Modine Reports Growth in Net Earnings and Increase in Sales
RACINE, Wis.--May 12, 2005--Modine Manufacturing Company , a diversified global leader in thermal management technology and solutions, today reported on a preliminary basis that net earnings increased 52% to $61.7 million, or $1.79 per fully diluted share, for fiscal 2005 ended March 31, 2005, compared with $40.4 million, or $1.19 per fully diluted share, in fiscal 2004. The significantly higher results were led by strong performances in the Company's North American and European Truck and Heavy-Duty businesses, as well as the European Automotive segment.Full-year sales reached a record $1,543.9 million, a 29% improvement versus $1,199.8 million last year, while income from operations of $85.0 million jumped from $50.1 million, generating increased operating margins of 5.5% compared with 4.2% in 2004.
Record operating cash flow for fiscal 2005 was $155.7 million, the 5th consecutive year above $100 million, and a 43% increase versus the prior year. Modine's annualized return on average capital employed (ROACE)(b) for fiscal 2005 improved to 9.1% compared with 6.7% for fiscal 2004. The Company's stated ROACE target is 11-12% through a cycle.
"Fiscal 2005 was truly a year of great progress for Modine on all fronts," said David Rayburn, Modine President and Chief Executive Officer. "We achieved a third consecutive year of sales and earnings growth, along with much improved returns, while preserving a strong balance sheet and continuing to generate solid cash flow to invest for profitable growth and return money to our shareholders."
"We also announced $330 million of net new business between now and 2009 with launches of a number of major new programs across our diversified and global market and customer base," he added. "We continued the transformation of our Company with the planned spin off of our Aftermarket business as well as the accretive acquisitions of WiniaMando's Automotive Climate Control business, Transpro's heavy-duty original equipment unit and, most recently, early in fiscal 2006, Airedale Air Conditioning International, with total combined sales of about $325 million."
Fiscal 2005 selling, general and administrative (S,G&A) expenses were 12% higher than in 2004 but, as a percentage of sales, fell to 17.1% from 19.6%.
Net favorable currency exchange rates added approximately $39.1 million and $6.8 million to full-year sales and pre-tax earnings, respectively. On a reported basis and within the previously forecasted range, the Asian acquisitions in the summer and fall of 2004 added 11 cents per fully diluted share to Modine's fiscal 2005 results, due to higher-than-expected favorable currency exchange rates despite a lower-than-anticipated operating performance from softer Korean and Chinese markets.
For the fourth quarter of fiscal 2005, net earnings were $14.9 million, or $0.43 per fully diluted share, a 19% increase compared with $12.5 million, or $0.37 per fully diluted share, one year ago. The Company's worldwide Truck, European Heavy-Duty and commercial HVAC&R (heating, ventilating, air conditioning and refrigeration) businesses posted higher results, along with an improvement in the Electronics Cooling unit. Slightly offsetting the improvements was reduced income from the North American Automotive division, due primarily to ongoing price pressures and lower vehicle platform volumes, and from the European Automotive business, resulting principally from the expected ramp-down of the BMW 3 Series ahead of the new 3 Series launch.
Included in this year's quarterly results is after-tax income of $1.6 million, or $0.05 per fully diluted share, related primarily to net favorable adjustments for both prior quarters in the current year ($0.6 million) and prior years' ($1.0 million) foreign currency transactions and inventory revaluations/material costs at two non-U.S. locations of the Company's Aftermarket business. The Company has determined that these items, which previously had been included in the foreign currency translation component of other comprehensive income, should have been recorded through the statement of earnings for U.S. GAAP reporting purposes. Last year's fourth quarter results reflected an after-tax gain of $1.1 million, or $0.03 per fully diluted share, from the sale of two Modine facilities.
Revenues for the fourth quarter increased 29% to $414.6 million versus $321.0 million in the year-ago period, the 11th consecutive quarter of year-over-year sales growth.
Strong operating cash flow of $67.1 million in the quarter enabled the Company to pay down debt by a net $19.5 million, acquire Transpro's heavy-duty OE business for $16.6 million, fund capital expenditures of $24.5 million, pay the quarterly dividend of $5.6 million and increase its cash balance by $5.1 million from the third quarter.
"Our fourth quarter results were slightly ahead of our prior guidance," Rayburn noted. "We are pleased to have ended the year on a better note."
Net favorable currency exchange rates, primarily the stronger Euro and Korean won, added approximately $7.5 million and $1.1 million to fourth quarter sales and pre-tax earnings, respectively. Income from operations in the fourth quarter improved 6% to $18.4 million from $17.3 million one year ago, generating operating margins of 4.4% versus 5.4% in 2004. S,G&A expenses as a percentage of sales declined to 17.1% versus 19.2% in the prior-year period.
Fourth Quarter Segment Data and Performance
Fourth quarter sales for the Original Equipment segment increased 47% to $209.9 million from $142.5 million one year ago, while operating income fell 6% to $22.1 million versus $23.5 million. These results include Modine Asia (the Korean and Chinese assets of WiniaMando's ACC business acquired by Modine in the summer and fall of 2004) and the first month of the newly acquired heavy-duty business in Jackson, Mississippi. The Truck and the Heavy-Duty & Industrial businesses both reported double-digit revenue improvements, partially offset by a double-digit decline in North American Automotive sales. A solid improvement in the operating income of the Truck business was more than offset by double-digit declines in operating income for the North American Automotive business due to reduced volumes for certain vehicle platforms and continued pricing pressure and for the Heavy-Duty & Industrial business as a result of a product mix shift and a delay in the pass-through of higher raw material costs.
Sales of $84.3 million for the Distributed Products segment in the fourth quarter were essentially comparable with $83.5 million one year earlier, with a strong performance in the commercial HVAC&R division offset by reduced Aftermarket revenues. The segment's operating income of $1.4 million improved significantly from a loss of $1.6 million one year ago. The HVAC&R business posted a double-digit operating income increase. Additionally, operating losses were reduced in both the Electronics Cooling business, due to increased business in Taiwan and cost-control initiatives, and in the Aftermarket business, primarily from the previously mentioned adjustments for current-year and prior-year items.
Sales for the European Operations segment in the fourth quarter increased 22% to $123.8 million from $101.4 million one year ago. Double-digit revenue growth in the European Heavy-Duty and Automotive businesses and the positive impact of the stronger Euro generated the increase. Operating income improved 18% to $12.1 million from $10.2 million last year. A solid increase in income from operations for the Heavy-Duty business and the benefit of currency exchange rates more than offset a single-digit decline in operating income in the Automotive component primarily from the anticipated ramp-down of the BMW 3 Series ahead of the new 3 Series launch.
Balance Sheet and Cash Flow
Modine ended fiscal 2005 with a solid balance sheet and significant liquidity. The total debt to capital (total debt plus shareholders' equity) ratio fell to 13.8% at the end of the year, compared with 16.6% at the close of the third quarter and 19.0% at the end of the second quarter. The cash balance at March 31, 2005 was $55.1 million compared with $50.0 million at the end of the third quarter. Operating cash flow for the fourth quarter was an exceptionally strong $67.1 million.
Total debt at the end of fiscal 2005, which decreased to $105.6 million from $127.9 million at the end of the third quarter and from $141.7 million at the end of the second quarter, compared with $87.9 million at the end of the prior fiscal year predominantly because of borrowings of $49 million to finance the ACC acquisition, as well as $3 million of assumed debt. As mentioned earlier, the Company paid off a net $19.5 million of debt during the fourth quarter.
As a result of the reclassification of approximately $64.9 million of debt ahead of the planned refinancing of a September 2005 note, working capital of $164.2 million at the end of fiscal 2005 was sharply lower than $229.1 million a year earlier.
"As we moved through fiscal 2005, our inventory turns improved, ending the year at 8.8 compared with 7.3 at the close of fiscal 2004," said Brad Richardson, Modine Vice President, Finance and Chief Financial Officer. "Days sales outstanding dropped to 54 days from 56 at the close of the third quarter and compared with 49 at the end of fiscal 2004. The year-over-year increase was primarily driven by the addition of the customer base from the ACC acquisition."
Richardson added that fiscal 2005 capital spending of $68.6 million approximated depreciation of $65.3 million, including the post-acquisition impact of the Company's new Asian businesses.
Update on Aftermarket Business Spin Off and Merger Into Transpro
A Form S-4 Registration Statement was filed by Transpro, Inc. (AMEX:TPR) on May 2 with the U.S. Securities and Exchange Commission containing the preliminary proxy statement/prospectus-information statement in connection with a previously announced transaction in which Modine would spin off its Aftermarket business on a debt-free and tax-free basis to Modine's shareholders and then merge it with Transpro, Inc.
The closing of the proposed transaction is now expected to occur late in the second quarter or early in the third quarter of calendar 2005, subject to customary conditions, including the approval of Transpro's shareholders.
Modine is working to classify its Aftermarket business as a discontinued operation in the quarter in which the transaction closes. At that time, Modine also will record a non-cash, pre-tax charge of approximately $40-55 million to reflect the difference between the value Modine shareholders receive in the merged company, a function of the stock price of Transpro, Inc. at the closing, and the asset carrying value of Modine's Aftermarket business.
Fiscal 2006 Outlook
"After very strong fiscal 2005 results, it continues to appear at this juncture that the magnitude of our growth in EPS, cash flow and underlying revenues in fiscal 2006 will be significantly shaped by a host of factors in the months ahead," Rayburn said. "They include ongoing raw material and energy cost impacts, continued pressure for OE price-downs coupled with the presence of aggressive competitors, softer Korean and Chinese economies, reduced volumes for certain North American automotive vehicle platforms, foreign currency exchange rates, and smaller year-over-year market recovery rates."
He stressed that Modine remains encouraged that fiscal 2006 will be influenced positively by a strong line-up of new business programs, a continuation of solid demand in several North American and European platforms, including the truck and heavy-duty markets, and the accretive acquisitions of Airedale International Air Conditioning Limited and Transpro's heavy-duty OE business, as well as the absence of an underperforming Aftermarket business.
"Our drive for improved profitability, cash flow and returns continues to be well-served by a focus on diversified markets and customers, differentiated products and services, and partnering with technology-driven, OE customers on global platforms, such as our recent multi-year contract with Volvo Construction," Rayburn said. "We made great progress in fiscal 2005 in reshaping and strengthening our business portfolio, highlighted by our major expansion into Asia and resulting important new customer in Hyundai/Kia. We remain optimistic for fiscal 2006, armed with our strong cash flow and solid balance sheet and an array of new, value-adding products emerging from our growing research and development initiatives."
Fourth Quarter Conference Call and Webcast
Modine will conduct a conference call on Friday, May 13 at 9 a.m. Eastern Time (8 a.m. Central Time) to discuss additional details regarding the Company's performance for the fourth quarter and full-year fiscal 2005. The call will be hosted by President and Chief Executive Officer Dave Rayburn and Vice President, Finance and Chief Financial Officer Brad Richardson. Participants should call 913.981.5571 to gain access to the conference call. A replay of the conference call will be available through Friday, May 2, 20057, 2005 by calling 719.457.0820 and using confirmation code 7455163.
Additionally, an audio Webcast of the conference call, both live and as a replay, can be accessed through the "Investor Relations" 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.
Modine, with fiscal 2005 revenues of $1.5 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, ventilating, air conditioning) equipment, industrial equipment, refrigeration systems, fuel cells, and electronics. The Company employs nearly 9,400 people at 40 facilities worldwide. For more information about Modine, visit www.modine.com.
Modine Manufacturing Company
Consolidated statements of earnings (unaudited)(a)
(In thousands, except per-share amounts)
----------------------------------------------------------------------
Three months Twelve months
Ended March 31, Ended March 31,
2005 2004 2005 2004
----------------------- -----------------------
Net sales $414,550 $321,043 $1,543,930 $1,199,799
Cost of sales 325,418 242,051 1,193,821 914,569
----------------------- -----------------------
Gross profit 89,132 78,992 350,109 285,230
Selling, general, &
administrative
expenses 70,724 61,743 264,088 235,283
Restructuring - (51) 1,031 (119)
----------------------- -----------------------
Income from
operations 18,408 17,300 84,990 50,066
Interest (expense) (1,941) (1,420) (6,365) (5,429)
Other income - net 4,261 6,075 18,251 19,074
----------------------- -----------------------
Earnings before
income taxes 20,728 21,955 96,876 63,711
Provision for
income taxes 5,873 9,427 35,214 23,274
----------------------- -----------------------
Net earnings $14,855 $12,528 $61,662 $40,437
----------------------- -----------------------
Net earnings as a
percent of net
sales 3.6% 3.9% 4.0% 3.4%
Net earnings -
basic $0.43 $0.37 $1.81 $1.19
Net earnings -
diluted $0.43 $0.37 $1.79 $1.19
Weighted average
shares outstanding:
Basic 34,276 34,023 34,092 33,922
Diluted 34,690 34,259 34,480 34,073
Net cash provided
by operating
activities $67,104 $21,133 $155,748 $109,214
Dividends paid per
share $0.1625 $0.1375 $0.63 $0.55
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 March 31, 2005
and 2004, respectively, were $17,620 and $24,888 for 3 months, and
$83,679 and $69,124 for 12 months.
Consolidated condensed balance sheets (unaudited)(a)
-----------------------------------------------------
(In thousands)
-----------------------------------------------------
March 31, March 31,
2005 2004
-----------------------------------------------------
Assets
------
Cash and cash
equivalents $55,091 $69,758
Trade receivables -
net 251,734 180,163
Inventories 149,781 136,441
Other current assets 52,724 53,331
----------- -----------
Total current
assets 509,330 439,693
----------- -----------
Property, plant, and
equipment - net 496,180 397,697
Other noncurrent
assets 146,645 139,133
----------- -----------
Total assets $1,152,155 $976,523
----------- -----------
Liabilities
--------------
Debt due within one
year $64,912 $3,024
Accounts payable 159,876 105,751
Other current
liabilities 120,306 101,774
----------- -----------
Total current
liabilities 345,094 210,549
----------- -----------
Long-term debt 40,724 84,885
Deferred income
taxes 44,072 42,774
Other noncurrent
liabilities 62,485 51,774
----------- -----------
Total
liabilities 492,375 389,982
----------- -----------
Shareholders' equity 659,780 586,541
--------------------- ----------- -----------
Total liabilities &
shareholders'
equity $1,152,155 $976,523
----------- -----------
Modine Manufacturing Company
Condensed consolidated statements of cash flows (unaudited)(a)
(In thousands)
----------------------------------------------------------------------
Twelve months ended March 31, 2005 2004
----------------------------------------------------------------------
Net earnings $61,662 $40,437
Adjustments to reconcile net earnings
with cash provided
by operating activities:
Depreciation and amortization 68,494 61,421
Other - net 8,846 3,553
--------------------------------
139,002 105,411
--------------------------------
Net changes in operating assets and
liabilities 16,746 3,803
--------------------------------
Cash flows provided by operating
activities 155,748 109,214
--------------------------------
Cash flows from investing activities:
Expenditures for plant, property, &
equipment (68,567) (72,534)
Acquisitions, net of cash (100,026) -
Investment in affiliates (2,246) -
Proceeds for dispositions of assets 2,022 4,777
Other- net (1,516) (586)
--------------------------------
Net cash (used for) investing
activities (170,333) (68,343)
--------------------------------
Cash flows from financing activities:
Net increase/(decrease) in debt 10,246 (33,892)
Issuance of common stock, including
treasury stock 9,971 3,704
Purchase of treasury stock (1,591) (269)
Cash dividends paid (21,610) (18,666)
Other - net (1,285) (1,037)
--------------------------------
Net cash (used for) financing
activities (4,269) (50,160)
--------------------------------
Effect of exchange rate changes on
cash 4,187 5,401
--------------------------------
Net (decrease) in cash and cash
equivalents (14,667) (3,888)
--------------------------------
Cash and cash equivalents at beginning
of the period 69,758 73,646
--------------------------------
Cash and cash equivalents at end of
the period $55,091 $69,758
--------------------------------
----------------------------------------------------------------------
Condensed segment operating results (unaudited)(a)
(In thousands)
----------------------------------------------------------------------
Three months ended Twelve months ended
March 31, March 31,
---------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ----------- ----------
Sales:
Original
Equipment $209,894 $142,515 $713,528 $482,303
Distributed
Products 84,287 83,463 346,265 354,573
European
Operations 123,784 101,444 500,019 392,948
---------------------- -----------------------
Segment
sales 417,965 327,422 1,559,812 1,229,824
------------------------ -----------------------
Eliminations (3,415) (6,379) (15,882) (30,025)
------------------------ -----------------------
Total net
sales $414,550 $321,043 $1,543,930 $1,199,799
------------------------ -----------------------
Operating
Income/(Loss):
Original
Equipment $22,125 $23,541 $88,072 $66,216
Distributed
Products 1,394 (1,598) 297 (1,716)
European
Operations 12,115 10,226 58,869 42,349
---------------------- -----------------------
Segment operating
income $35,634 $32,169 $147,238 $106,849
---------------------- -----------------------
(a) Certain prior-year amounts have been reclassified in the
consolidated financial statements to conform with the current year
presentation.
Segment results conform to the current year classification which
include moving the Emporia, Kansas facility from the Original
Equipment segment to the Distributed Products segment for which it
manufactures product and allocating certain centralized services
expenses attributable to a segment from corporate and administrative
expenses to the individual segments in order to more accurately
reflect their operating results. The Korean and Chinese acquisitions
together with the Jackson, Mississippi acquisition are included in the
Original equipment segment. Cash and accounts payable balances conform
to the current year's classification. To the extent that checks
written but not yet presented for payment, exceed the balance on hand
at the specific bank they were written on, the amount of those
un-presented checks is included in accounts payable.
(b) 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.
Management discussion concerning the use of the financial measure
- Return on average capital employed
-----------------------------------------------------------------
Return on average capital employed is not a measure derived under
generally accepted accounting principles (GAAP) and should not be
considered as a substitute for any measure derived in accordance with
GAAP. Management believes that return on capital employed provides
investors with helpful supplemental information about the Company's
performance, ability to provide an acceptable return on all the
capital utilized by the Company, and ability to fund growth. This
measure may also be inconsistent with similar measures presented by
other companies.
Modine Manufacturing Company
Return on average capital employed (unaudited)
(Dollars in thousands)
----------------------------------------------------------------------
Twelve months ended March 31, 2005 2004
----------------------------------------------------------------------
Net earnings $61,662 $40,437
Plus interest expense net of tax benefit at total
company effective tax rate 4,055 3,447
--------------------
Net return $65,717 $43,884
Divided by:
Average capital (beginning total debt
+ beginning shareholders equity +
ending total debt + ending shareholders'
equity divided by 2) $719,933 $658,043
Return on average capital employed 9.1% 6.7%
----------------------------------------------------------------------
Interest expense $6,365 $5,429
Total company effective tax rate 36.3% 36.5%
Tax benefit 2,310 1,982
--------------------
Interest expense, net of tax benefit $4,055 $3,447
----------------------------------------------------------------------