-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYaKeNr+5zZ6PN/TGUsb5SU+pwfJ0Wp4bWndAiIRpVxJ3xTebbqFs8eGMsg9Ad87 E+HIEX4vTr4M2FW7uaatcg== 0000067347-98-000025.txt : 19981110 0000067347-98-000025.hdr.sgml : 19981110 ACCESSION NUMBER: 0000067347-98-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODINE MANUFACTURING CO CENTRAL INDEX KEY: 0000067347 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 390482000 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01373 FILM NUMBER: 98740554 BUSINESS ADDRESS: STREET 1: 1500 DEKOVEN AVE CITY: RACINE STATE: WI ZIP: 53403 BUSINESS PHONE: 4146361200 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 1998 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-1373 ------ MODINE MANUFACTURING COMPANY (Exact name of registrant as specified in its charter) WISCONSIN 39-0482000 ---------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1500 DeKoven Avenue, Racine, Wisconsin 53403-2552 --------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 636-1200 -------------- NOT APPLICABLE -------------------------------------------------------------------- (Former name or former address, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 5, 1998 ------------------------------ ----------------------------------- Common Stock, $0.625 Par Value 29,602,504 MODINE MANUFACTURING COMPANY INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 26 and March 31, 1998 3 Consolidated Statements of Earnings - For the Three Months Ended September 26, 1998 and 1997 and the Six Months Ended September 26, 1998 and 1997 4 Consolidated Statements of Cash Flows - For the Six Months Ended September 26, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 21 MODINE MANUFACTURING COMPANY CONSOLIDATED BALANCE SHEETS September 26, 1998 and March 31, 1998 (In thousands, except per-share amounts) (Unaudited)
September 26, 1998 March 31,1998 ------------------ ------------- ASSETS - ------ Current assets: Cash and cash equivalents $ 30,230 $ 36,410 Trade receivables, less allowance for doubtful accounts of $5,014 and $4,585 178,458 162,177 Inventories 142,150 152,674 Deferred income taxes and other current assets 45,301 41,922 -------- -------- Total current assets 396,139 393,183 -------- -------- Other assets: Property, plant, and equipment -- net 279,555 248,253 Investment in affiliates 35,067 8,376 Intangible assets -- net 57,673 59,355 Deferred charges and other noncurrent assets 51,795 49,857 -------- -------- Total other assets 424,090 365,841 -------- -------- Total assets $820,229 $759,024 ======== ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT - ---------------------------------------- Current liabilities: Short-term debt $ 16,961 $ 20,878 Long-term debt -- current portion 2,359 2,835 Accounts payable 75,212 84,345 Accrued compensation and employee benefits 47,403 48,081 Income taxes 11,869 10,073 Accrued expenses and other current liabilities 30,928 26,516 -------- -------- Total current liabilities 184,732 192,728 -------- -------- Other liabilities: Long-term debt 135,123 89,587 Deferred income taxes 14,256 14,258 Other noncurrent liabilities 41,115 39,976 -------- -------- Total other liabilities 190,494 143,821 -------- -------- Total liabilities 375,226 336,549 -------- -------- 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 12,621 12,384 Retained earnings 448,113 423,001 Foreign currency translation adjustment (8,732) (8,102) Treasury stock at cost: 733 and 678 shares, respectively (23,591) (20,977) Restricted stock - unamortized value (2,372) (2,795) -------- -------- Total shareholders' investment $445,003 $422,475 -------- -------- Total liabilities and shareholders' investment $820,229 $759,024 ======== ======== (See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF EARNINGS For the three months ended September 26, 1998 and 1997 For the six months ended September 26, 1998 and 1997 (In thousands, except per-share amounts) (Unaudited)
Three months ended Six months ended -------------------------- --------------------- September 26 September 26 -------------------------- --------------------- 1998 1997 1998 1997 ------------ ------------ ----------- -------- Net Sales $272,961 $260,806 $546,065 $517,729 Cost of sales 197,003 185,517 391,649 367,399 -------- -------- -------- -------- Gross profit 75,958 75,289 154,416 150,330 Selling, general, and administrative expenses 48,390 46,275 94,002 90,824 -------- -------- -------- -------- Income from operations 27,568 29,014 60,414 59,506 Non-operating income 4,969 2,185 7,189 4,075 Interest expense (979) (973) (2,025) (2,108) Non-operating expense (1,886) (1,798) (3,250) (3,225) -------- -------- -------- -------- Earnings before income taxes 29,672 28,428 62,328 58,248 Provision for income taxes 10,591 10,199 23,167 21,834 -------- -------- -------- -------- Net earnings $ 19,081 $ 18,229 $ 39,161 $ 36,414 ======== ======== ======== ======== Net earnings per share of common stock - Basic $0.64 $0.61 $1.32 $1.22 - Assuming dilution $0.63 $0.60 $1.30 $1.20 ======== ======== ======== ======== Dividends per share $0.21 $0.19 $0.42 $0.38 ======== ======== ======== ======== Weighted average shares -- basic 29,617 29,764 29,631 29,783 Weighted average shares -- diluted 30,049 30,303 30,117 30,287 ======== ======== ======== ======== (See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Six Months Ended September 26, 1998 and 1997 (Unaudited)
Six months ended September 26 ----------------------------- 1998 1997 ---------- ----------- Net cash provided by operating activities $48,101 $38,885 Cash flows from investing activities: Expenditures for property, plant, and equipment (47,691) (33,170) Investments in affiliates (17,066) - Proceeds from dispositions of property, plant, and equipment 90 1,785 Other -- net (64) (33) ------- ------- Net cash (used for) investing activities (64,731) (31,418) Cash flows from financing activities: (Decrease)/increase in short-term debt -- net (4,170) 8,221 Additions to long-term debt 35,570 14,211 Reductions of long-term debt (4,242) (19,056) Issuance of common stock, including treasury stock 1,409 2,462 Purchase of treasury stock (5,670) (8,880) Cash dividends paid (12,447) (11,315) ------- ------- Net cash provided from/(used for) financing activities 10,450 (14,357) ------- ------- Net (decrease) in cash and cash equivalents (6,180) (6,890) Cash and cash equivalents at beginning of period 36,410 34,822 ------- ------- Cash and cash equivalents at end of period $30,230 $27,932 ======= ======= (See accompanying notes to consolidated financial statements.)
MODINE MANUFACTURING COMPANY ---------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------ 1. The amounts of raw material, work in process and finished goods cannot be determined exactly except by physical inventories. Based on partial interim physical inventories and percentage relationships at the time of complete physical inventories, Management believes the amounts shown below are reasonable estimates of raw material, work in process and finished goods. (In Thousands) ----------------------------------------------------------- September 26, 1998 March 31, 1998 ----------------------------------------------------------- Raw materials $ 39,842 $ 41,164 Work in process 42,064 41,231 Finished goods 60,244 70,279 -------- -------- Total inventories $142,150 $152,674 ======== ======== 2. Property, plant, and equipment is composed of: (In Thousands) ----------------------------------------------------------- September 26, 1998 March 31, 1998 ----------------------------------------------------------- Gross property, plant & equipment $557,698 $510,868 Less accumulated depreciation (278,143) (262,615) -------- -------- Net property, plant & equipment $279,555 $248,253 ======== ======== 3. Intangible assets include: (In Thousands) ---------------------------------------------------------- September 26, 1998 March 31, 1998 ---------------------------------------------------------- Intangible assets $ 77,563 $ 76,505 Less accumulated amortization (19,890) (17,150) -------- -------- Net intangible assets $ 57,673 $ 59,355 ======== ======== 4. Recent developments concerning legal proceedings reported in the Company's Form 10-K report for the year ended March 31, 1998, 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 liquidity, financial condition, or results of operations. 5. The computation of basic and diluted earnings per share, as prescribed by FASB 128, is as follows: (In thousands, except per-share amounts) ---------------------------------------------------------------------- Three months ended Six months ended September 26 September 26 ---------------------------------------------------------------------- 1998 1997 1998 1997 ---------------------------------------------------------------------- Net earnings per share of common stock: ------------------------- - Basic $0.64 $0.61 $1.32 $1.22 - Assuming dilution $0.63 $0.60 $1.30 $1.20 Numerator: --------- Income available to common shareholders $19,081 $18,229 $39,161 $36,414 Denominator: ----------- Weighted average shares outstanding - Basic 29,617 29,764 29,631 29,783 Effect of dilutive securities - options* 432 539 486 504 ------- ------- ------- ------- Weighted average shares outstanding - Assuming dilution 30,049 30,303 30,117 30,287 * There were outstanding options to purchase common stock at prices that exceeded the average market price for the income statement period as follows: Average market price per share $32.24 $31.44 $33.57 $29.92 Number of shares 358 45 303 290 6. On August 6, 1998, the Company completed the acquisition of a 50% interest in Radiadores Visconde Ltda., a Brazilian heat transfer company. The investment included cash and a promissory note. The investment will be accounted for by the equity method. The results of operations will be included in the consolidated financial statements using a one quarter delay and, accordingly, were not included in the operating results reported for the second quarter. Visconde employs about 750 people at facilities in San Paulo. It produces heat-exchanger components, assemblies, and modules primarily for the aftermarket, but also for sale to original-equipment customers in the truck, engine, agricultural-tractor, hydraulic-system, compressor, marine, construction-equipment, power-generator, and industrial markets. Subsequent to the end of the quarter, the Company completed the acquisition of Core Holdings, Inc. of Orlando, Florida, an aftermarket wholesale distributor specializing in complete lines of vehicular engine-cooling and air- conditioning systems products. The acquisition consisted of cash and promissory notes and included the assumption of Core Holding's existing debt at the time of the acquisition. The transaction was financed with cash and available borrowing facilities. The investment will be accounted for by the purchase method. Core Holdings had sales of $54.1 million in 1997. Its 350 employees operate out of more than 50 locations throughout the southeastern United States. Core Holdings also ships its full line of air-conditioning parts to warehouse distributors in other geographic markets. It distributes primarily to radiator shops, air-conditioning shops, specialty repair shops and garages. In addition, it manufactures air-conditioning parts at a plant in Texas. The investments do not have a material effect on the consolidated results of operations and, accordingly, pro- forma financial information is not presented. 7. On April 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income," which became effective for interim and annual financial statement periods in fiscal years beginning after December 15, 1997. This pronouncement established new standards for reporting comprehensive income and its components; however, the adoption of SFAS No. 130 has had no impact on the Company's net income or shareholders' equity. For the Company, the difference between net income as historically reported in the statements of consolidated income, and comprehensive income, is foreign currency translation recorded in shareholders' equity. Comprehensive earnings for the periods ended September 26, 1998 and 1997, respectively, were $18,061 and $15,637 for the three months and $38,531 and $33,000 for the six months. 8. On June 15, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company will adopt SFAS 133 beginning April 1, 2000. Adoption of this statement is not expected to have a material effect on earnings or financial position. 9. 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, 1998 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 six months of fiscal 1999 are not necessarily indicative of the results to be expected for the full year. 10. 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 1998 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, 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- RESULTS OF OPERATIONS AND FINANCIAL CONDITION --------------------------------------------- The following discussion and analysis provides information which Management believes is relevant to an assessment and understanding of 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 - --------------------- Comparison of the Second Quarter of 1998-99 with the Second Quarter of 1997-98 - ------------------------------------------------------------------------------ Net sales for the second quarter of fiscal 1998-99 were $273.0 million, up 4.7% from the $260.8 million reported in the second quarter of last year. Quarterly sales increased substantially in Europe as a result of new programs. Currency translation effects had a minimal impact upon year over year sales for the quarter. On a worldwide basis the original-equipment automotive and industrial markets had the largest growth in sales as a result of market penetration. Revenue growth in the quarter was hampered slightly by slower- than-anticipated sales in certain sectors. Gross margin decreased 1.1%, as a percentage of sales, over the second quarter of the previous year to 27.8% from 28.9%. Lower gross margins earned in recently opened European production facilities were the main factor leading to the decline. Selling, general and administrative expenses increased 4.6% over last year's second quarter while remaining constant as a percentage of sales. A number of expense categories registered small increases consistent with sales growth and inflation. Operating income decreased 1.0%, as a percentage of sales over last year's second quarter, to 10.1 % from 11.1% due to the lower margins earned at newly opened production facilities mentioned above. Average outstanding debt levels during the quarter increased by approximately $34.8 million, or 34.6%, from the same quarter a year ago while interest expense only increased slightly, 0.6%, for the same time period. An increase in major plant, property and equipment projects resulted in larger amounts of interest being capitalized during the current year. Non-operating income in the current quarter, included an amount for past royalties related to worldwide licensing agreements for Modine's patented PF technology. The effective tax rate decreased by 0.2% when compared to the same period last year. Net earnings for the second quarter increased 4.7% to $19.1 million, or $0.64 basic and $0.63 diluted earnings per share from last year's $18.2 million, or $0.61 basic and $0.60 diluted earnings per share. Annualized return on shareholders' investment, at 17.4% for the quarter, was in management's target range of 15-20%. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ RESULTS OF OPERATIONS --------------------- Comparison of the First Six Months of 1998-99 with the - ------------------------------------------------------ First Six Months of 1997-98 - --------------------------- Net sales for the first six months of fiscal 1998-99 reached a record $546.1 million, up 5.5% from the $517.7 million reported in the first six months of last year. Revenues from European operations were up significantly despite the currency-effect from a stronger U.S. dollar earlier in the year. On a worldwide basis the strongest sales increases were to off-highway and to medium- and heavy-truck customers. Sales to the automotive market in Europe continue to remain strong. Other major markets showed small increases except for the building-HVAC market which remained down for the year. Gross margin decreased 0.7%, as a percent of sales, over the first six months of the previous year to 28.3% from 29.0%. Lower gross margins earned in recently opened European production facilities were a contributing factor to the overall decline. Selling, general and administrative expenses increased 3.5% over the first six months last year while decreasing 0.3% as a percentage of sales. A number of expense categories registered small increases consistent with sales growth and inflation. Operating income increased by 1.5% over the first half of the previous year, but decreased 0.4% as a percentage of sales due to the lower margins earned at newly opened production facilities, mentioned above. Average outstanding debt levels during the first six months increased by approximately $26.6 million, or 26.2%, over the same period a year ago. Corresponding interest expense declined by 3.9%, or $0.1 million, over the same six month period, a year ago. An increase in major plant, property and equipment projects resulted in larger amounts of interest being capitalized in the current period. Non-operating income included an amount for past royalties related to worldwide licensing agreements for Modine's patented PF technology. The effective tax rate decreased by 0.3% when compared to the same period last year. Net earnings for the six months increased 7.5% to $39.2 million, or $1.32 basic and $1.30 diluted earnings per share from last year's $36.4 million, or $1.22 basic and $1.20 diluted earnings per share. Annualized return on shareholders' investment, at 18.1% for the six months, was in management's target range of 15- 20%. Year 2000 Remediation Program - ----------------------------- General ------- In response to the Year 2000 issue, the Company initiated a number of projects in early 1997 to identify, evaluate, and implement changes to its existing computerized business systems. Each of the projects followed a four phase approach which included inventory, assessment, remediation or replacement, and system integration testing. All of the Year 2000 efforts were carried on globally, and plans, executive sponsorship and funding were put in place to address the effort. A number of the Company's current systems were already Year 2000 compliant and where third party software was being utilized, upgrades to the vendor's Year 2000 compliant versions have been completed or are in process. In addition to business systems, additional programs to ensure supplier continuity and process capability were initiated. All of the above projects are currently being funded through normal operating cash flow. The total cost associated with the required modifications is not expected to be material to the Company's consolidated results of operations and financial position. Business Systems ---------------- In North America, the conversion and remediation effort of the Company's internally developed systems is being addressed by an external party. The external party is also validating the Year 2000 changes with internally prepared tests scripts. Computer hardware and LAN infrastructure is also in the process of being converted to ensure compliance in its business system and desktop operation. The expected Year 2000 costs for North America are $4.5 million of which approximately 60% has been already expended. The systems conversion project is in the last phase, system integration testing, and is being conducted by Modine internal staff. The project is 70% complete, and is scheduled for a second calendar quarter 1999 completion. Outside of North America, Year 2000 compliance is being achieved by replacing current applications with SAP, a Year 2000 compliant package of integrated manufacturing and financial software. Also included are hardware migrations, LAN, E-mail and desktop upgrades and replacements. The Year 2000 international cost associated with the project is $4.6 million of which 80% has been expended. The project is progressing on schedule and, depending on site, is in various stages of readiness, most of which are completed. Overall, the European project is on schedule, 80% complete, and scheduled for a second calendar quarter 1999 completion. Suppliers & Customers --------------------- With respect to suppliers, the Company has surveyed its material and service suppliers to determine whether they are actively involved in Year 2000 remediation projects that will ensure that services to Modine will continue without interruption to any of Modine's business processes. The Company has since developed a second, more detailed survey that has been resent to our suppliers to gain better insight into their actual Year 2000 status. The responses will be used as the basis of developing contingency plans. For many of our critical suppliers, stocking contingency plans have already been developed. With our dependency on customers for sales and cash flow, Year 2000 interruptions in our customer's operations could result in reduced sales, increased inventory or receivable levels and cash flow reductions. While these events are possible, our customer base is broad enough to minimize the effects of a single occurrence. Facilities & Embedded Systems ----------------------------- In addition, for non-IT areas, a major effort to assess Modine's production facilities to include embedded systems, is in process and is being conducted by a third party consulting firm specialized in this type of activity. The facilities evaluation is expected to be completed in the fourth calendar quarter of 1998. Recommendations will be made that may include testing, repair, replacement, upgrading, and/or retirement of specific systems or components. Modine expects to complete any testing and/or any systems remediation activities by the end of the second calendar quarter of 1999, and development of contingency plans, if needed, by the third calendar quarter of 1999. Cost for the inventory assessment is $300,000. Projected costs for remediation and/or replacement will be made available as the study progresses. Risks & Contingency Planning ---------------------------- The failure to correct a material Year 2000 problem could result in an interruption of the Company's business activities or operations. Modine's Year 2000 projects were designed and implemented to significantly reduce that possibility. Despite the significant efforts to address Year 2000 concerns, the Company could potentially experience disruptions to some of its operations, including those resulting from non-compliant systems used by its suppliers and customers. The Company is now beginning to develop contingency plans and will be doing so throughout 1999 wherever the risk warrants it. Euro Conversion - --------------- A single currency called the euro will be introduced in Europe on January 1, 1999. Eleven of the fifteen member countries of the European Union have agreed to adopt the euro as their common legal currency on that date. Fixed conversion rates between these participating countries' existing currencies and the euro have been established. The legacy currencies are scheduled to remain legal tender as denominations of the euro until at least January 1, 2002, but not later than July 1, 2002. During this transition period, the parties may settle transactions using either the euro or a participating country's legacy currency. Certain of Modine's business functions in Europe will introduce euro-capability as of January 1, 1999, including systems for making and receiving certain payments, pricing and invoicing. Other business functions and financial reporting will be converted to the euro by the end of the transition period, but may be converted earlier where operationally efficient or cost effective, or to meet customer requirements. Any delays in the Company's ability to become euro compliant, or in its key suppliers and customers to be euro compliant could result in an interruption of the Company's business activities or operations. The impact, if any, of these interruptions upon the results of operations, financial condition and cash flows has not yet been determined. Outlook for the Remainder of the Year - ------------------------------------- Management remains optimistic about the Company's continued prospects for growth and is pleased with the continuing demand for our proprietary technology, and feels confident about earlier full year sales and earnings projections. 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 ------------------- Comparison between September 26, 1998 and March 31, 1998 - -------------------------------------------------------- Current Assets - -------------- Cash and cash equivalents decreased by $6.2 million to a total of $30.2 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 $16.3 million, or 10.0%. An increase in sales for the second quarter verses the fourth quarter of the prior year, in the amount of $18.5 million or 7.3% was the contributing factor to the change. Overall inventory levels decreased by $10.5 million. Among the items affecting inventory were ongoing management efforts to control inventory levels, changes in sales volumes, exchange rate fluctuations in Europe, and process and product line changes at certain manufacturing facilities. Deferred income taxes and other current assets increased $3.4 million. An increase in royalties receivable was the largest single item influencing the overall change. Working capital increased approximately 5.5% to $211.4 million from $200.5 million and the current ratio increased slightly to 2.1 to 1 from 2.0 to 1. A number of categories experienced changes, with the largest items influencing the change being an increase in trade receivables, a decrease in inventory levels, and a decrease in accounts payable. Property, Plant and Equipment - ----------------------------- Net property, plant and equipment increased $31.3 million to $279.6 million as capital expenditures exceeded depreciation, retirements and foreign currency translation impact. Outstanding material commitments for capital expenditures were $51.8 million at September 26, 1998, compared to $48.1 million at March 31, 1998. The largest commitment of approximately $28.2 million is related to facility expansions, improvements, equipment upgrades, and new equipment for a number of European plants. Another $4.8 million relates to the construction of a new technical center in Racine, Wisconsin. The outstanding commitments will be financed primarily through internally generated cash and external borrowing, as required. Intangible Assets - ----------------- Intangible assets, net of accumulated amortization declined $1.7 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 $1.9 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 $5.4 million. Normal timing differences in the level of operating activity were responsible for the decline. Accrued income taxes increased $1.8 million from normal timing differences in making estimated tax payments and federal tax benefits resulting from the exercise of stock options. Debt - ---- Outstanding debt increased by $41.1 million from March 31, 1998. Long-term debt increased by $45.1 million primarily in conjunction with the purchase of a 50% interest in Radiadores Visconde located in Brazil, the startup of the newly formed joint venture company, Daikin-Modine, Inc., and European subsidiaries' capital expenditures. Most of the increase in the long-term debt was domestic. During this time, short-term debt decreased by $3.9 million. The U.S. portion of short-term debt decreased by $6.5 million and the European portion outstanding increased $2.6 million. Consolidated available lines of credit decreased by $4.6 million. Domestically, the Company's multi-currency revolver was increased from $25 million to $50 million, and was fully utilized at the end of the quarter. Foreign unused lines of credit at September 26, 1998 were $8.7 million. Total debt as a percentage of shareholders' equity increased from 26.8% to 34.7%. Shareholders' Investment - ------------------------ Total shareholders' investment increased by $22.5 million to a total of $445.0 million. The net increase came primarily from net earnings of $39.2 million for the first six months. Dividends paid to shareholders of $12.4 million, net treasury stock activity of $2.6 million, unfavorable foreign currency translation impact of $0.6, 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 August 1997, the ITC issued an Order excluding from U.S. import Showa condensers that infringe Modine Manufacturing Company's parallel-flow patent. The ITC's Order covers condensers, their parts, and certain products including them, such as air-conditioning kits and systems. It directs the U.S. Customs Service to exclude from importation into the United States such products manufactured by Showa Aluminum Corporation of Japan and Showa Aluminum Corporation of America. The decision is based on a Modine U.S. patent covering condensers with tube flow path hydraulic diameters less than 0.04822 inches. The Showa companies must certify to Customs officials that any condenser items imported by them do not infringe Modine's parallel-flow patent. The companies must also file annual reports with the ITC regarding their sales of Showa parallel-flow condensers in the United States. 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 but having tube flow path hydraulic diameters less than 0.070 inches. Both 1994 suits have been stayed pending the outcome of re- examination in the U. S. Patent Office of the patents involved. In October of 1997, Modine has been issued Japanese Patent No. 2,132,321 covering parallel-flow air conditioning condensers having tube flow path hydraulic diameters less than 0.070 inches. In August of 1998, the Company filed a patent infringement suit in Japan against Showa with respect to such patent seeking an injunction and damages. A similar patent has been issued to the Company by the European Patent Office and is currently in the opposition stage. 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 5. Other Information. On August 6, 1998, the Company completed the acquisition of a 50% interest in Radiadores Visconde Ltda., a Brazilian heat transfer company. For additional information see footnote 5 to the Notes to Consolidated Financial Statements (Unaudited) herein. Subsequent to the end of the quarter, the Company completed the acquisition of Core Holdings, Inc. of Orlando, Florida, an aftermarket wholesale distributor specializing in complete lines of vehicular engine-cooling and air-conditioning systems products. For additional information see footnote 5 to the Notes to Consolidated Financial Statements (Unaudited) herein. On August 3, 1998, Ernest T. Thomas joined Modine as Group Vice President, Highway Products, with responsibility for Modine's North American Automotive, Climate Systems and Truck Divisions. Subsequent to the end of the quarter, Modine announced the promotion of Carlton C. "Butch" Harper to Chief Information Officer and the election of David B. Spiewak, who joined the Company in September, 1998, to the position of Treasurer. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: -------- The following exhibits are included for information only unless specifically incorporated by reference in this report: Reference Number per Item 601 of Regulation S-K Page - ---------------- ---- 3 Restated By-Laws (as amended) (filed by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1998). 4(a) Rights Agreement dated as of October 16, 1986 between the Registrant and First Chicago Trust Company of New York (Rights Agent) (filed by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997). 4(b)(i) Rights Agreement Amendment No. 1 dated as of January 18, 1995 between the Registrant and First Chicago Trust Company of New York (Rights Agent) (filed by reference to the 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). 4(b)(iii) Rights Agreement Amendment No. 3 dated as of October 15, 1996 between the Registrant and First Chicago Trust Company of New York (Rights Agent) (filed by reference to the exhibit contained within the Registrant's Quarterly Report on Form 10-Q dated December 26, 1996). 4(b)(iv) Rights Agreement Amendment No. 4 dated as of November 10, 1997 between the Registrant and Norwest Bank Minnesota, N.A., (Rights Agent) (filed by reference to the exhibit contained within the Registrant's Quarterly Report on Form 10-Q dated December 26, 1997). Note: The amount of long-term debt ---- authorized under any instrument defining the rights of holders of long- term debt of the Registrant, other than as noted above, does not exceed ten percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. Reference Number per Item 601 of Regulation S-K Page - ---------------- ---- Therefore, no such instruments are required to be filed as exhibits to this Form. The Registrant agrees to furnish copies of such instruments to the Commission upon request. 27* Financial Data Schedule (electronic transmission only). 99* Important Factors and Assumptions Regarding Forwarding-Looking Statements. 22 *Filed herewith. (b) Reports on Form 8-K: ------------------- The Company filed no Reports on Form 8-K during the quarter ended September 26, 1998. 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 ------------------------------------- A. D. Reid, Vice President, Finance and Chief Financial Officer (Principal Financial Officer) Date: November 9, 1998 By: W. E. PAVLICK ------------------------------------- W. E. Pavlick, Senior Vice President, General Counsel and Secretary EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS FOR THE PERIOD ENDING 9/26/98 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1999 APR-1-1998 SEP-26-1998 30,230 0 183,472 5,014 142,150 396,139 557,698 278,143 820,229 184,732 135,123 0 0 18,964 426,039 820,229 546,065 546,065 391,649 391,649 0 342 2,025 62,328 23,167 39,161 0 0 0 39,161 1.32 1.30
EX-99 3 EXHIBIT 99 IMPORTANT FACTORS AND ASSUMPTIONS REGARDING FORWARD-LOOKING STATEMENTS These cautionary statements are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. Investors are cautioned that any forward-looking statements made by Modine are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including: customers' integration of products currently being supplied by the Company; the success of Modine or its competitors in obtaining the business of the customer base; the ability to pass on increased costs to customers; variations in currency- exchange rates in view of a large portion of the Company's business being non-domestic; the impact of year 2000 compliance by the Company or those entities with which the Company does business; labor relations at Modine, its customers, and its suppliers, which may affect the continuous supply of product; and the ability to improve acquisitions' operations. In making statements about Modine's fiscal-1999 operating results, management has assumed relatively stable economic conditions in the United States and worldwide, no unanticipated swings in the business cycles affecting customer industries, and a reasonable legislative and regulatory climate in those countries where Modine does business. Readers are cautioned not to place undue reliance on Modine's forward-looking statements, which speak only as of the date such statements are made. -----END PRIVACY-ENHANCED MESSAGE-----