Modine Reports Third Quarter Fiscal 2009 Results - aftermarketNews

Modine Reports Third Quarter Fiscal 2009 Results

Company takes aggressive action to address business performance; supported by newly amended credit agreements.

RACINE, Wis. — Modine Manufacturing Co. has reported its financial results for the third quarter of fiscal 2009, as compared to the third quarter of fiscal 2008.

The company had reported third quarter 2009 net sales of $365.2 million, compared to $480.6 million in the third quarter of 2008. Gross profit in the third quarter was $41.9 million, down $27.2 million from the prior year. Modine reported a net loss of $56.1 million, compared to third quarter 2008 net loss of $54.8 million. Third quarter 2009 net debt was $187.7 million, compared to $193 million in the third quarter of 2008.

The company said sales volumes, excluding the impact of foreign currency exchange rates, declined 15 percent as a result of the weakening economy, instability in the global financial markets, and a corresponding downturn in the company’s vehicular markets.
 
Commenting on the results, Modine President and Chief Executive Officer Thomas Burke said, “Obviously these results are disappointing. The weakening global economy and severe downturn in the vehicular markets have contributed to significant sales volume declines and margin compression, particularly in Europe. Despite these unprecedented conditions, we generated strong cash flow during the first nine months of fiscal 2009 with net debt declining since March 31, 2008. We continue to take aggressive actions to address our business performance and lower our underlying cost structure in light of the near-term economic outlook. We have secured a waiver of defaults and amendments to our company’s debt agreements that provide us the liquidity needed to execute on our plans. At the same time, we are encouraged by recent new program opportunities in our thermal management product segments and, with the assistance of outside advisors, are actively refocusing our product portfolio to ensure we have the right products, processes and technologies for the future. With renewed support from our creditors, actions we are taking to align our cost structure to the market demands, and a more focused technology portfolio, we are confident Modine is solidly positioned to weather this recession.”

In response to the near-term adverse conditions facing the company and in light of its recent business performance, Modine will continue to aggressively execute its four-point plan which includes manufacturing realignment, portfolio rationalization, selling, general and administrative expense reduction and capital allocation discipline, according to Bradley Richardson, executive vice president – corporate strategy and chief financial officer.

“We have introduced a short-term emphasis on maximizing cash flow and are proceeding with a number of decisive measures to position the company to attain a more competitive cost base, improve our longer term competitiveness and more effectively capitalize on growth opportunities in our core thermal management markets. In addition to the previously announced closure of manufacturing facilities, the elimination of U.S. post-retirement benefits for Medicare eligible participants, the intended divestiture of our South Korean-based vehicular HVAC business, and the ramp-up of production at new facilities in lower cost countries,” said Richardson.

Modine said it has implemented or will be implementing the following measures:

• A 30 percent reduction in global senior leadership;
• A 25 percent workforce reduction, as previously announced, in its Racine, Wis., headquarters with a comparable reduction planned in our European headquarters;
• A targeted reduction of our direct costs proportional to the volume declines within manufacturing facilities globally;
• Implementation of a 20 percent reduction in manufacturing overhead in North America with a similar reduction planned in Europe;
• A capital spending limit of $65 million in fiscal 2010, significantly below the company’s recent historical levels;
• Rigorous working capital discipline through the active, customer-supported management of accounts receivable, as well as inventory management; and
• The suspension of the company’s quarterly cash dividend as part of its near-term focus on preserving cash and liquidity.

On Feb.17, Modine entered into an amendment with its primary lenders and note holders and obtained a waiver of defaults that existed at Dec. 31, 2008. Under the amended agreements, the existing quarterly leverage and interest expense coverage ratio covenants are temporarily replaced by a minimum adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) level for the fourth quarter of fiscal 2009 and each quarter during fiscal 2010, with the leverage and interest expense coverage ratio becoming effective for the fourth quarter of fiscal 2010.

In contemplation of the uncertainty that exists around the severity and duration of the global recession, the minimum adjusted EBITDA level requirements were established with a range of approximately $10 million to $20 million of cushion at each quarter end to allow for variability in our projected results. The company believes that this cushion is sufficient and that it will be able to maintain compliance with the minimum adjusted EBITDA levels through the end of fiscal 2010. Under the amended agreements, Modine has securitized certain assets, accepted other restrictive covenants and will have to pay higher interest costs as described in the credit amendments.

“As we focus on preserving cash and liquidity, we are pleased that we have been able to amend our credit agreements,” Richardson said. “These amendments were structured based on our assumptions about operating in a recessionary environment and we believe the amended agreements will provide the company sufficient liquidity to execute our restructuring plans and maintain our day-to-day business.”

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