RACINE, Wis. -- Modine Manufacturing Co. has reported its financial results for the third quarter of fiscal 2010.

“Modine’s performance during the third quarter of fiscal 2010 affirms that our Four-Point Plan is working,” said Thomas Burke, Modine president and chief executive officer. “We delivered a 420 basis point improvement in gross margin despite lower sales, just over $25 million in adjusted EBITDA, and the company’s first pre-tax earnings in six quarters. These results reflect the favorable impact of our restructuring activities and our significantly lower cost structure year over year. During the quarter, we completed the sale of our Korea-based vehicular HVAC business, as part of our ongoing portfolio rationalization activity. We used the strength of our cash flow from operations, as well as the proceeds from this sale, to reduce even further the company’s overall debt position. Although we are clearly pleased with our progress during the third quarter, we are mindful of near-term pressure on our business.

“Continued steady increases in metals prices, as well as new program launches and announced plant closure activities, are expected to impact the company’s gross margin. Within this environment, we continue to execute our Four-Point Plan. With renewed confidence in our product strategies and our strong balance sheet, we remain focused on meeting the thermal management needs of our customers and positioning Modine for sustained profitable growth.”

Third Quarter Overview

Sales volumes declined 7 percent from a year ago, yet improved sequentially across all segments, up 7 percent compared to the second quarter of fiscal 2010, reflecting new program launches and some slight market recovery.

The company recorded pre-tax income of $2.4 million, its first reported pre-tax earnings since the first quarter of fiscal 2009.

As of Dec. 31, 2009, the company had reduced its net debt to $87.5 million, substantially lower than the $205.7 million balance at March 31, 2009.

 “We are very pleased with the progress we are making to improve our liquidity and financial position,” said Robert Kampstra, vice president, corporate controller and chief accounting officer. “We generated positive free cash flow through our strong operating results during the quarter. This cash flow, combined with the proceeds from the sale of our Korea-based vehicular HVAC business and the capital raised in our secondary stock offering last quarter, allowed us to substantially reduce our net debt balance since March 31, 2009.”

Free cash flow was $38.5 million during the third quarter of fiscal 2010, compared with $7.8 million in the comparable period of fiscal 2009. The improvement in income from operations resulting from the company’s cost reduction efforts, as well as reduced capital spending, contributed to the year over year improvement in free cash flow. As of Dec. 31, 2009, the company had cash on hand of approximately $44 million and additional available borrowing capacity of approximately $175 million. The company is confident it has sufficient liquidity to manage its business and expects to be in compliance with its financial covenants through the term of its primary credit agreement.

Modine said it anticipates continued, albeit modest, sales volume improvement over the next 12 months. However, the company anticipates that the combination of the following factors will put near-term pressure on its fourth quarter gross margin versus the third quarter of fiscal 2010:

• Significant commodity price increases, with aluminum and copper, up approximately 55 percent and 160 percent, respectively, during calendar 2009;

• The lagging impact of material pass-through agreements with several customers, resulting in the company’s temporary absorption of sharply higher metals costs until these agreements re-price;

• Inefficiencies associated with program launch activities and announced plant closures; and

• The typical winding down of the Commercial Products segment’s heating products season during the fourth quarter.

“Although the fourth quarter is historically Modine’s weakest and we face these near-term headwinds,” Burke concluded, “we are confident in our ability to manage through the uncertainties of the market. With the substantial fixed cost reductions we have achieved, we are well positioned to use this operating leverage, along with our commitment to strong customer relationships, to capitalize on the significant opportunities before us as market volumes return.”