RACINE, Wis. — Modine Manufacturing Co. has reported its financial results for the second quarter of fiscal 2010.
 
Sales volumes declined 28 percent from a year ago as a result of the economic downturn, yet improved sequentially across all segments, up 11 percent compared to the first quarter of fiscal 2010. Selling, general & administrative expenses decreased $20.5 million, or 36 percent, from the second quarter of fiscal 2009, as the company’s refocused product portfolio has enabled it to significantly lower SG&A expenses. Adjusted EBITDA of $22.7 million during the second quarter of fiscal 2010 and $39.6 million year-to-date exceeded the company’s expectations and was in compliance with its minimum adjusted EBITDA loan covenants.
 
The company’s recently completed public offering of common stock generated proceeds of approximately $93 million that were used primarily to reduce the company’s indebtedness and, thereby, provide additional financial flexibility and liquidity. The company recorded an impairment charge of $2.8 million for its Harrodsburg, Ky., facility based on the company’s intention to close this facility. The company announced the intended closure of this facility last week in an effort to create greater scale efficiencies as part of its Four-Point Plan. Effective in the second quarter of fiscal 2010, the company’s Fuel Cell business, which previously was reported as a separate segment, is now reported as a product line within the company’s Original Equipment – North America segment for all periods presented.

“We are pleased with Modine’s performance during the second quarter of fiscal 2010, especially given the current economic environment,” said Thomas Burke, Modine president and chief executive officer. “On a sequential basis, sales rose 11 percent and we saw significant improvements in gross margin and adjusted EBITDA since the first quarter. Although sales were down 28 percent year over year, we delivered a 150 basis point improvement in gross margin, reduced SG&A costs by more than $20 million and generated the strongest adjusted EBITDA in five quarters. During the quarter, we completed a public offering of our common stock and used the proceeds to significantly reduce net debt. As we move into the second half of fiscal 2010, we are encouraged by the sales trends in our business and the early signs of stabilization and selective, modest improvements within our end markets. Yet we are mindful of continued recessionary pressures, along with the impact that restructuring, new program launch activities and recent increases in material costs may have on our future financial results. As we execute our Four-Point Plan, we are positioning Modine for profitable growth as market volumes recover.”

“The additional capital raised in our recently completed secondary stock offering, combined with our strong performance during the quarter, enabled Modine to generate positive free cash flow and substantially reduce our debt balance,” said Bradley Richardson, executive vice president – corporate strategy and chief financial officer. “With our improved liquidity and Four-Point Plan framework, we are well positioned to maintain a more conservative balance sheet, while having the flexibility to invest a portion of the proceeds generated from the stock offering to:
• Protect our vehicular business and accelerate our restructuring;
• Grow our Commercial HVAC business; and
• Fund working capital needs.”

Free cash flow was $11.9 million during the second quarter of fiscal 2010, compared with a free cash outflow of $7 million in the comparable period of fiscal 2009. The improvement in income from operations resulting from our cost reduction efforts, as well as reduced capital spending, contributed to the year over year improvement in free cash flow. The company’s net debt at Sept. 30 was $124.7 million, compared to $205.7 million at March 31. As of Sept. 30, the company had cash on hand of approximately $55 million and additional available borrowing capacity of approximately $129 million. The company believes it has sufficient liquidity to manage its business and expects to be in compliance with its financial covenants through the remainder of fiscal 2010 and through the term of the credit agreement.

While Modine is anticipating modest sales volume improvement in certain key markets and improved commercial vehicle build rates in North America, the sluggish economy continues to have an adverse effect on the company. The company’s expectations for the remainder of fiscal 2010 include:
• Revenues slightly higher than the second quarter 2010 run rate based on program launches and modest end-market improvements;
• Increased manufacturing costs based on higher material costs and the impact of expected production inefficiencies driven by new program launches and plant closure activities, all of which will put pressure on the company’s gross margin;
• SG&A costs relatively consistent at a quarterly run rate of approximately $40 million;
• Planned capital spending of approximately $30 million; and
• Positive free cash flow and a decrease in net debt balances over the remainder of the fiscal year, further improving the company’s liquidity.

“As we move forward in fiscal 2010, we are driving the fundamentals of our Four-Point Plan, which include portfolio rationalization, manufacturing realignment, SG&A cost reduction and capital allocation discipline,” concluded Burke. “This combination of strategies has served us well during the economic downturn and is having a positive effect on our financial results as we manage the business through the economic trough. We are realizing the benefits of the aggressive actions we have taken to improve profitability and lower our cost structure and break-even levels. Although the general business climate remains challenging, we are building long term business momentum through a more focused product portfolio, better utilization of our asset base and significant cost reductions. Perhaps most encouraging, the fundamental growth drivers of our business – emissions reduction, energy efficiency, and infrastructure development – remain intact and are resulting in improved customer relationships and new, incremental program wins globally.”