Modine Reports Record Fiscal 2007 Third Quarter Sales of $468 Million and Net Earnings from Continuing Operations of $0.51 per Share.RACINE, Wis. -- Modine Manufacturing Company (NYSE NYSE See: New York Stock Exchange : MOD), a diversified global leader in thermal management technology and solutions, today reported record third quarter sales from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $468 million versus the $411 million reported in third quarter ended December 26, 2005. The company also reported preliminary net earnings of $0.51 per fully diluted share from continuing operations for its fiscal 2007 third quarter, compared with $0.38 per fully diluted share from continuing operations, in the third quarter of fiscal 2006. The following table reconciles the estimated significant differences in earnings from continuing operations from the third quarter of fiscal 2006 to the third quarter of fiscal 2007: [TABLE OMITTED] Strong sales volumes continued in most businesses, most notably North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. truck. These sales volumes were partially offset by weaker demand in Modine's North American automotive business and its heating business. Modine's heating business is experiencing continued soft demand in the U.S. for heating products. The company recorded $3.6 million in repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. charges in the quarter that were essentially offset by a $2.9 million purchase price settlement related to Modine's acquisition of WiniaMando's automotive climate control division in July, 2004. Underlying earnings were positively impacted by strong volume growth and improved operating efficiencies due to better utilization of our manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. , but were more than offset by continued margin pressure from customer pricing and the cost of raw materials. In commenting on the quarter, David B. Rayburn, Modine President and Chief Executive Officer said, "We made solid progress on our five-point plan to improve margins and meet our growth and return on average capital employed Capital Employed 1. The total amount of capital used for the acquisition of profits. 2. The value of all the assets employed in a business. 3. Fixed assets plus working capital. 4. Total assets less current liabilities. (ROACE ROACE Returns on Average Capital Employed )(i) goals. As expected, we are beginning to realize the benefits from our repositioning efforts, evidenced by a modest decrease in our underlying selling, general and administrative expenses. As we've discussed, our plan is to reduce these expenses by $20 million, or 10 percent, on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis. This program is designed to reduce overhead costs overhead costs see fixed costs. while we add more resources to support our efforts to develop new technologies and invest in research for our customers. We also made solid progress in realigning our manufacturing footprint. We announced the closure of our Toledo, Ohio
Rayburn updated Modine's nine-month progress with its five-point plan to improve margins and improve its ROACE. The elements of the plan and the company's progress are as follows: * Reduce selling, general and administrative (SG&A) expenses by $20 million. In the first nine months of this fiscal year, the company reduced its administrative staff in the U.S. through a combination of an early retirement program and a reduction in force, and reconfigured its internal structure to simplify and flatten flatten - To remove structural information, especially to filter something with an implicit tree structure into a simple sequence of leaves; also tends to imply mapping to flat ASCII. "This code flattens an expression with parentheses into an equivalent canonical form." the organization, and to improve its focus on new product development, regional operations management Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective. and global customers' needs. Modine has also taken steps to reduce overhead costs in Korea and plans other similar actions in Europe and Brazil. * Reposition the manufacturing footprint with a focus on low cost countries. The company announced plans to close three plants in the U.S. and construct new plants in China and India to serve the Asian domestic markets, a new plant in Hungary to serve growing commercial and off-highway customer demand in Europe, and a plant in Mexico, to serve customers in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . * Diversify. Modine announced business wins to further diversify its customer base with its announced new programs with Hyundai Kia and Daedong Industrial Co., Ltd. in Korea, and with SANY SANY Ski Areas of New York Heavy Industry Holding Co. in China. * Increase low cost country sourcing. The company's initiatives are progressing as it increasingly sources products and components from areas that will enable margin improvement. Currently, Modine sources 10 to 15 percent of its components and materials from low cost countries and expects to grow that percentage to approximately 40 percent in the next five years. * Increase focus on technology development. Modine announced that it will provide the cooling modules for the first hydrogen powered (fuel cell) buses in Brazil. The company will be cooling the buses' fuel cell systems and their electric drive train components. Modine also introduced new green technology, an Idle-Off Demonstrator dem·on·stra·tor n. 1. One that demonstrates, such as a participant in a public display of opinion. 2. An article or product used in a demonstration. demonstrator Noun 1. with fuel cells and CO2, to enable heavy truck customers cut emissions and reduce costs. Additionally the company rolled out numerous advanced technology applications to support the stricter 2007 U.S. emissions laws. Other Third Quarter Items * Earnings before interest, taxes, depreciation and amortization Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability.
* The company completed a private placement of $75.0 million of 5.68 percent senior notes with a group of investors. Borrowing rates were in line with other diversified industrial companies of comparable credit quality. Third quarter sales from continuing operations reached a record $467.9 million, a 13.8 percent improvement from $411.0 million in the third fiscal 2006 quarter. Excluding the impact of acquisitions and foreign currency exchange rate changes, underlying sales grew by $17.7 million, or 4.3 percent. Sales volumes were positively impacted by strength in the truck and heavy-duty markets, as well as revenues from the May 2006 acquisition of the remaining 50 percent of Modine Brazil that the company did not already own. Net earnings from continuing operations of $16.3 million increased from $13.1 million in the same period last year, primarily driven by improved operating efficiencies across the manufacturing platform, as well as a lower effective income tax rate due to the recent extension of the R&D tax credit and changing mix of taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. versus permanent tax deductions Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. . These factors were partially offset by higher commodity pricing, customer pricing pressure from vehicular customers, and a $3.6 million repositioning charge. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for the third quarter of fiscal 2007 was $33.7 million versus $47.6 million in the third quarter of 2006. ROACE for the four quarters ended December 26, 2006 was 7.7 percent compared with 9.2 percent for the same period a year ago and 9.7 percent at the end of fiscal 2006. Third quarter fiscal 2007 SG&A expenses decreased $1.6 million from fiscal 2006, excluding the impact of $2.0 million of repositioning costs and the $3.5 million impact from the company's acquisition of Modine Brazil. This decrease is primarily driven by the favorable benefits from our overhead cost reduction plan. As a percentage of sales, SG&A expenses decreased from 14.0 percent to 12.6 percent - excluding the impact of the items mentioned above. The company expects to realize continued benefits from its programs to reduce SG&A costs in its upcoming quarters. Third Quarter Segment Data and Performance Third quarter sales for the Original Equipment - Americas segment increased $32.5 million, or 20.1 percent, to $194.0 million from $161.6 million reported one year ago, with operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $12.5 million versus $16.2 million in the third quarter of fiscal 2006. The truck and the heavy-duty businesses both reported solid revenue improvements, partially offset by a decline in North American automotive sales. Sales attributable to Modine Brazil had a $23.3 million positive impact on quarterly sales results. Operating income was down in the automotive and truck businesses, due to continued pricing pressure and the effect of higher raw material costs, as well as $1.5 million in pre-tax costs incurred in the company's repositioning efforts. These decreases were partially offset by improved operating performance. Third quarter sales for the Original Equipment - Europe segment increased 9.6 percent to $154.4 million from $140.9 million one year ago, due to the positive effect of foreign currency on the business as well as modest growth within these businesses. Operating income was $18.0 million versus $20.0 million last year. The revenue growth within the business coupled with improved operating performance was more than offset by product mix and customer pricing pressure. Sales for the Original Equipment - Asia segment in the third quarter increased 30.1 percent to $62.3 million from $47.9 million one year ago, with operating income of $2.3 million versus $0.8 million in fiscal 2006, due to the positive impact of foreign currency as well as improved volumes following strikes in the previous quarter. Results were also positively impacted by a $2.9 million purchase price settlement in the quarter related to Modine's acquisition of WiniaMando's automotive climate control division in July, 2004. Sales for the Commercial Heating, Ventilating ventilating Natural or mechanically induced movement of fresh air into or through an enclosed space. The hazards of poor ventilation were not clearly understood until the early 20th century. Expired air may be laden with odors, heat, gases, or dust. , Air Conditioning air conditioning, mechanical process for controlling the humidity, temperature, cleanliness, and circulation of air in buildings and rooms. Indoor air is conditioned and regulated to maintain the temperature-humidity ratio that is most comfortable and healthful. and Refrigeration refrigeration, process for drawing heat from substances to lower their temperature, often for purposes of preservation. Refrigeration in its modern, portable form also depends on insulating materials that are thin yet effective. (Commercial HVAC&R) segment decreased 4.5 percent to $50.4 million from $52.8 million and operating income decreased to $4.3 million from $6.7 million in fiscal 2006. These decreases were driven by warmer weather and higher energy prices that lead to softer demand for higher margin heating products in North America. In addition, the decrease relates to short-term costs incurred as we introduce the Airedale products into the U.S. market. Sales for the Other segment were $11.7 million, up from $9.4 million one year ago, with operating income of $0.2 million versus an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of ($2.4) million in fiscal 2006. The operating loss in the prior year was related to Modine's Taiwan operations that ceased production in July 2006. With the closing of that facility, Modine's remaining Electronics Cooling business is operating at a breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations level with progress towards profitability expected. Balance Sheet and Cash Flow In commenting on the company's financial position, Bradley C. Richardson, Modine's Executive Vice President Finance and Chief Financial Officer said, "We ended the third quarter with a solid balance sheet and a conservative debt to capital ratio. During the first nine months of fiscal 2007, we funded $60.4 million of capital expenditures in support of new business, and paid a per-share dividend in the amount of approximately $17.0 million. Our cash balance at the end of December 2006 was $19.1 million, compared to $30.8 million at the end of the 2006 fiscal year. We remain focused on minimizing our on-hand cash balances by investing in the business and providing returns to our shareholders. I'm particularly pleased that demand was high and pricing was very favorable for our $75 million private placement of senior notes. It's encouraging to know that the debt markets recognize and value Modine as a global diversified industrial manufacturing company." Operating cash flow was $67.5 million in the first nine months of fiscal 2007 compared with $97.5 million in the first nine months of fiscal 2006 due to increased working capital needs and declining year-to-date financial performance. Total debt at the end of the fiscal 2007 third quarter was $187.7 million, compared with $157.8 million at the end of fiscal 2006. The total debt to capital (total debt plus shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. ) ratio increased to 25.5 percent, compared with 23.8 percent at the end of fiscal 2006. The increase in Modine's debt level in the first nine months of fiscal 2007 is primarily attributable to the company's acquisition of its remaining 50 percent of Modine Brazil. Additionally, the company repurchased $12.1 million of its outstanding stock in the first nine months of fiscal 2007, comprised of 453,700 shares, at a weighted average price of $26.60. Working capital of $154.7 million at the end of the fiscal 2007 third quarter was higher than the balance of $117.2 million at last fiscal year end primarily due to assets capitalized in conjunction with the company's acquisition of Modine Brazil and increased working capital needs. Fiscal 2007 Outlook In commenting on Modine's fiscal 2007 results and outlook for the fourth quarter, Mr. Rayburn said, "I'm very pleased with the progress we've made this year on our five-point plan to increase our profitability and returns. Looking back on the past nine months, we've made significant progress lowering our SG&A costs, repositioning our manufacturing footprint to lower cost areas, diversifying our customers and markets, and developing new technologies. There is more to do, but it's encouraging that we're already seeing progress with our SG&A goal and winning new business, which is, after all, the reason we have embarked on our repositioning journey. Despite solid progress with our repositioning program and reporting respectable third quarter results, we are facing the headwind head·wind or head wind n. A wind blowing directly against the course of an aircraft or ship. headwind Noun a wind blowing directly against the course of an aircraft or ship of lower volumes that will affect year-over-year comparable fourth quarter results." Factors affecting Modine's fourth quarter include: * As expected, volumes, particularly in the company's U.S. truck business, will be down on both a year-over-year and on a sequential basis. While truck volumes will be down in fiscal 2008 all year, the company has partially offset this decline by securing new business from Freightliner that has significantly increased Modine's share of the U.S. truck market. * The benefit from this market share gain will not be realized until the first quarter of fiscal 2008, as the start-up of the Freightliner business has been slow. They have, like other truck manufacturers, banked engines in anticipation of the January 1, 2007 emission law change, and have slowed their ramp-up of business to compensate. * The company also anticipates further restructuring actions that will affect its fourth quarter results. These actions are part of Modine's plan to increase margins and meet its growth and ROACE goals. Rayburn added, "I remain confident that our repositioning plan will make the company a more cost competitive, innovative and efficient technology provider to our customers and will have built a larger backlog of business." Conference Call and Webcast Modine will conduct a conference call on Thursday, January, 18 at 11:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy (10:00 a.m. CST CST abbr. 1. Central Standard Time 2. convulsive shock treatment CST Central Standard Time Noun 1. ) to discuss additional details regarding the company's performance for the fiscal 2007 third quarter. President and Chief Executive Officer, Dave Rayburn and Executive Vice President Finance and Chief Financial Officer, Brad Richardson Brad Richardson (born February 4, 1985 in Belleville, Ontario) is a professional ice hockey player who currently plays center and left wing for the National Hockey League's Colorado Avalanche. He was drafted by the Colorado Avalanche in the 2003 NHL Entry Draft. will host the call. Participants should dial 800.479.9001 and international participants should dial 719.457.2618. A replay will be available through February 1, 2007 by calling 719.457.0820 or 888.203.1112. Use Passcode 9242179. Additionally, an audio Webcast of the conference call, both live and as a replay, is accessible through the "Investor Relations Investor relations The process by which the corporation communicates with its investors. " section of Modine's Web site at www.modine.com. Listeners are encouraged to log on to the Webcast about 10 minutes before the start of the conference call. About Modine Modine, with fiscal 2006 revenues of $1.6 billion, specializes in thermal management systems and components, bringing highly engineered heating and cooling technology and solutions to diversified global markets. Modine products are used in light, medium and heavy-duty vehicles, HVAC (Heating Ventilation Air Conditioning) In the home or small office with a handful of computers, HVAC is more for human comfort than the machines. In large datacenters, a humidity-free room with a steady, cool temperature is essential for the trouble-free equipment, industrial equipment, refrigeration systems, fuel cells, and electronics. The company employs approximately 8,500 people at 34 facilities worldwide. For more information about Modine, visit www.modine.com. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements made in this press release regarding future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Forward-looking statements, including those regarding a positive impact from new business programs, accretive acquisitions Accretive Acquisition An acquisition that will increase the acquiring company's EPS. Notes: As they are expected to increase the acquiring company's future earnings, these acquisitions tend to be favorable for the company's market price. , acceleration of technology, achievement of cost reductions, expansion into niche markets, refocus Verb 1. refocus - focus once again; The physicist refocused the light beam" focus - cause to converge on or toward a central point; "Focus the light on this image" 2. in global manufacturing footprint, increased cash flow and continued financial returns are based on Modine's current expectations. Modine's actual results, performance or achievements may differ materially from those expressed or implied in these statements because of certain risks and uncertainties, including international economic changes and challenges; market acceptance and demand for new products and technologies; the ability of Modine to integrate the acquired operations and employees in a timely and cost-effective manner; the ability of Modine, its customers and suppliers to achieve projected sales and production levels; unanticipated product or manufacturing difficulties; and other factors affecting the company's business prospects discussed in filings made by the company, from time to time, with the SEC including the factors discussed item 1A, Risk Factors, and in the "Cautionary Factors" section in Item 7 of the company's most recent Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its periodic reports on Form 10-Q Form 10-Q See 10-Q. . We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Modine's financial results, as reported herein, are preliminary and subject to possible adjustments. (i)Non-GAAP Financial Disclosures Financial information excluding restructuring charges and tax benefits in this press release are not measures that are defined in generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). These items are measures that management believes are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating our earnings growth prospects. Non-GAAP measures are used by management as a performance measure to judge profitability of our business absent the restructuring and tax related items. Management analyzes the company's business performance and trends excluding amounts related to the restructuring and tax benefits. These measures, as well as EBITDA and ROACE, provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures. Definition - Return on average capital employed (ROACE) The sum of, net earnings and adding back after-tax interest (interest expense less the tax benefit at the total company effective tax rate), divided by the average, total debt plus shareholders' equity: this is a financial measure of the profit generated on the total capital invested in the company before any interest expenses payable to lenders, net of any tax effect. Definition - Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) The sum of, net earnings and adding back provision for income taxes, interest expense, discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , depreciation and amortization: this is a financial measure of the profit generated excluding the above mentioned items. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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