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
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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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 636-1200
--------------
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 November 5, 1998
------------------------------ -----------------------------------
Common Stock, $0.625 Par Value 29,602,504
<PAGE>
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
<PAGE>
<TABLE>
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
September 26, 1998 and March 31, 1998
(In thousands, except per-share amounts)
(Unaudited)
<CAPTION>
September 26, 1998 March 31,1998
------------------ -------------
<S> <C> <C>
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
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
<S> <C> <C>
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
-------- --------
<PAGE>
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
======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
</TABLE>
<PAGE>
<TABLE>
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)
<CAPTION>
Three months ended Six months ended
-------------------------- ---------------------
September 26 September 26
-------------------------- ---------------------
1998 1997 1998 1997
------------ ------------ ----------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
<FN>
(See accompanying notes to consolidated financial statements.)
</TABLE>
<PAGE>
<TABLE>
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Six Months Ended September 26, 1998 and 1997
(Unaudited)
<CAPTION>
Six months ended September 26
-----------------------------
1998 1997
---------- -----------
<S> <C> <C>
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
======= =======
<FN>
(See accompanying notes to consolidated financial statements.)
</TABLE>
<PAGE>
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
======== ========
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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%.
<PAGE>
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%.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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:
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> SEP-26-1998
<CASH> 30,230
<SECURITIES> 0
<RECEIVABLES> 183,472
<ALLOWANCES> 5,014
<INVENTORY> 142,150
<CURRENT-ASSETS> 396,139
<PP&E> 557,698
<DEPRECIATION> 278,143
<TOTAL-ASSETS> 820,229
<CURRENT-LIABILITIES> 184,732
<BONDS> 135,123
0
0
<COMMON> 18,964
<OTHER-SE> 426,039
<TOTAL-LIABILITY-AND-EQUITY> 820,229
<SALES> 546,065
<TOTAL-REVENUES> 546,065
<CGS> 391,649
<TOTAL-COSTS> 391,649
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 342
<INTEREST-EXPENSE> 2,025
<INCOME-PRETAX> 62,328
<INCOME-TAX> 23,167
<INCOME-CONTINUING> 39,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,161
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.30
</TABLE>
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.
<PAGE>
