Modine Reports Second Quarter Results
RACINE, Wis.--Oct. 16, 2002--The Modine Manufacturing Company today reported sales of $275.6 million and earnings of $6.3 million, or $0.19 per fully diluted share for the quarter ended September 26th, 2002. Sales increased 2.8% from $268.1 million reported a year ago. Modine's income from operations increased 18.2% to $10.5 million from $8.9 million. Reported net earnings declined 8.2% to $6.3 million from $6.8 million a year ago. Year-over-year net earnings comparisons were affected by a number of one-time items, including elimination of goodwill amortization, Thermacore acquisition costs, restructuring expenses, and other closure related costs.Adjusting for one-time items, Modine's pro forma income from operations decreased by 9.9% to $9.4 million from $10.4 million a year ago. Modine's actual results in the year ago period were adjusted to remove $0.2 million of pretax costs associated with the acquisition of Thermacore International and $1.4 million of pretax goodwill amortization expenses. In accordance with FAS 142, which was adopted at the beginning of the current year, Modine no longer amortizes goodwill. The current quarter results were favorably impacted by a $1.0 million reversal of November 2001 restructuring charges which, in retrospect, did not meet the criteria for accrual under EITF 94-3. The company believes that the amounts are immaterial to the anticipated full-year financial results for the current year, as well as fiscal 2002's actual results. Modine's net income was also positively affected by a $0.7 million reduction in interest expense and a lower effective income tax rate. These effects were largely offset, however, by a $4.1 million reduction in other income, resulting primarily from losses associated with the sale of a Canadian subsidiary and other assets, in addition to lower profits on the sale of tooling equipment.
FAS 142 and Goodwill Impairment
The company adopted FAS 142 "Goodwill and Other Intangible Assets" effective with the start of its fiscal year on April 1, 2002. In accordance with the provisions of FAS 142, the company recently tested its goodwill for impairment in all of its reporting units, which resulted in a $21.7 million non-cash write-off of goodwill in its aftermarket business. The charge was accounted for as a cumulative effect of change in accounting, retroactive to the first quarter of the current fiscal year and was net of a $1.1 million income tax benefit. Modine reviewed the carrying value assigned to goodwill in the aftermarket with respect to market conditions and expectations of future operating performance. These factors indicated that a permanent impairment in value existed in the respective business.
Modine's goodwill impairment charge was calculated based on an independent valuation of the underlying business. The goodwill impairment charge does not impact the company's cash flow, liquidity or compliance with financial covenants.
Year-to-Date Performance
Sales for the first six months of fiscal 2003 increased 0.1% to $548.2 million from $547.5 million a year ago. Modine's income from operations increased 4.9% to $26.4 million from $25.1 million. Reported earnings (excluding the goodwill impairment charge) declined 2.3% to $16.7 million from $17.0 million a year ago. In addition to the impairment charge, Modine's year-to-date net earnings comparisons were affected by one-time items, including the elimination of goodwill amortization, Thermacore acquisition costs, restructuring expenses, and other closure related costs. Excluding the goodwill impairment charge and adjusting for one-time items, Modine's pro forma income from operations decreased by 20.0% to $25.0 million from $31.2 million. A decline in interest expense and a large reduction in other income also affected Modine's net earnings comparisons.
A year-over-year improvement in Modine's automotive and truck businesses positively affected second quarter sales and earnings. Modine's aftermarket, electronics, and building HVAC (heating, ventilating, and air conditioning) businesses had lower sales and earnings in the quarter. Year-to-date, Modine has experienced strong sales growth in its automotive business. Operating income was positively effected by profitability improvements in its automotive, truck, and building HVAC businesses. The company has, however, continued to experience weakness in the aftermarket and electronics markets.
Balance Sheet and Cash Flow
Modine continued to strengthen its balance sheet and reduced working capital requirements in the second quarter. Working capital (excluding cash and short-term debt) was down $24.7 million or 14.5% from the beginning of the fiscal year. Total debt was reduced $39.6 million or 26.4% on a year-to-date basis and Modine ended the quarter with $81.1 million in cash. Year-to-date, cash flow from operations was up 10.3% to $76.7 million from $69.6 million while capital expenditures declined 29.5% to $17.7 million from $25.1 million.
Full Year Outlook
For the remainder of the year, Modine continues to expect growth in automotive sales and performance improvements in its off-highway and building HVAC areas. However, the company also expects heavy-duty truck production volumes to decline significantly in the second half of the year from current production levels. Modine is forecasting little improvement in the aftermarket, construction, industrial, and electronics markets. As a result, Modine now expects fiscal 2003 earnings per share to be modestly down from its fiscal 2002 pro forma results. The company estimates that its fiscal 2002 pro forma earnings per share would have been $1.02. This estimate includes the $0.88 per share pro forma results reported at year-end, plus a $0.14 per share effect related to the elimination of goodwill amortization in accordance with FAS 142. Modine still expects operating cash flow to remain strong and more than sufficient to meet all funding requirements.
Second Quarter Webcast
On October 17, 2002 Modine will hold an audio webcast at 9:00 a.m. (EDT) with the executive management team to discuss additional details regarding the company's performance for the quarter and other forward-looking information. The session may be accessed at www.modine.com. The webcast will be available for replay through the close of business on November 8, 2002.
Modine specializes in thermal management, bringing heating and cooling technology to diversified markets. Modine products are used in light, medium and heavy-duty vehicles, HVAC (heating, ventilating, air conditioning) equipment, industrial equipment, refrigeration systems, fuel cells, and electronics. Modine can be found on the Internet at www.modine.com.
This news release contains forward-looking statements that involve assumptions, risks, and uncertainties, and Modine's actual results, performance, or achievements may differ materially from those expressed or implied in these statements. A detailed discussion of factors that could affect Modine's results are on page 14 of the company's fiscal 2002 Annual Report to Shareholders and in other public filings with the U.S. Securities and Exchange Commission. Modine does not assume any obligation to update any of these forward-looking statements.
Modine Manufacturing Company
Consolidated statements of earnings for the periods ended
September 26, 2002 and 2001 (unaudited)
(In thousands, except per-share amounts)
-----------------------------------------------------------------
Three months Six months
ended September 26 ended September 26
2002 2001 2002(1) 2001
-----------------------------------------------------------------
Net sales $275,558 $268,070 $548,178 $547,524
Cost of sales 207,794 204,151 411,534 410,819
------------------- ---------------------
Gross profit 67,764 63,919 136,644 136,705
Selling, general, &
administrative
expenses 58,367 55,053 111,673 111,574
Restructuring charges (1,082) - (1,391) -
------------------- ---------------------
Income from
operations 10,479 8,866 26,362 25,131
Interest (expense) (1,480) (2,142) (3,145) (4,207)
Other income - net 574 4,700 2,318 7,414
------------------- ---------------------
Earnings before
income taxes 9,573 11,424 25,535 28,338
Provision for income
taxes 3,303 4,595 8,880 11,291
------------------- ---------------------
Earnings before
cumulative effect
of accounting
change 6,270 6,829 16,655 17,047
Cumulative effect of
change in accounting
for:
Goodwill impairment
(net of 1,136
income tax benefit) - - (21,692) -
------------------- ---------------------
Net earnings/(loss) $6,270 $6,829 ($5,037) $17,047
------------------- ---------------------
Net earnings as a
percent of net sales 2.3% 2.5% -0.9% 3.1%
Net earnings per share
of common stock - basic:
Before cumulative
effect of
accounting change $0.19 $0.21 $0.50 $0.52
Cumulative effect
of accounting
change - - (0.65) -
------------------- ---------------------
Net earnings - basic $0.19 $0.21 ($0.15) $0.52
Net earnings per share
of common stock - diluted:
Before cumulative
effect of
accounting change $0.19 $0.20 $0.49 $0.51
Cumulative effect of
accounting change - - (0.64) -
------------------- ---------------------
Net earnings - diluted $0.19 $0.20 ($0.15) $0.51
Weighted average shares
outstanding:
Basic 33,637 33,041 33,610 32,962
Assuming dilution 33,714 33,394 33,778 33,296
Net cash provided by
operating activities $47,937 $39,366 $76,727 $69,550
Earnings before
interest expense,
income taxes,
depreciation, and
amortization expense
without accounting
change $24,346 $28,415 $55,350 $61,482
Dividends paid per
share $0.125 $0.25 $0.250 $0.50
Comprehensive earnings, which represents net earnings adjusted by
the change in foreign-currency translation and minimum pension
liability recorded in shareholders' equity, for the periods ended
September 26, 2002 and 2001, respectively, were $13,369 and $10,332
for 3 months, and $6,551 and $8,470 for 6 months.
(1) Includes accounting change from the adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets". The $21,692, net of income
tax, non-cash impairment charge to goodwill was recorded retroactively
to April 1, 2002 in accordance with the provisions of SFAS No. 142.
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Consolidated condensed balance sheets (unaudited)
(In thousands)
---------------------------------------------------------------
September 26, 2002 March 31, 2002
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Assets
------
Cash and cash equivalents $81,054 $75,402
Trade receivables - net 157,655 162,462
Inventories 116,999 121,663
Other current assets 38,809 46,443
-------------------------
Total current assets 394,517 405,970
-------------------------
Property, plant, and
equipment - net 346,121 340,388
Other noncurrent assets 135,890 156,686
-------------------------
Total assets $876,528 $903,044
-------------------------
Liabilities
-----------
Debt due within one year $12,899 $10,756
Accounts payable 78,465 80,112
Other current liabilities 89,833 80,636
-------------------------
Total current liabilities 181,197 171,504
-------------------------
Long-term debt 97,869 139,654
Deferred income taxes 36,406 35,127
Other noncurrent liabilities 44,446 40,760
-------------------------
Total liabilities 359,918 387,045
-------------------------
Shareholders' equity 516,610 515,999
-------------------- -------------------------
Total liabilities &
shareholders' equity $876,528 $903,044
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