Fiscal 2004 Year End Earnings Release

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 8-K

CURRENT REPORT


Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934


Date of Report (Date of earliest event reported):

May 12, 2005


Modine Manufacturing Company
Exact name of registrant as specified in its charter


Wisconsin
1-1373
39-0482000
State or other jurisdiction of incorporation
Commission File Number
I.R.S. Employer Identification Number


1500 DeKoven Avenue, Racine, Wisconsin
53403
Address of principal executive offices
Zip Code


Registrants telephone number, including area code:
(262) 636-1200

Check the appropriate below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.

[ ] Written communications pursuant to Rule 425 under the Securities Act
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 
 

TABLE OF CONTENTS

ITEM 2.02.     Results of Operations and Financial Condition

SIGNATURE


 
 
INFORMATION TO BE INCLUDED IN THE REPORT


Item 2.02.   Results of Operations and Financial Condition.

On May 12, 2005, Registrant issued a press release announcing its financial results for the fiscal year ended March 31, 2005. The text of that release and financial statements appear below:

Modine Reports 52% Growth in Net Earnings and 29% Increase in Sales for Fiscal 2005; Operating Cash Flow Reaches a Record $156 Million and Return on Invested Capital Improves Significantly

Racine, WI, May 12, 2005 - Modine Manufacturing Company (NYSE: MOD), 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)** 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 27, 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

This news release contains statements, including information about future financial performance and reporting, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “will,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, which are identified on page 31 of the Company’s 2004 Annual Report to Shareholders and other recent Company filings with the Securities and Exchange Commission. Specifically, this news release contains forward-looking statements regarding the benefits of a recent acquisition, as well as incremental business and continuing market health. These forward-looking statements are particularly subject to a number of risks and uncertainties, including international economic changes and challenges; market acceptance and demand for new products and technologies; and the ability of Modine to integrate the acquired operations and employees in a timely and cost-effective manner. These statements are also subject to the ability of Modine, its customers and suppliers to achieve projected sales and production levels; and unanticipated product or manufacturing difficulties. Modine’s financial results, as reported herein, are preliminary and subject to possible adjustments. Audited financial results and internal controls assessments will be included in the Company’s 2005 Annual Report to Shareholders which is expected to be mailed on or about June 13, 2005.

Modine does not assume any obligation to update any of these forward-looking statements.



Modine Manufacturing Company
  
 
  
Consolidated statements of earnings (unaudited)*
  
 
  
(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)*
  
       
(In thousands)
  
   
March 31, 2005
  
March 31, 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)*
(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)*
                                
(In thousands)
                                
                                 
Three months ended March 31,
                      
Twelve months ended 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
  
                                 
*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 fiscal 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.
 

** 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 +
  
$
719,933
  
$
658,043
  
ending total debt + ending shareholders' equity divided by 2)
              
               
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
  
               
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.


Modine Manufacturing Company
 
 
By: /s/D. B. Rayburn
     D. B. Rayburn
         President and Chief Execitive Officer
 
 
By: /s/D. R. Zakos
     D. R. Zakos
     Vice President, General Counsel and
         Secretary

Date: May 12, 2005