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, 1996
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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 incorporation (I.R.S. Employer
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 (414) 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 1, 1996
------------------------------- -----------------------------
Common Stock, $0.625 Par Value 29,865,279
MODINE MANUFACTURING COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets -
June 26 and March 31, 1996 3
Consolidated Statements of Earnings -
For the Three Months Ended
June 26, 1996 and 1995 4
Consolidated Statements of Cash Flows -
For the Three Months Ended June 26,
1996 and 1995 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 13-14
Signatures 15
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share amounts)
June 26, 1996 and March 31, 1996
(Unaudited)
June 26, 1996 March 31, 1996
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ASSETS
- ------
Current assets:
Cash and cash equivalents $ 21,286 $ 17,958
Trade receivables, less allowance for
doubtful accounts of $4,975 and $5,052 159,218 147,963
Inventories 145,626 150,000
Deferred income taxes and other current
assets 30,418 35,414
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Total current assets 356,548 351,335
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Other assets:
Property, plant, and equipment - net 206,542 201,341
Investment in affiliates 6,203 6,567
Intangible assets, less accumulated
amortization of $9,735 and $8,689 68,229 70,456
Deferred charges and other noncurrent
assets 43,342 42,137
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Total other assets 324,316 320,501
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Total assets $680,864 $671,836
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current liabilities:
Short-term debt $ 8,835 $ 12,500
Long-term debt - current portion 12,453 12,552
Accounts payable 65,429 77,277
Accrued compensation and employee
benefits 46,535 42,941
Income taxes 14,648 7,598
Accrued expenses and other current
liabilities 26,710 28,163
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Total current liabilities 174,610 181,031
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Other liabilities:
Long-term debt 90,960 87,809
Deferred income taxes 12,035 12,220
Other noncurrent liabilities 41,644 41,356
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Total other liabilities 144,639 141,385
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Total liabilities 319,249 322,416
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Shareholders' investment:
Preferred stock, $0.025 par value,
authorized 16,000 shares, issued -
none - -
Common stock, $0.625 per value,
authorized 80,000 shares, issued
30,342 shares 18,964 18,964
Additional paid-in capital 9,345 9,143
Retained earnings 349,820 339,193
Foreign currency translation adjustment 2,306 3,435
Treasury stock at cost: 505 and 583
shares, respectively (15,431) (17,607)
Restricted stock - unamortized value (3,389) (3,708)
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Total shareholders' investment 361,615 349,420
-------- --------
Total liabilities and shareholders'
investment $680,864 $671,836
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended June 26, 1996 and 1995
(In thousands, except per-share amounts)
(Unaudited)
Three months ended June 26
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1996 1995
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Net sales $248,514 $239,216
Cost of sales 180,937 178,334
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Gross profit 67,577 60,882
Selling, general, and administrative expenses 42,325 35,467
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Income from operations 25,252 25,415
Non-operating income 2,627 2,558
Interest expense (1,302) (1,627)
Non-operating expense (1,387) (1,308)
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Earnings before income taxes 25,190 25,038
Provision for income taxes 8,800 9,055
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Net earnings $ 16,390 $ 15,983
======== ========
Net earnings per share of common stock* $0.54 $0.52
======== ========
Dividends per share $0.17 $0.15
======== ========
Average common shares and common share
equivalents outstanding 30,404 30,592
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
*(See Exhibit 11 for computation of earnings per share.)
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Months Ended June 26, 1996 and 1995
(Unaudited)
Three months ended June 26
--------------------------
1996 1995
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Net cash provided by operating activities $23,527 $23,168
Cash flows from investing activities:
Expenditures for property, plant, and equipment (16,668) (10,018)
Acquisitions, net of cash acquired (1,829) (7,229)
Proceeds from dispositions of assets 52 715
Other - net (131) (58)
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Net cash (used for) investing activities (18,576) (16,590)
Cash flows from financing activities:
(Decrease)/increase in short-term debt - net (3,249) 2,563
Additions to long-term debt 8,289 2,226
Reductions of long-term debt (3,078) (200)
Issuance of common stock, including treasury stock 2,504 1,008
Purchase of treasury stock (1,025) (4,461)
Cash dividends paid (5,064) (4,453)
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Net cash (used for) financing activities (1,623) (3,317)
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Net increase in cash and cash equivalents 3,328 3,261
Cash and cash equivalents at beginning of period 17,958 32,691
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Cash and cash equivalents at end of period $21,286 $35,952
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<FN>
(See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. The amounts of raw material, work in process and finished
goods cannot be determined exactly except by physical
inventories. Based on partial interim physical inventories
and percentage relationships at the time of complete
physical inventories, Management believes the amounts shown
below are reasonable estimates of raw material, work in
process and finished goods.
(In Thousands)
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June 26, 1996 March 31, 1996
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Raw materials $ 45,168 $ 38,307
Work in process 32,869 47,794
Finished goods 67,589 63,899
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Total inventories $145,626 $150,000
======== ========
2. Property, plant, and equipment is composed of:
(In Thousands)
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June 26, 1996 March 31, 1996
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Gross, property,
plant & equipment $446,571 $433,881
Less accumulated
depreciation (240,029) (232,540)
-------- --------
Net property,
plant & equipment $206,542 $201,341
======== ========
3. Recent developments concerning legal proceedings reported in
the Company's Form 10-K report for the year ended March 31,
1996, are updated in Part II, Other Information, Item 1,
Legal Proceedings. While the outcome of these proceedings
is uncertain, in the opinion of the Company's management,
any liabilities that may result from such proceedings are
not reasonably likely to have a material effect on the
Company's consolidated financial position.
4. 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 the Company's March 31,
1996 Annual Report filed with the Securities and Exchange
Commission. The financial information furnished includes
all normal recurring accrual adjustments which 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 1997 are not necessarily indicative of the
results to be expected for the full year.
5. Certain notes and other information have been condensed or
omitted from these interim financial statements which
consolidate both domestic and foreign wholly-owned
subsidiaries. Therefore, such statements should be read in
conjunction with the consolidated financial statements and
related notes contained in the Company's 1996 Annual Report
to stockholders which statements and notes were incorporated
by reference in the Company's Form 10-K Report for the year
ended March 31, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
The following discussion and analysis provide information which
Management believes is relevant to an assessment and
understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes
thereto.
RESULTS OF OPERATIONS
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Comparison of the First Quarter of 1996-97 with the First Quarter
- -----------------------------------------------------------------
of 1995-96
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Net sales for the first quarter of fiscal 1996-97 were a record
$248.5 million, up 3.9% from the $239.2 million reported in the
first quarter of last year.
Sales by Signet Systems, acquired last August, and higher sales
in the North American aftermarket, were the major factors leading
to the overall sales improvement from a year ago. Offsetting
these gains were the loss of sales from the copper-tubing
business, sold last October, and lower sales in the Company's
domestic automotive and building-HVAC businesses.
Modine's worldwide shipments during the first three months grew
the most in the passenger-car and light-truck market benefiting
from the Signet acquisition made last year and higher European
shipments. The second largest gain was recorded in the
agricultural- and construction market. Once again, Signet was a
major contributor to the improvement shown in this market. The
remaining markets demonstrated modest growth except for the
building-HVAC market, which recorded a decline with the largest
portion due to a lower sales to manufacturers of residential
heating and air-conditioning equipment. The absence of copper-
tubing sales also had an effect on first quarter shipments
compared to the same period a year ago.
Gross margin increased 1.7%, as a percentage of sales, over the
first quarter of the previous year to 27.2% from 25.5%.
Improvements shown in the North American aftermarket and our
European operations were primarily responsible for the change.
Selling, general and administrative expenses increased 19.3% over
last year's first quarter while only increasing 2.2% as a percent
of sales. Excluding the effects of the Signet Systems and Mexpar
acquisitions which were not included in the first quarter results
last year, selling, general and administrative expenses rose only
8.7% or 0.7%, as a percent of sales. The largest items
contributing to the overall dollar increase were higher personnel
costs associated with normal inflation and additional goodwill
amortization resulting from acquisitions made in the prior year.
Outstanding debt levels rose $18.4 million over the same quarter
a year ago while interest expense declined 20%, or $0.3 million
from a year ago. The lower interest expense can be attributed to
a continuing reduction in higher rate domestic debt through
normally scheduled repayments, a reduction in interest rates on
certain non-domestic debt, and higher capitalized interest
expense associated with the Company's higher capital expenditure
program. Net non-operating income and expense remained virtually
the same.
The effective tax rate decreased by 1.2% when compared to the
same period last year. The main factors responsible for the
decrease were the net utilization of certain foreign operating
loss carryforwards and a reduction in state income taxes
provided.
Net earnings for the first quarter were a record $16.4 million or
$.54 per share, up 2.5% from last year's $16.0 million, or $.52
per share. Major contributors to the increase in earnings were
improved European results, despite less favorable exchange rates,
and better results in the North American aftermarket, overcoming
lower contribution from the Company's U.S. highway-products and
building-HVAC businesses.
Outlook for the Remainder of the Year
- -------------------------------------
The Company reaffirmed its earlier forecast of sales growth in
the 4% range for the year ending in March of 1997. Greater
market penetration in Europe, and the Signet acquisition, made
last August, should more than offset the softness in the highway-
products portion of our business, yielding a 4% growth in sales
excluding any acquisitions. The Company anticipates earnings
will grow at a similar to slightly higher rate than sales. These
forward-looking statements regarding sales and earnings are
subject to certain risks and uncertainties which 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
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Comparison between June 26, 1996 and March 31, 1996
- ---------------------------------------------------
Current Assets
- --------------
Cash and cash equivalents increased by $3.3 million to a total of
$21.3 million. The Company's primary sources of liquidity and
capital resources were cash provided by operations and the use of
available borrowing facilities.
Net trade receivables increased $11.3 million primarily from
stronger sales volume in Europe and at Signet Systems. Normal
seasonal marketing programs also contributed to the increase.
Inventory levels declined by $4.4 million. Among the items
effecting inventory were higher sales volumes, exchange rate
fluctuations in Europe, process and product line changes at
certain manufacturing facilities as well as ongoing management
efforts to carefully control inventory levels.
Deferred income taxes and other current assets decreased $5.0
million due primarily to a reduction in unbilled customer
tooling.
Working capital increased approximately 7% to $181.9 million from
$170.3 million and the current ratio increased to 2.0 to 1 from
1.9 to 1. A number of categories experienced changes, but the
largest items influencing the change were increases in trade
receivables and income taxes payable together with a reduction in
accounts payable.
Property, Plant and Equipment
- -----------------------------
Net property, plant and equipment increased $5.2 million to
$206.5 million as capital expenditures exceeded depreciation,
retirements and foreign currency translation adjustments.
Outstanding material commitments for capital expenditures were
$12.3 million at June 26, 1996 compared to $17.1 million at March
31, 1996. Most of the commitments relate to plant expansions,
process improvements, tooling for new products and various new
equipment. The outstanding commitments will be financed through
internally generated cash.
Intangible Assets
- -----------------
Intangible assets decreased $2.2 million. Amortization and
foreign currency translations were the main items contributing to
the change.
Deferred Charges and Other Assets
- ---------------------------------
Deferred charges and other assets increased $1.2 million. The
net increase is primarily the result of continuing recognition
of the surplus in the Company's overfunded pension plans.
Current Liabilities
- -------------------
Accounts payable and various accrued expenses decreased $9.7
million. Normal timing differences in the level of operating
activity were responsible for the decline. Accrued income taxes
increased $7.1 million from normal timing differences in making
estimated tax payments.
Debt
- ----
Total outstanding debt decreased by $0.6 million. Short-term
debt decreased $3.7 million while long-term debt grew by $3.1
million. Shifts from short-term to long-term occurred at the
Company's Austrian and German subsidiaries. Exchange rate
fluctuations experience during the quarter also contributed to
the decrease in total debt.
Available lines of credit decreased during the quarter by $7.8
million, including a discontinuance of $10 million in U.S.
capacity. The remaining unused bank lines of credit at June 26,
1996 were $9.9 million. The total debt to equity ratio decreased
from 32.3% to 31% during the quarter.
Shareholders' Investment
- ------------------------
Total shareholders' investment increased by $12.2 million to a
total of $361.6 million. The net increase resulted primarily
from record first quarter net earnings of $16.4 million. The
value of the dollar increased relative to other currencies during
the quarter, resulting in an unfavorable foreign currency
translation impact of $1.1 million. Dividends paid to
shareholders of $5.1 million, net treasury stock sales of $2.2
million; and other minor changes to the capital accounts also
contributed to the change.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, the Company 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 the Company. While the
outcome of these proceedings is uncertain, in the opinion of the
Company's Management and counsel, any liabilities that may result
from such proceedings are not reasonably likely to have a
material effect on the Company's liquidity, financial condition
or results of operations. Many of the pending damage claims are
covered by insurance and, in addition, the Company from time to
time establishes reserves for uninsured liabilities.
The Mitsubishi and Showa Litigation
-----------------------------------
In November 1991, the Company filed a lawsuit in the Federal
District Court in Milwaukee, Wisconsin against Mitsubishi Motor
Sales of America, Inc. and Showa Aluminum Corporation, alleging
infringement of the Company's Patent No. 4,998,580 on parallel-
flow air-conditioning condensers. The suit seeks an injunction
to prohibit continued infringement and accounting for damages, a
trebling of such damages for willful infringement, and
reimbursement of attorneys' fees. In December of 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 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 4,998,580 patent on parallel-flow air-
conditioning condensers. The ITC also ruled that specific condensers
from the 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
February 1996, the U.S. Court of Appeals for the Federal Circuit,
upheld the patent as valid and enforceable and remanded the case back
to the ITC for a determination with respect to Showa infringement.
In July of 1994, Showa filed a lawsuit against the Company in the
Federal District Court in Columbus, Ohio alleging infringement by
the Company of Showa's patents pertaining to double circuit condensers
and baffles therefor (In June, 1995, the Company filed a motion for
partial summary judgment against such lawsuit). In December of 1994,
the Company filed another lawsuit against Mitsubishi Motor Sales of
America, Inc. and Showa Aluminum Corporation in the Federal District
Court in Milwaukee, Wisconsin pertaining to the Company's newly-issued
Patent No. 5,372,188 also pertaining to parallel-flow air-conditioning
condensers. Both 1994 suits have been stayed pending the outcome of
re-examination in the U. S. Patent Office of the patents involved. All
legal and court costs associated with these cases have been expensed as
they were incurred.
Other previously reported legal proceedings have been settled or
the issues resolved so as to not merit further reporting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
--------
The following exhibits are included for information only unless
specifically incorporated by reference in this report:
Reference Number
per Item 601 of
Regulation S-K Page
- -------------- ----
4(a) Rights Agreement dated as of October 16, 1986
between the Registrant and First Chicago Trust
Company of New York (Rights Agent)
(filed by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended March 31, 1992).
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 exhibit
contained within the Registrant's Current
Report on Form 8-K dated January 13, 1995.)
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 exhibit
contained within the Registrant's Current
Report on Form 8-K dated January 13, 1995.)
Reference Number
per Item 601 of
Regulation S-K Page
- -------------- ----
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 10-K.
The Registrant agrees to furnish copies of
such instruments to the Commission upon
request.
11* Computation of per share earnings 14
27* Financial Data Schedule (electronic
transmission only)
99* Important Factors and Assumptions Regarding
Forwarding-Looking Statements 15
*Filed herewith.
(b) Reports on Form 8-K:
-------------------
The Company filed one Form 8-K to report that certain forward looking
statements regarding forecasts of sales and earnings growth are subject
to certain risks and uncertainties as explained therein. This Report is
dated June 7, 1996.
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: A. D. REID
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A. D. Reid, Vice President,
Finance and Chief Financial Officer
(Principal Financial Officer)
Date: August 2, 1996 By: W. E. PAVLICK
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W. E. Pavlick, Senior Vice President,
General Counsel and Secretary