served by the company. Positive contributions by operating units
acquired in Europe the year before were also a factor
contributing to the new earnings record.
Net earnings in fiscal 1994, before the impact of the
accounting change for income taxes, were $43.1 million or 6.4
percent of sales, up $9.4 million or 27.9 percent from the
previous year. Increased sales volume was the main factor
contributing to the record results achieved during the year.
Net earnings in fiscal 1993, before the accounting change
for postretirement benefits other than pensions, were $33.7
million or 5.9 percent of sales, up $5.7 million or 20.2 percent
from the year before. Once again, the improvements were largely
the result of increased sales volume.
Net earnings after the impact of accounting changes
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Net earnings were $68.4 million, up $24.5 million from the
year before. There were no accounting changes adopted during the
last year that impacted earnings.
Net earnings for the company in the previous year, after the
effect of FASB 109 (which added $0.9 million to earnings), were
$44.0 million, up $24.0 million from the previous year when
earnings were reduced by $13.7 million for FASB 106 charges.
Net earnings in fiscal 1993 after the adoption of FASB 106
were $20.0 million, down $8.0 million or 28.7 percent from a year
earlier.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per-share amounts)
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For the years ended March 31 1995 1994 1993
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Net sales $913,010 $669,553 $570,839
Cost of sales 644,753 466,575 404,942
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Gross profit 268,257 202,978 165,897
Selling, general, and administrative
expenses 156,203 126,739 108,361
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Income from operations 112,054 76,239 57,536
Interest expense (6,384) (6,009) (5,953)
Other income - net 3,157 2,796 2,522
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Earnings before income taxes 108,827 73,026 54,105
Provision for income taxes 40,385 29,935 20,418
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Earnings before cumulative effect of
accounting changes 68,442 43,091 33,687
Cumulative effect of change in
accounting for:
Income taxes -- 899 --
Postretirement benefits other
than pensions (net of income
tax benefit of $8,046) -- -- (13,700)
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Net earnings $ 68,442 $ 43,990 $ 19,987
-------- -------- --------
Earnings per share of common stock
before cumulative effect of
accounting changes $2.24 $1.41 $1.12
Cumulative effect per share of
accounting changes -- 0.03 (0.46)
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Net earnings per share of common stock $2.24 $1.44 $0.66
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Average common shares and common share
equivalents outstanding 30,534 30,471 30,164
<FN>
The notes to consolidated financial statements are an integral
part of these statements.
MANAGEMENT'S DISCUSSION OF FINANCIAL POSITION
Current assets
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Cash and cash equivalents decreased by $5.8 million to $32.7
million. Sources and uses of cash are set forth in the
accompanying statement of cash flows.
Trade receivables, net of allowances for doubtful accounts,
increased by $34.9 million to $145.2 million, primarily as a
result of increased sales in virtually all areas of the company's
business.
Inventories increased by $31.8 million to $136.1 million,
reflecting higher levels of inventory to support increased sales
volume, the increased cost of materials, and, to a lesser degree,
the valuation impact of the stronger European currencies on
foreign inventories.
Deferred income taxes and other current assets increased by
$7.7 million to $26.3 million, with the current deferred income-
tax change and foreign currency exchange contracts being
significant components. The foreign currency exchange contracts
are used to minimize the impact of exchange- rate movements on U.S.
trade receivables denominated in foreign currencies.
The current ratio increased slightly to 2.0 to 1 from 1.9 to 1.
Property, plant, and equipment (PP&E)
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PP&E increased by $6.9 million to $170.9 million as
expenditures for additional capacity and process improvements,
along with the increased dollar-equivalent value of overseas
assets, exceeded retirements and depreciation expense.
Investment in affiliates decreased $1.6 million, primarily
due to the company's sale of its 36-percent interest in McQuay do
Brasil.
Intangible assets increased by $2.1 million to $34.1
million, due to the increased dollar-equivalent of the foreign
portion of these assets.
Deferred charges and other noncurrent assets
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This category increased by $4.1 million to $36.8 million,
primarily due to continuing recognition of a surplus in the
company's over-funded pension plans.
Current liabilities
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Short-term debt increased by $2.8 million to $13.6 million,
reflecting the impact of the weaker dollar on this foreign debt.
Accounts payable increased by $18.6 million to $74.2
million, primarily due to the higher operating levels.
Accrued compensation and employee benefits increased by $4.4
million to $38.3 million, due to increased payroll tax and
vacation liabilities and additional workers' compensation reserves.
Accrued expenses and other current liabilities were up $4.1
million to $25.7 million, due primarily to the foreign currency
exchange contracts discussed above and some additional accruals
for warranties and rebates.
Long-term debt
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Long-term debt decreased by $15.4 million to $62.2 million.
Net reductions in European debt along with normally scheduled and
discretionary domestic repayments were partially offset by the
$5.3-million translation impact of the stronger European
currencies on the foreign debt.
As a percent of shareholders' investment, long-term debt
declined to 20.2 percent from 30.8 percent, while total debt to
equity dropped to 28.1 percent from 39.4 percent.
Other noncurrent liabilities
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Deferred income taxes increased $3.0 million to $13.0
million, due mainly to the continued recognition of the surplus
in the company's overfunded domestic pension plans and to the
recognition of certain environmental cleanup expenses from
previous years.
Other noncurrent liabilities increased by $6.3 million to
$37.1 million, primarily for the reclassification of unfunded
pensions at the company's foreign operations and the effect of
the exchange-rate changes.
Shareholders' investment
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Total shareholders' investment, at $308.3 million, increased
by $56.5 million with the major change being in retained
earnings, which benefited from net earnings of $68.4 million less
dividends paid of $15.4 million.
The foreign currency translation adjustment increased $5.0
million to $5.2 million as the effect of the stronger European
and Japanese currencies on net assets in those areas more than
offset declines associated with net assets in Mexico.
The treasury shares category increased by $3.1 million to
$16.7 million, although the total number of treasury shares on
hand dropped from 718,000 to 642,000, due to the higher average
cost of stock acquired.
Book value per share increased by $1.88 during the year to
$10.38 and has grown at a 10.9-percent compound annual rate since
fiscal 1985.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share amounts)
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March 31 1995 1994
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ASSETS
Current assets:
Cash and cash equivalents $ 32,691 $ 38,523
Trade receivables, less allowance for
doubtful accounts of $6,424 and $4,896 145,231 110,282
Inventories 136,114 104,323
Deferred income taxes and other current assets 26,346 18,610
-------- --------
Total current assets 340,382 271,738
-------- --------
Other assets:
Property, plant, and equipment - net 170,872 163,962
Investment in affiliates 8,016 9,593
Intangible assets _ net 34,090 31,946
Deferred charges and other noncurrent assets 36,827 32,742
-------- --------
Total other assets 249,805 238,243
-------- --------
Total assets $590,187 $509,981
======== ========
Liabilities and shareholders' investment
Current liabilities:
Short-term debt $ 13,565 $ 10,785
Long-term debt _ current portion 10,853 10,796
Accounts payable 74,194 55,567
Accrued compensation and employee benefits 38,285 33,923
Income taxes 7,004 7,157
Accrued expenses and other current liabilities 25,748 21,633
-------- --------
Total current liabilities 169,649 139,861
-------- --------
Other liabilities:
Long-term debt 62,220 77,646
Deferred income taxes 12,958 9,986
Other noncurrent liabilities 37,088 30,743
-------- --------
Total other liabilities 112,266 118,375
-------- --------
Total liabilities 281,915 258,236
-------- --------
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 7,897 6,457
Retained earnings 296,614 243,606
Foreign currency translation adjustment 5,159 186
Treasury stock at cost: 642 and 718 common
shares (16,669) (13,598)
Restricted stock - unamortized value (3,693) (3,870)
-------- --------
Total shareholders' investment 308,272 251,745
-------- --------
Total liabilities and shareholders'
investment $590,187 $509,981
======== ========
<FN>
The notes to consolidated financial statements are an integral
part of these statements.
MANAGEMENT'S DISCUSSION OF CASH FLOWS
Net cash provided by operating activities
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Cash flows from operating activities were $67.0 million,
down $8.3 million from the previous year. While earnings adjusted
for noncash items were up $33.3 million, working-capital items
required $36.3 million to cover the increased business level, as
opposed to last year's net drop in working-capital items of $5.3
million. The preponderance of the additional working-capital
requirements were to support U.S. operations.
The largest change among working-capital items was an
increase in trade receivables of $31.5 million, which was
essentially a function of increased sales volume. Inventories
increased by $26.9 million as a result of increased levels needed
to support higher sales volumes and higher material costs. These
increases were partially offset by an increase in accounts
payable of $16.9 million, also as a result of the much higher
operating level than in the previous year, and increased accrued
expenses and other current liabilities of $7.7 million.
Cash flows from operating activities in the previous year
were $75.2 million, up $11.5 million. The most significant
changes were the increased earnings and net working-capital
contributions, primarily from inventory reductions of $9.6
million and accounts payable increases of $7.6 million, partially
offset by a trade receivables increase of $14.3 million.
In fiscal 1993, cash flows from operating activities were
$63.7 million, up $18.0 million. The adoption of FASB 106
affected earnings but did not reduce cash flows. Working capital
items contributed almost $2.8 million, due primarily to increases
in current liabilities, partially offset by inventory increases.
Capital expenditures
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Capital expenditures were $34.1 million, up $5.0 million
from the prior year, reflecting capacity expansions and process
improvements, with an increasing emphasis on overseas locations.
Capital expenditures in the prior fiscal year were $29.2
million, up $5.6 million, reflecting building expansions and new
equipment.
In fiscal 1993, capital expenditures were $23.6 million, up
$6.7 million from one year earlier, as a result of several plant
expansions.
Acquisitions and investments in affiliates
- ------------------------------------------
The company disposed of its 36-percent interest in McQuay do
Brasil during fiscal 1995 for $1.5 million and incurred
additional costs of $0.3 million related to the prior year's
acquisitions.
During the prior year, the company made two acquisitions:
the purchase of a 100-percent interest in a German limited
partnership, L,ngerer & Reich, and purchase of the remaining 50-
percent interest from the company's partner in a joint-venture
company, Austria W,rmetauscher GmbH, for a combined net cash
price of $18.9 million. See Note 10.
Changes in debt: short- and long-term
- -------------------------------------
In the last year, the company made $9.8 million in scheduled
and $2.4 million in discretionary repayments of domestic long-
term debt. Approximately $9.5 million of foreign denominated long-
term debt was converted to short-term debt, nearly equaling other
foreign short-term debt that was repaid during the year. Other
foreign long-term debt of $2.4 million was repaid while $3.4
million in new foreign debt was obtained.
During the prior year, the company borrowed $32.1 million to
repay acquired debt in Germany that had higher interest rates and
to increase its debt capacity. In addition, the company made
scheduled repayments of long-term debt totaling $9.8 million.
In fiscal 1993, overall debt was reduced by $11.8 million
(net), primarily as a result of discretionary debt repayments
from available cash.
Treasury stock
- --------------
During the year, $9.9 million was expended to acquire an
additional 336,000 treasury shares; 412,000 shares were used to
satisfy requirements for stock options, stock awards, and
employee stock purchase plans.
During fiscal 1994, $6.8 million was expended to acquire
264,000 treasury shares. The company used 349,000 as required for
stock options, stock awards, and employee stock-purchase plans.
The company expended $5.3 million in fiscal 1993 for the
purchase of 155,000 shares while using 243,000 shares for stock
options, stock awards, and employee stock-purchase plans. In
addition, an adjustment for the stock split, in the form of a 100-
percent stock dividend, increased treasury shares by 398,000.
Dividends paid
- --------------
Dividends were $15.4 million, representing a rate of 52
cents per share. An increase of 6 cents per share was effective
in May 1994.
Modine paid dividends of $13.6 million during the prior year
at the rate of 46 cents per share. An increase of four cents per
share was effective in May 1993.
Dividends paid in fiscal 1993 totaled $12.4 million, which
represented a rate of 42 cents per share after adjustment for the
two-for-one stock split in February 1993. The rate had been
increased by an adjusted four cents per share in May 1992.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ------------------------------------------------------------------------------
For the years ended March 31 1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 68,442 $43,990 $19,987
Adjustments to reconcile net earnings with
cash provided by operating activities:
Depreciation and amortization 34,482 28,114 25,549
Pensions (2,130) (2,581) (2,706)
Other postretirement benefits (169) 183 1,519
Deferred income taxes (241) (3,474) 660
Undistributed earnings of affiliates (1,301) (221) (790)
Loss from disposition of property, plant,
and equipment 487 1,017 232
Provision for losses on accounts receivable 1,375 1,267 1,135
Cumulative effect of accounting changes 0 (899) 13,700
Other - net 2,343 2,523 1,694
-------- ------- -------
103,288 69,919 60,980
-------- ------- -------
Change in operating assets and liabilities
excluding acquisitions:
Trade receivables (31,519) (14,328) (1,056)
Inventories (26,928) 9,560 (5,192)
Deferred income taxes and other current
assets (4,225) (2,807) 711
Accounts payable 16,895 7,640 2,102
Accrued compensation and employee benefits 2,094 3,916 1,480
Income taxes (327) 3,338 4,247
Accrued expenses and other current
liabilities 7,685 (1,996) 465
-------- ------- -------
Net cash provided by operating activities 66,963 75,242 63,737
-------- ------- -------
Cash flows from investing activities:
Expenditures for property, plant, and
equipment (34,101) (29,150) (23,575)
Acquisitions, net of cash acquired (254) (18,918) --
Investments in affiliates 1,500 -- --
Proceeds from dispositions of assets 1,118 1,057 196
(Increase) in deferred charges and other
noncurrent assets (1,053) (851) (633)
Other - net (52) 8 19
-------- ------- -------
Net cash (used for) investing activities (32,842) (47,854) (23,993)
-------- ------- -------
Cash flows from financing activities:
(Decrease)/increase in short-term debt - net (499) 3,736 (253)
Additions to long-term debt 3,392 33,158 2,475
Reductions of long-term debt (24,053) (42,472) (14,009)
Issuance of common stock, including treasury
stock 5,607 4,194 4,383
Purchase of treasury stock (9,946) (6,798) (5,331)
Cash dividends paid (15,434) (13,597) (12,351)
Other - net (279) (565) 246
-------- ------- -------
Net cash (used for) financing activities (41,212) (22,344) (24,840)
-------- ------- -------
Effect of exchange-rate changes on cash 1,259 (104) (113)
-------- ------- -------
Net (decrease)/increase in cash and cash
equivalents (5,832) 4,940 14,791
Cash and cash equivalents at beginning of year 38,523 33,583 18,792
-------- ------- -------
Cash and cash equivalents at end of year $ 32,691 $38,523 $33,583
======== ======= =======
Cash paid during the year for:
Interest, net of amounts capitalized $ 6,276 $ 5,534 $ 5,991
Income taxes $ 39,120 $29,306 $14,904
<FN>
The notes to consolidated financial statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
(In thousands, except per-share amounts)
- -----------------------------------------------------------------------------------------------------------------
Foreign Restricted
For the years Additional currency Treasury stock stock-
ended March 31, Common Stock paid-in Retained translation at cost unamortized
1995, 1994, and 1993 shares amount capital earnings adjustment shares amount value
- -----------------------------------------------------------------------------------------------------------------
Balance, March 31, 1992 15,171 $ 9,482 $13,318 $205,577 $1,656 (493) $(11,714) $(3,316)
Net earnings -- -- -- 19,987 -- -- -- --
Cash dividends, $0.42 per
share -- -- -- (12,351) -- -- -- --
Purchase of treasury
stock -- -- -- -- -- (155) (5,331) --
Stock options and awards
including related tax
benefits -- -- 298 -- -- 162 3,639 (1,332)
Employee stock purchase
and ownership plans -- -- 1,083 -- -- 81 1,600 --
Foreign currency trans-
lation adjustment -- -- -- -- (296) -- -- --
Amortization of deferred
compensation under
restricted stock
plans -- -- -- -- -- -- -- 813
Stock split in the form
of a 100% dividend 15,171 9,482 (9,482) -- -- (398) -- --
------ ------- ------- -------- ------ ---- -------- -------
Balance, March 31, 1993 30,342 18,964 5,217 213,213 1,360 (803) (11,806) (3,835)
------ ------- ------- -------- ------ ---- -------- -------
Net earnings -- -- -- 43,990 -- -- -- --
Cash dividends, $0.46 per
share -- -- -- (13,597) -- -- -- --
Purchase of treasury
stock -- -- -- -- -- (264) (6,798) --
Stock options and awards
including related tax
benefits -- -- 64 -- -- 266 3,914 (987)
Employee stock purchase
and ownership plans -- -- 1,176 -- -- 83 1,092 --
Foreign currency trans-
lation adjustment -- -- -- -- (1,174) -- -- --
Amortization of deferred
compensation under
restricted stock
plans -- -- -- -- -- -- -- 952
------ ------- ------- -------- ------ ---- -------- -------
Balance, March 31, 1994 30,342 18,964 6,457 243,606 186 (718) (13,598) (3,870)
------ ------- ------- -------- ------ ---- -------- -------
Net earnings -- -- -- 68,442 -- -- -- --
Cash dividends, $0.52
per share -- -- -- (15,434) -- -- -- --
Purchase of treasury
stock -- -- -- -- -- (336) (9,946) --
Stock options and awards
including related
tax benefits -- -- (79) -- -- 294 5,211 (851)
Employee stock purchase
and ownership plans -- -- 1,519 -- -- 118 1,664 --
Foreign currency trans-
lation adjustment -- -- -- -- 4,973 -- -- --
Amortization of deferred
compensation under
restricted stock
plans -- -- -- -- -- -- -- 1,028
------ ------- ------- -------- ------ ---- -------- -------
Balance, March 31, 1995 30,342 $18,964 $ 7,897 $296,614 $5,159 (642) $(16,669) $(3,693)
------ ------- ------- -------- ------ ---- -------- -------
<FN>
The notes to consolidated financial statements are an integral
part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant accounting policies
-------------------------------
Consolidation principles: The consolidated financial
------------------------
statements include the accounts of Modine Manufacturing Company
and its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated. Operations of affiliates and
subsidiaries outside North America are included for periods
ending one month prior to the company's year end in order to
ensure timely preparation of the consolidated financial statements.
Investments in 20-percent- to 50-percent-owned affiliates, consisting
primarily of a 50-percent ownership in Nikkei Heat Exchanger Company,
Ltd., and a 43-percent ownership in Radinam S.A., are accounted for by
the equity method. The investments are stated at cost plus a
proportionate share of the undistributed net income. The
company's share of undistributed net income is reflected in net
earnings.
Translation of foreign currencies: Assets and liabilities
---------------------------------
of foreign subsidiaries and equity investments are translated
into U.S. dollars at year-end exchange rates and income and
expense items are translated at the average exchange rates for
the year. Resulting translation adjustments are reported
as a separate component of shareholders' investment. Translation
adjustments relating to countries with highly inflationary
economies and foreign currency transaction gains or losses are
included in net earnings.
Financial instruments: Foreign exchange options and forward
---------------------
contracts on foreign currencies and copper futures are entered
into by the company as hedges against the impact of currency and
raw material price fluctuations and are not used to engage in
speculation. Gains and losses are recognized when these
instruments are settled.
Postemployment benefits: The company adopted Financial
-----------------------
Accounting Standards Board (FASB) Statement No. 112, "Employers'
Accounting for Postemployment Benefits," in fiscal 1995. This
statement requires recognition of the cost of certain post-
employment benefits after employment but before retirement on
an accrual basis during the years that employees earn the
benefits. Implementation of this statement did not have
a material impact on the company's financial conditions or
results of operations.
Postretirement benefits other than pensions: In fiscal 1993,
-------------------------------------------
the company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions."
Under this standard, the company is required to accrue the
estimated cost of retiree benefits, other than pensions, during
the employees' active service periods. The company previously
recognized the cost of these health-care and life-insurance
benefits as claims were paid. The change did not affect cash flow.
Income taxes: The company adopted FASB Statement No. 109,
------------
"Accounting for Income Taxes," effective as of the beginning of
fiscal 1994. Deferred tax liabilities and assets are determined
based on the difference between the amounts reported in the
financial statement and the tax bases of assets and liabilities
using current statutory tax rates.
Cash equivalents: For purposes of the cash flows
----------------
statement, the company considers all highly liquid investments
with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are valued at the lower of cost, on
-----------
a first-in, first-out basis, or market value.
Property, plant, and equipment: These assets are
------------------------------
stated at cost. Depreciation is provided using, principally, declining-
balance methods for machinery and equipment, and the straight-line
method for buildings and other assets over their expected useful lives.
Maintenance and repair costs are charged to earnings as incurred. Costs
of improvements are capitalized. Upon the sale or other disposition of
an asset, the cost and related accumulated depreciation are removed from
the accounts and the gain or loss is included in net earnings.
Intangible assets: The excess of cost over fair value of the net
-----------------
assets of businesses acquired is amortized using the straight-line method
over periods expected to be benefited (currently up to forty years). Costs
of acquired patents and product technology are amortized using the straight-
line method over the shorter of their estimated useful life or 15 years.
Per-share data: All share and per-share information has been restated,
--------------
where appropriate, to reflect the two-for-one stock split (in the form of
a 100-percent common-stock dividend) that was effective February 19, 1993.
2. Research and development costs
------------------------------
Research and development costs charged to operations totaled $10,907,000
in fiscal 1995, $9,509,000 in fiscal 1994, and $8,653,000 in fiscal 1993.
3. Pension plans
-------------
Domestic qualified defined-benefit plans: The company has several
noncontributory, defined-benefit, pension plans that cover most of its
domestic employees. The benefits provided are based primarily on years of
service and average compensation for the salaried plans and on a monthly
retirement benefit amount for the hourly plans. Funding policy for domestic
qualified plans is to contribute annually not less than the minimum required
by applicable law and regulation, nor more than the maximum amount that can
be deducted for federal income-tax purposes.
Net pension credits, computed using the projected unit credit method,
include the following components:
(In thousands)
- ------------------------------------------------------------------------
Years ended March 31 1995 1994 1993
- ------------------------------------------------------------------------
Benefits earned during the year $ 3,532 $ 3,238 $ 2,595
Interest accrued on benefits earned
in prior years 5,978 5,419 4,968
Actual return on assets (21,470) (15,124) (10,735)
Net amortization and deferral 9,209 4,114 700
- ------------------------------------------------------------------------
Net pension (credit) $(2,751) $(2,353) $(2,472)
- ------------------------------------------------------------------------
Actuarial assumptions:
Discount rate (to calculate present
value of future benefits) 7.5% 7.5% 8.5%
Average salary-growth rate 5.5% 5.5% 5.5%
Return on plan assets 9.0% 9.0% 9.0%
- ------------------------------------------------------------------------
Funded status of the plans at March 31, 1995 and 1994:
(In thousands)
- ------------------------------------------------------------------------
Assets exceed Accumulated
accumulated benefits
March 31, 1995 benefits exceed assets
- ------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested $(56,120) $(1,204)
Nonvested (5,674) (395)
-------- -------
Accumulated benefit obligation (61,794) (1,599)
Effect of projected salary increases (22,853) --
-------- -------
Projected benefit obligation (84,647) (1,599)
Less: Plan assets at fair value 150,931 1,388
-------- -------
Plan assets in excess of/(less than)
projected benefit obligation 66,284 (211)
Adjusted for items not yet recognized
in earnings:
Unrecognized net benefit
(asset)/obligation remaining from
initial adoption of FASB Statement
No. 87 (2,348) (17)
Effect of benefit changes on
prior years' service cost 811 312
Remaining unrecognized net (gain)/loss (30,296) 430
Adjustment to recognize minimum liability -- (725)
-----------------------------------------------------------------------
Prepaid/(accrued) pension expense
included in balance sheets $ 34,451 $ (211)
- ------------------------------------------------------------------------
(In thousands)
- ------------------------------------------------------------------------
Assets exceed Accumulated
accumulated benefits
March 31, 1994 benefits exceed assets
- ------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested $(51,870) $(1,076)
Nonvested (4,832) (149)
-------- -------
Accumulated benefit obligation (56,702) (1,225)
Effect of projected salary increases (20,092) --
-------- -------
Projected benefit obligation (76,794) (1,225)
Less: Plan assets at fair value 131,217 1,174
-------- -------
Plan assets in excess of/(less than)
projected benefit obligation 54,423 (51)
Adjusted for items not yet recognized
in earnings:
Unrecognized net benefit
(asset)/obligation remaining
from initial adoption of
FASB Statement No. 87 (4,222) 4
Effect of benefit changes on
prior years' service cost 1,349 120
Remaining unrecognized net (gain)/loss (21,154) 321
Adjustment to recognize minimum liability -- (445)
- ------------------------------------------------------------------------
Prepaid/(accrued) pension expense
included in balance sheets $ 30,396 $ (51)
- ------------------------------------------------------------------------
As of March 31, 1995 and 1994, the plans held 2,315,000 and
2,476,000 shares, respectively, of Modine common stock.
Defined-benefit plans of foreign subsidiaries: The company's recently
---------------------------------------------
acquired foreign subsidiaries have defined-benefit plans and/or termination
indemnity plans covering substantially all of their eligible employees. The
benefits under these plans are based on years of service and final average
compensation levels. Funding is limited to statutory requirements.
(In thousands)
- ------------------------------------------------------------------------
Year ended March 31 1995 1994
- ------------------------------------------------------------------------
Expense recognized $ 705 $ 134
Accumulated benefit obligation 10,351 7,616
Projected benefit obligation 11,290 8,303
Fair value of plan assets -- --
- ------------------------------------------------------------------------
Actuarial assumptions:
Discount rate (to calculate present
value of future benefits) 7.5% 7.5%
Average salary-growth rate 3.0%-5.5% 3.0%-5.5%
- ------------------------------------------------------------------------
4. Postretirement benefits other than pensions
-------------------------------------------
The company and certain of its domestic subsidiaries provide selected
healthcare and life-insurance benefits for retired employees. Designated
employees may become eligible for those benefits when they retire.
In March 1993, the company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pension," retroactive to
April 1, 1992. This changed the company's accounting for those unfunded
postretirement benefits other than pensions from a cash to an accrual
basis, which recognizes the expected cost of providing those benefits
during the years employees render service. It also requires recognition
of the obligation owed to current and retired employees as of the effective
date of adoption. Adoption of the standard did not affect cash flow.
The company elected to recognize the full accumulated benefit
obligation at April 1, 1992, of $21,746,000 ($13,700,000 after tax,
or $0.46 per share) in fiscal 1993 earnings.
Postretirement benefit expense:
(In thousands)
- -----------------------------------------------------------------------
Year ended March 31 1995 1994 1993
- -----------------------------------------------------------------------
Service cost $ 214 $ 306 $ 769
Interest cost 1,202 1,318 1,812
Net amortization (657) (439) _
- -----------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 759 $1,185 $2,581
- -----------------------------------------------------------------------
Postretirement benefit liability:
(In thousands)
- -----------------------------------------------------------------------
March 31 1995 1994
- -----------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $12,157 $11,165
Fully eligible active plan
participants 1,794 3,049
Other active plan participants 2,858 4,464
Total accumulated postretirement benefit
obligation 16,809 18,678
Net gains/(losses) 1,069 763
Unamortized net reduction in obligation 5,365 4,006
- -----------------------------------------------------------------------
Accrued postretirement benefit
obligation $23,243 $23,447
- -----------------------------------------------------------------------
The accumulated postretirement benefit obligation declined at April 1,
1993, due to an amendment of certain of the company's retiree medical
coverage programs. An annual limit on the company's liability (a "cap")
was established that maximizes future costs at 200 percent of fiscal 1993
costs. The effect of this is being amortized as an offset to expense in
fiscal 1994 and in future years. The obligation was further reduced as a
result of comparable benefit limitations negotiated during fiscal 1994.
This reduction is being amortized as an offset to expense in fiscal 1995
and also in future years.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5 percent at March 31, 1995, 7.5 percent at
March 31, 1994, and 8.5 percent at March 31, 1993. The projected healthcare
costs trend rate used was 11 percent for fiscal 1995, 12 percent for fiscal
1994, and 13 percent for fiscal 1993, trending down gradually to 5 percent
over several years. The effects of these assumption changes on accrued
postretirement benefit cost and related expense are being amortized in
fiscal 1994 and in coming years.
The healthcare cost trend rate assumption has a significant effect on
the amounts reported. Increasing the assumed healthcare cost trend rates by
one percentage point in each year would have increased the accumulated
postretirement benefit obligation by $1,154,000 as of March 31, 1995, and
the net periodic postretirement benefit cost for fiscal 1995 by $70,000.
5. Leases
------
The company leases various facilities and equipment. Rental expense
under operating leases totaled $10,750,000 in fiscal 1995, $5,540,000 in
fiscal 1994, and $4,437,000 in fiscal 1993.
Future minimum rental commitments at March 31, 1995, under
noncancelable leases were:
Year ended March 31 (In thousands)
- ------------------------------------------------------------------------
1996 $8,188 1999 $ 1,735
1997 5,184 2000 1,291
1998 3,007 2001 and beyond 1,155
- ------------------------------------------------------------------------
Total future minimum rental commitments $20,560
- ------------------------------------------------------------------------
6. Income taxes
------------
The company adopted FASB Statement No. 109 effective April 1, 1993.
The cumulative effect of the adoption was to increase net income for the
fiscal year ended March 31, 1994, by $899,000.
Income-tax expense attributable to income from operations consists of:
(In thousands)
- -------------------------------------------------------------------------
Years ended March 31 1995 1994 1993
- -------------------------------------------------------------------------
Federal:
Current $32,745 $27,355 $17,608
Deferred (748) (3,720) (7,275)
State 6,203 4,371 1,280
Foreign:
Current 1,678 1,234 870
Deferred 507 (204) (111)
- --------------------------------------------------------------------------
Totals charged to earnings $40,385 $29,036 $12,372
- --------------------------------------------------------------------------
Income-tax expense attributable to income from operations
differed from the amounts computed by applying the statutory U.S.
federal income-tax rate as a result of the following:
- -------------------------------------------------------------------------
Years ended March 31 1995 1994 1993
- -------------------------------------------------------------------------
Statutory federal tax 35.0% 35.0% 34.0%
State taxes, net of federal benefit 3.4 3.6 2.6
Taxes on non-U.S. earnings and losses (0.6) 2.3 --
Other (0.7) (1.1) 1.6
- -------------------------------------------------------------------------
Effective tax rate 37.1% 39.8% 38.2%
- -------------------------------------------------------------------------
The significant components of deferred income-tax expense
attributable to income from operations are as follows:
(In thousands)
- -------------------------------------------------------------------------
Years ended March 31 1995 1994 1993
- -------------------------------------------------------------------------
Pensions $1,591 $ 1,383 $ 1,355
Depreciation (754) (722) 123
Inventories (465) 389 917
Employee benefits (976) (1,892) (8,806)
Other 363 (3,082) (975)
- -------------------------------------------------------------------------
Totals charged to earnings $ (241) $(3,924) $(7,386)
- -------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
(In thousands)
- -------------------------------------------------------------------------
March 31 1995 1994
- -------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable $ 1,970 $ 1,420
Inventories 3,401 2,677
Employee benefits 16,951 15,655
Net operating-loss and tax-credit
carry-forwards 2,783 3,576
Environmental 131 1,741
Other 3,884 2,258
------- -------
Total gross deferred assets 29,120 27,327
Less valuation allowance 2,782 3,390
------- -------
Net deferred tax assets 26,338 23,937
Deferred tax liabilities:
Pension 13,918 11,957
Plant and equipment 8,369 8,751
Other 1,522 720
------- -------
Total gross deferred tax liabilities 23,809 21,428
- ------------------------------------------------------------------------
Net deferred tax asset $ 2,529 $ 2,509
- ------------------------------------------------------------------------
The valuation allowance for deferred tax assets as of April 1,
1994, was $3,390,000. The valuation allowance decreased by $608,000
for the year ended March 31, 1995.
At March 31, 1995, the company had net foreign-tax-credit
carry-forwards for federal income-tax purposes of approximately
$481,000, of which $206,000 expire in 1996, $66,000 expire in
1997, $54,000 expire in 1998, and $155,000 expire in 1999.
The undistributed earnings of certain foreign subsidiaries
and joint-venture companies totaled $26,428,000 as of March 31,
1995. The earnings are considered permanently reinvested in
foreign operations and, therefore, no provision has been made
for any U.S. taxes.
7. Cash and cash equivalents
-------------------------
Under the company's cash management system, certain cash
balances reflect credit balances to the extent that checks written
have not yet been presented for payment. These credit balances,
included in accounts payable, were approximately $9,657,000,
$3,383,000, and $2,686,000 at March 31, 1995, 1994, and 1993,
respectively.
All the short-term investments at March 31, 1995, 1994, and
1993, were of a duration of less than three months and were treated
as cash equivalents, which approximate fair value.
8. Inventories
-----------
Inventories include:
(In thousands)
- ------------------------------------------------------------------------
March 31 1995 1994
- ------------------------------------------------------------------------
Raw materials $ 37,279 $ 27,952
Work in process 40,879 32,066
Finished goods 57,956 44,305
- ------------------------------------------------------------------------
Total inventories $136,114 $104,323
- ------------------------------------------------------------------------
9. Property, plant, and equipment
------------------------------
Property, plant, and equipment is composed of:
(In thousands)
- ------------------------------------------------------------------------
March 31 Depreciable lives 1995 1994
- ------------------------------------------------------------------------
Land -- $ 4,568 $ 4,942
Buildings and improvements 10-40 years 100,640 91,384
Machinery and equipment 3-12 years 218,229 195,530
Office equipment 5-14 years 31,409 26,974
Transportation equipment 3-7 years 11,422 10,798
Construction in progress -- 20,250 16,958
-------- --------
386,518 346,586
-------- --------
Less accumulated depreciation 215,646 182,624
- ------------------------------------------------------------------------
Net property, plant, and equipment $170,872 $163,962
- ------------------------------------------------------------------------
Depreciation expense was $31,410,000, $25,429,000, and $23,989,000
for the fiscal years ended 1995, 1994, and 1993, respectively.
10. Acquisitions
------------
In the third quarter of fiscal 1994, the company acquired,
through its wholly owned subsidiary Modine GmbH, the entire
equity interest in Heinrich L,ngerer Verwaltungsgesellschaft mbH
and L,ngerer & Reich GmbH & Co. (collectively "L,ngerer & Reich")
and certain specified liabilities. The acquisition includes
plant, equipment, and certain real property located in
Pliezhausen, Germany, and the equipment and leasehold interest in
certain real property located in Filderstadt-Bernhausen, Germany.
The acquisition also includes the equity interest held by
L,ngerer & Reich in Hungaro L,ngerer Gepjarmutechnikai Kft., a
Hungarian joint venture. The Filderstadt-Bernhausen operation
manufactures copper/brass and aluminum heat exchangers for the
truck, bus, and industrial markets and also includes research and
development and administrative facilities. The Pliezhausen operation
manufactures aluminum heat exchangers for the passenger-car market.
In the fourth quarter of fiscal 1994, the company acquired
its partner's (Austria Metall AG) 50-percent ownership in the
joint venture company Austria W,rmetauscher GmbH (AWG). The AWG
facility, located in Berndorf, Austria, manufactures aluminum air-
conditioning condensers and oil coolers for a number of European
auto makers.
In both instances, the company intends to continue to use
the plants, machinery and equipment, and other assets acquired
for the manufacture of heat-transfer products. The combined
adjusted cash-purchase price of the acquisitions totaled
$20,012,000 and was paid for with cash provided by operations.
Goodwill acquired in the acquisitions was $17,648,000 and is
being amortized over 15 years on a straight-line basis.
The results of operations of L,ngerer & Reich and AWG are
included in the consolidated financial statements since the
respective effective dates of acquisition, using a one-month
delay, consistent with the company's policy for reporting
overseas operations. Both of the acquisitions have been accounted
for using the purchase method. The company used the equity method
to account for its interest in AWG prior to majority ownership.
Details of businesses acquired in purchase transactions were
as follows:
(In thousands)
- ----------------------------------------------------------------------
Year ended March 31 1994
- ----------------------------------------------------------------------
Value of assets acquired, including intangibles,
excluding cash acquired of $840 $83,954
Liabilities assumed and created (62,069)
Equity investment in affiliates (2,713)
- ----------------------------------------------------------------------
Net cash paid for acquisitions $19,172
- ----------------------------------------------------------------------
The pro forma financial information is presented for
informational purposes only and does not necessarily reflect the
results of operations that would have occurred had the L,ngerer &
Reich acquisition taken place on the date assumed below, nor are
those results necessarily indicative of the results of future
combined operations. Excluded from the pro forma information
presented are the expected one-time costs of approximately
$2,600,000, or $1,300,000 after tax, to restructure the sales
representative network of L,ngerer & Reich. The AWG acquisition
did not have a material effect on the consolidated results of
operations and, accordingly, pro forma information is not
presented in the following table.
On a pro-forma basis, the unaudited consolidated results of
operations for fiscal 1994, and 1993, if Langerer &
Reich had been acquired on April 1, 1992, are as follows:
(Dollars in thousands, except per-share amounts)
- -----------------------------------------------------------------------
Year ended March 31 (unaudited) 1994 1993
- -----------------------------------------------------------------------
Net sales $746,470 $699,221
Earnings before cumulative effect of
accounting changes and nonrecurring charges 38,804 27,668
Net earnings before nonrecurring charges 39,703 13,968
Net earnings per share of common stock
before cumulative effects of accounting
changes and nonrecurring charges $1.27 $0.92
Net earnings per share of common stock before
nonrecurring charges 1.30 0.46
- -----------------------------------------------------------------------
Subsequent to the fiscal year end, in April 1995, the
company announced its intent to acquire the business and assets
of the Signet Systems Division of The Equion Corporation. Signet
Systems, a supplier of climate-control systems and components to
vehicular markets in North America and Europe, is based in
Harrodsburg, Kentucky.
11. Intangible assets
-----------------
Intangibles include:
(In thousands)
- -------------------------------------------------------------------------
March 31 1995 1994
- -------------------------------------------------------------------------
Goodwill $29,335 $25,004
Patents and product technology 8,389 8,296
Other intangibles 3,930 3,706
------- -------
41,654 37,006
Less accumulated amortization 7,564 5,060
- -------------------------------------------------------------------------
Net intangible assets $34,090 $31,946
- -------------------------------------------------------------------------
Amortization expense for intangible assets was $2,044,000,
$1,733,000, and $890,000 for the fiscal years ended 1995, 1994,
and 1993, respectively.
12. Deferred charges and other noncurrent assets
--------------------------------------------
Deferred charges and other noncurrent assets include:
(In thousands)
- -------------------------------------------------------------------------
March 31 1995 1994
- -------------------------------------------------------------------------
Prepaid pension costs --
qualified and non-qualified plans $35,404 $31,297
Other noncurrent assets 1,423 1,445
- -------------------------------------------------------------------------
Total deferred charges and other
noncurrent assets $36,827 $32,742
- -------------------------------------------------------------------------
13. Indebtedness
------------
Long-term debt at March 31, 1995 and 1994, includes:
(In thousands)
- ------------------------------------------------------------------------------
Fiscal
Interest rate at year of
Type of issue March 31, 1995 maturity 1995 1994
- ------------------------------------------------------------------------------
Denominated in
U.S. dollars:
Fixed rate -
Notes and other debt 9.25%-9.70% 1998 $28,400 $37,800
Weighted average
interest rate
March 31, 1995 9.32%
Revenue bonds 5.00%-7.50% 1996-2003 2,531 2,907
Weighted average
interest rate
March 31, 1995 7.47%
Variable rate --
Note 6.85% 1997 1,500 3,900
Revenue bonds 4.15%-4.50% 2008-2016 5,940 5,940
Weighted average
interest rate
March 31, 1995 4.32%
Denominated in foreign
currency:
Fixed rate -
notes and other debt 5.13%-11.00% 1996-2006 637 4,754
Weighted average
interest rate
March 31, 1995 7.24%
Variable rate -
notes and other debt 4.375%-6.00% 1997-2001 34,065 33,135
------- -------
Weighted average
interest rate
March 31, 1995 5.50%
73,073 88,436
Capital lease obligation -- 6
------- -------
73,073 88,442
Less current portion 10,853 10,796
- ------------------------------------------------------------------------------
Total $62,220 $77,646
- ------------------------------------------------------------------------------
In conjunction with the acquisition of L,ngerer & Reich, Modine
refinanced existing debt and debt capacity totaling $32,096,000 at a
variable rate. This agreement is currently scheduled to mature in fiscal
year 1997.
Certain of the company's loan agreements limit the use of retained
earnings for the payment of cash dividends and the acquisition of treasury
stock. Under the most restrictive, $100,393,000 was available for these
purposes at March 31, 1995. (However, these restricted payments may not
exceed $30,000,000 in any fiscal year.) Other loan agreements give certain
existing unsecured lenders security equal to any future secured borrowing.
The fair value of long-term debt was established by reference to the
public market for corporate securities. The estimated fair value of total
long-term debt including current portion was $74,111,000 at March 31, 1995,
and $90,663,000 at March 31, 1994.
Long-term debt matures as follows:
- ---------------------------------------------------------------------
Year ended March 31 (In thousands)
- ---------------------------------------------------------------------
1996 $10,853 1999 $2,782
1997 40,126 2000 807
1998 11,562 2001 and beyond 6,943
- ---------------------------------------------------------------------
At March 31, 1995, the company had approximately $20,669,000
in unutilized bank lines of credit available. These lines of
credit do not require compensating balances; however, a nominal
commitment fee is paid. A maximum of $29,624,000 in short-term
bank borrowings were outstanding during the year ended March 31,
1995. The weighted average interest rate on short-term borrowings
was 5.68 percent at March 31, 1995, and 5.32 percent at March 31,
1994.
14. Foreign exchange contracts/derivatives
--------------------------------------
The company uses derivative financial instruments in a limited
way as a tool to manage the company's financial risk. Their use
is restricted primarily to hedging assets and obligations already
held by the company and they generally are used to protect cash of
the company rather than generate income or engage in speculative
activity. Leveraged derivatives are strictly prohibited by company
policy.
The company from time to time enters into foreign currency
exchange contracts, generally with terms of 90 days or less, to hedge
specific foreign-currency-denominated transactions. The effect of this
practice is to minimize the impact of foreign-exchange-rate movements
on the company's operating income. The company's foreign-currency-
exchange contracts do not subject the company to risk due to exchange-
rate movements because gains and losses on these contracts offset gains
and losses on the assets and liabilities being hedged.
As of March 31, 1995, the parent company had approximately
$3,088,000 of forward contracts outstanding, composed of $3,004,000
of forward foreign-exchange contracts denominated in French francs
and $84,000 in forward copper contracts. The difference between
these contracts' values and the fair value of these instruments in
the aggregate was not material at March 31,1995. 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 non-functional currency receipts.
Non-U.S. dollar financing transactions generally are effective as hedges
of long-term investments, intercompany loans, or local borrowings in the
corresponding currency. See also footnote number 13.
15. Other noncurrent liabilities
----------------------------
Other noncurrent liabilities include:
(In thousands)
- -------------------------------------------------------------------------
March 31 1995 1994
- -------------------------------------------------------------------------
Postretirement benefits other than pensions $22,316 $22,555
Other 14,772 8,188
- -------------------------------------------------------------------------
Total other noncurrent liabilities $37,088 $30,743
- -------------------------------------------------------------------------
16. Capital stock
-------------
On January 20, 1993, the Board of Directors approved a two-
for-one stock split in the form of a 100-percent common-stock
dividend paid February 19 to shareholdersof record as of February
5, 1993. An amount equal to the $0.625 par value of the
additional common shares was transferred from additional paid-in
capital to common stock during fiscal 1993.
17. Shareholder rights plan
-----------------------
Each share of the company's common stock carries one right
that entitles the holder to purchase a unit of 1/100 Preferred
Series A Participating Stock at $21.25 per unit. The rights are
not currently exercisable but will become exercisable 10 days
after a shareholder has acquired 20 percent or more, or has
commenced a tender or exchange offer for 30 percent or more, of
the company's common stock. In the event of certain mergers,
sales of assets, or self-dealing transactions involving a 20-
percent-or-more shareholder, each right not owned by such 20-
percent-or-more holder will be modified so that it will then be
exercisable for common stock having a market value of twice the
exercise price of the right. The rights are redeemable in whole
by the company, at a price of $0.0125 per right, at any time
before 20 percent or more of the company's common stock has been
acquired. During fiscal 1995, the company extended the expiration
date of the rights, which will now expire on October 27, 2006,
unless previously redeemed.
18. Stock option and purchase plans
-------------------------------
Stock option plans: In July of 1978, 1985, and 1994,
shareholders approved plans providing for the granting of options
to officers, other key employees, and, in 1985 and 1994, to non-
employee directors to purchase common stock of the company.
Options granted under the plans are either nonqualified or
incentive stock options and carry a price equal to the market
price on the date of grant. Both incentive stock options and
nonqualified stock options terminate 10 years after date of
grant.
The 1978, 1985, and 1994 Incentive Stock Plans also provide
for the granting of stock awards. Shares are awarded to the
employee at no cost and are placed in escrow until certain
employment restrictions lapse. The value of shares awarded
is amortized over the seven-year restriction period. The
amounts charged to operations in fiscal 1995, 1994, and 1993 were
$1,028,000, $952,000, and $813,000, respectively.
Following is a summary of activity under the two plans:
- ----------------------------------------------------------------------------
Shares Option/award
(in thousands) price range
- ----------------------------------------------------------------------------
Outstanding March 31, 1992 1,666 $ 1.45-12.50
---------------------------------------------------------------------------
Granted:
Incentive and nonqualified 347 16.25-18.25
Restricted stock awards 73 0
Exercised (319) 0-9.4375
---------------------------------------------------------------------------
Outstanding March 31, 1993 1,767 3.825-18.25
Granted:
Incentive and nonqualified 248 20.625-30.00
Restricted stock awards 33 0
Exercised (267) 0-12.50
---------------------------------------------------------------------------
Outstanding March 31, 1994 1,781 5.594-30.00
Granted:
Incentive and nonqualified 268 28.00-28.50
Restricted stock awards 31 0
Exercised (297) 0-18.25
Expired (17) 3.825
---------------------------------------------------------------------------
Outstanding March 31, 1995 1,766 $5.594-30.00
- ----------------------------------------------------------------------------
A further 3,246,000 shares were available for the granting
of additional options or awards at March 31, 1995.
Stock purchase plans: The company also has adopted several
defined-contribution plans. The plans permit employees to make
monthly investments at current market prices based on a specified
percentage of compensation. The company matches a portion of the
employees' contribution.
Activity in the plans for fiscal 1995, 1994, and 1993
resulted in the purchase of 589,000, 593,000, and 730,000 shares
of company stock, respectively. These purchases were made from
the employee pension plan trusts, private purchases, and treasury
shares. It is anticipated that future purchases will be made from
all three sources at the discretion of the plans' administrative
committees. Costs of the company's contributions to the plans for
fiscal 1995, 1994, and 1993 were $5,871,000, $5,099,000, and
$4,350,000, respectively.
19. Segment and geographic area information
---------------------------------------
The company operates predominantly in a single industry, the
production and sale of heat-transfer equipment. Information about
the company by geographic operating area is presented below:
(In thousands)
- ----------------------------------------------------------------------------
Years ended March 31 1995 1994 1993
- ----------------------------------------------------------------------------
Sales to unaffiliated customers
from company facilities
located in:
United States $667,433 $574,895 $512,462
Europe 227,704 77,340 43,222
Canada and Latin America 17,873 17,318 15,155
- ----------------------------------------------------------------------------
Net sales $913,010 $669,553 $570,839
- ----------------------------------------------------------------------------
Sales between geographic areas:
United States $ 1,627 $ 1,558 $ 895
Europe 87 186 99
Canada and Latin America 2,520 1,299 54
- ----------------------------------------------------------------------------
Total inter-area sales $ 4,234 $ 3,043 $ 1,048
- ----------------------------------------------------------------------------
Operating profit or loss:
United States $129,509 $107,811 $ 61,665
Europe 7,861 (1,520) 651
Canada and Latin America 1,840 1,010 278
Corporate, eliminations, and other (30,383) (34,275) (8,489)
- ----------------------------------------------------------------------------
Earnings before income taxes $108,827 $ 73,026 $ 54,105
- ----------------------------------------------------------------------------
Identifiable assets:*
United States $411,811 $343,020 $321,921
Europe 135,239 113,273 29,562
Canada and Latin America 16,067 13,722 13,516
Corporate, eliminations, and other 27,070 39,966 40,188
- ----------------------------------------------------------------------------
Total assets $590,187 $509,981 $405,187
- ----------------------------------------------------------------------------
* Certain U.S. assets from prior years have been reclassified
to Corporate to conform to the 1995 presentation.
Included in the United States sales to unaffiliated
customers are export sales of $126,409,000, $95,699,000, and
$79,925,000, in fiscal 1995, 1994, and 1993, respectively, the
majority to customers in Europe. During the last three fiscal
years, no single customer has accounted for more than 10 percent
of revenues.
20. Contingencies and litigation
----------------------------
In the normal course of business, the company and its
subsidiaries have been named as defendants in various lawsuits
and enforcement proceedings in which claims are asserted against
the company by private parties, the Occupational Safety and
Health Administration, the Environmental Protection Agency, other
governmental agencies, and others. The company is also subject to
other liabilities including environmental matters that arise in
the ordinary course of its business. Liabilities for
environmental matters are recorded when assessments and/or
remedial efforts are probable and the costs can be reasonably
estimated. During fiscal 1995, the company established additional
reserves of $415,000 for a Superfund assessment and $44,000 for
environmental cleanup at a specified location in Missouri. Based
on the information available, the company does not expect that
any unrecorded liability related to these matters would
materially affect the consolidated financial position or results
of operations.
In June 1991, the U.S. Department of Justice, acting at the
request of the federal Environmental Protection Agency (EPA),
filed suit against the company in the U.S. District Court for the
Northern District of Illinois. The complaint alleged violations
of the federal Clean Water Act at a manufacturing facility owned
by the company in McHenry, Illinois. The alleged violations
consisted of effluent discharges in excess of permitted amounts
and noncompliance with reporting and monitoring requirements.
Settlement negotiations resulted in an agreement whereby the
company paid a fine of $750,000 and agreed to change the effluent
discharge system. Full reserves were established in fiscal 1993
for the fine and the $1,300,000 necessary for pond sludge
removal. All legal and court costs associated with the case were
expensed as they were incurred.
In November 1991, the company filed a lawsuit against
Mitsubishi Motor Sales of America, Inc., and Showa Aluminum
Corporation, alleging infringement of the company's patent on
parallel-flow air-conditioning condensers. The suit seeks an
injunction to prohibit continued infringement, an accounting for
damages, a trebling of such damages for willful infringement, and
reimbursement of attorneys' fees. In December 1991, the company
submitted a complaint to the U.S. International Trade Commission
(ITC) requesting that the ITC ban the import and sale of parallel-
flow air-conditioning condensers and the systems or vehicles that
contain them, which are the subject of the aforementioned
lawsuit. In July 1993, the ITC reversed an earlier ruling by a
hearing officer and upheld, as valid and enforceable, the
company's basic patent on parallel-flow air-conditioning
condensers. The ITC also ruled that specific condensers from two
Japanese companies did not infringe the company's patent. Each of
the parties appealed, to the U.S. Court of Appeals for the
Federal Circuit, the portion of the ITC opinion adverse to them.
In July of 1994, Showa filed a lawsuit against the company
alleging infringement by the company of certain Showa patents
pertaining to condensers. In December of 1994, the company filed
another lawsuit against Mitsubishi and Showa pertaining to a
newly issued patent on parallel-flow air-conditioning condensers.
All legal and court costs associated with these cases have been
expensed as they were incurred.
21. Quarterly financial data (unaudited)
------------------------------------
Quarterly financial data are summarized below:
(In thousands, except per-share amounts)
- ---------------------------------------------------------------------------
Fiscal 1995 quarters ended June Sept. Dec. March
- ---------------------------------------------------------------------------
Net sales $208,436 $221,760 $240,505 $242,309
Gross profit 58,489 65,916 69,593 74,259
Net earnings 14,830 16,801 17,413 19,398
Net earnings per share of
common stock $0.49 $0.55 $0.57 $0.63
- ---------------------------------------------------------------------------
(In thousands, except per-share amounts)
- ---------------------------------------------------------------------------
Fiscal 1994 quarters ended June Sept. Dec. March
- ---------------------------------------------------------------------------
Net sales $147,171 $156,964 $172,351 $193,067
Gross profit 43,446 48,634 52,412 58,486
Earnings before
cumulative effect of
accounting change 9,875 11,636 10,626 10,954
Earnings per share of
common stock before
cumulative effect of
accounting change $0.32 $0.39 $0.35 $0.35
Cumulative effect of
accounting change
(net of income-tax
effect)* $899 -- -- --
Net earnings $10,774 $11,636 $10,626 $10,954
Net earnings per share of
common stock $0.35 $0.39 $0.35 $0.35
- ---------------------------------------------------------------------------
* In fiscal 1994, the company adopted FASB Statement No. 109
"Accounting for Income Taxes."
Independent Auditor's Report
To the Shareholders and Board of Directors
Modine Manufacturing Company
Racine, Wisconsin
We have audited the accompanying consolidated balance sheets of
Modine Manufacturing Company and Subsidiaries as of March 31,
1995 and 1994, and the related consolidated statements of
earnings, shareholders' investment, and cash flows for each of
the three years in the period ended March 31, 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Modine Manufacturing Company and
Subsidiaries as of March 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended March 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in notes 1, 4, and 6 to the consolidated financial
statements, the company changed its method of accounting for
income taxes in fiscal 1994 and changed its method of accounting
for postretirement benefits other than pensions in fiscal 1993.
COOPERS & LYBRAND LLP
Chicago, Illinois
May 1, 1995