First Quarter - Fiscal 2010 Earnings Call

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1 Presented By: Thomas A. Burke President and CEO Bradley C. Richardson Executive Vice President Corporate Strategy and CFO First Quarter - Fiscal 2010 Earnings Call JULY 30, am CT

2 Modine First Quarter Fiscal 2010 Earnings Call Overview Tom Burke Financial Overview Brad Richardson Liquidity Update Brad Richardson Business and Operating Review Tom Burke Wrap Up Tom Burke Q&A 2

3 Forwarding-Looking Statements This report contains statements, including information about future financial performance, accompanied by phrases such as believes, estimates, expects, plans, anticipates, intends, and other similar forward-looking statements, as defined in the Private Securities Litigation Reform Act of Modine s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under "Risk Factors" in Item 1A of Part I of the Company's Annual Report on Form 10-K for the year ended March 31, 2009 and under Forward-Looking Statements in Item 7 of Part II of that same report, as well as in today s press release. The Company does not assume any obligation to update any forward-looking statements. 3

4 Overview Global recession continues to significantly challenge our business 42% sales decline year over year Confidence building as we continue to aggressively execute on our Four-Point Plan Sales have stabilized Q1 fiscal 2010 revenues are flat to Q4 fiscal 2009 Portfolio rationalization continues with divestiture of China joint venture in Q1 fiscal 2010, while continuing to market Modine Korea business Favorable impact of SG&A actions, manufacturing cost reduction and the impact of our restructuring actions taken in fiscal 2009 Significant improvement in financial results on a sequential quarter over quarter basis Current new customer orders are tracking to our expectations growth drivers intact Aligning with key customers in core markets to grow our partnerships Continue to drive Modine Operating System and our culture of continuous process improvement Next several quarters to remain challenging - prepared to take additional actions if necessary Although Significant Recessionary Pressures Remain, Sequential Performance Trends are Encouraging 4

5 First Quarter Fiscal 2010 Sequential Performance Trends Adjusted EBITDA $ in millions 500 Sales SG&A Q1/FY08 Q2/FY08 Q3/FY08 Q4/FY08 Q1/FY09 Q2/FY09 Q3/FY09 Q4/FY09 Q1/FY Q1/FY08 Q2/FY08 Q3/FY08 Q4/FY08 Q1/FY09 Q2/FY09 Q3/FY09 Q4/FY09 Q1/FY10 18% 16% 14% 12% 10% Gross Margin Sales down 42% year over year; holding flat versus the 4 th quarter SG&A down $20 million Gross margin down year over year; up 480 basis points sequentially highest in four quarters Adjusted EBITDA up as compared to prior two quarters 8% 6% Q1/FY08 Q2/FY08 Q3/FY08 Q4/FY08 Q1/FY09 Q2/FY09 Q3/FY09 Q4/FY09 Q1/FY10 5 $ in millions ($ in millions)

6 First Quarter Fiscal 2010 Financial Review Bradley C. Richardson Executive Vice President Corporate Strategy and CFO

7 Financial Review First quarter fiscal 2010 highlights Segment performance Cash flow Liquidity update 7

8 First Quarter Fiscal 2010 Sequential Snapshot Sequential Trends Observations: Q4 to Q1 Q1/'09 Q2/'09 Q3/'09 Q4/'09 Q1/'10 Change Sales $ $ $ $ $ $ (1.2) Gross Margin 16.6% 13.5% 11.6% 9.3% 14.1% 480 bp SG&A $ 58.5 $ 57.5 $ 43.3 $ 40.3 $ 38.5 $ 1.8 Pre-tax $ 13.4 $ (15.2) $ (63.8) $ (37.4) $ (4.6) $ 32.8 Adjusted EBITDA $ 36.7 $ 19.7 $ 12.7 $ 1.7 $ 16.8 $ 15.1 Free cash flow 12.3 (7.0) 7.8 (24.7) (19.6) 5.1 Sales relatively flat versus the previous quarter Significant improvement in gross margin (from 9.3 to 14.1) SG&A expenses continued to decline flattening out around $39-41M per quarter; cost cutting measures are being fully realized in results Pre-tax results achieved best performance since the 1 st quarter of fiscal 2009, despite substantially weaker volumes Negative free cash flow funded through a drawdown of excess cash; heavy spending in the first quarter on pre-recessionary commitments, including program launches and previously announced plant construction to support future growth 8

9 First Quarter Fiscal 2010 Highlights ($ in millions) Actual Actual $ Change Net sales (184.3) Cost of sales Gross profit (37.0) % of net sales 14.1% 16.6% S.G. & A. expense % of net sales 15.2% 13.4% Restructuring charges 1.2 (0.1) (1.3) Impairments (0.9) (Loss)/earnings from ops (4.8) 14.4 (19.2) % of net sales (1.9%) 3.3% Interest expense (2.9) Other (income) / expense (5.7) (1.6) 4.1 Pre-tax (loss)/earnings (4.6) 13.4 (18.0) % of net sales (1.8%) 3.1% Adjusted EBITDA (19.9) % of net sales 6.6% 8.4% Sales Decline $ % w/o FX Europe (112) (52%) (45%) North America (45) (34%) (34%) Asia 1 13% 11% CPG (15) (30%) (21%) Brazil (19) (45%) (31%) Totals (184) (42%) (38%) Key Themes Gross Profit decrease reflects: Under absorption of fixed costs due to the significant decline in sales volumes and a shift in product mix in Europe (down 640 basis points) Benefits from aggressive actions around direct and indirect cost reductions in the manufacturing facilities and lower material costs; N.A. up 560 basis points SG&A down due to: Intense focus on lowering the cost structure (headcount/travel/discretionary spending) Adjusted EBITDA Reduction due to the significant drop in gross profit on lower sales volume, substantially offset by aggressive cost reduction actions Negative free cash flow funded through drawdown of excess cash Free cash flow (19.6) 12.3 (31.9) 9

10 First Quarter Fiscal 2010 Underlying Results First Quarter Fiscal 2010 ($ in millions) Gross Profit % of Sales Pre-tax EBITDA Reported Results from Continuing Operations $ % $ (4.6) $ 16.6 Reported results included the following items: Restructuring charges (1.2) - Repositioning charges (1.9) 0.9 Impairments (1.0) - Other add-backs sub-total (0.2) Adjusted Results from Continuing Operations $ % $ (4.4) $ 16.8 First Quarter Fiscal 2009 ($ in millions) Gross Profit % of Sales Pre-tax EBITDA Reported Results from Continuing Operations $ % $ 13.4 $ 34.1 Reported results included the following items: Restructuring charges Repositioning charges (2.8) 1.5 Impairments (0.1) - Other add-backs sub-total (2.6) Adjusted Results from Continuing Operations $ % $ 16.0 $

11 First Quarter Fiscal 2010 Gross Margin / Adjusted EBITDA First Quarter - Gross Margin Analysis $ % 5.0% 16.6% 14.1% (9.1%) (1.3%) $8.2 $14.2 $36.7 ($51.5) ($10.8) Other items Q1 Fiscal First Quarter - EBITDA Analysis $16.8 Materials Other cost reduction actions Sales volume impact Other items Q1 Fiscal 2010 Q1 Fiscal 2009 Materials Other mfg. cost reduction actions S.G. & A Sales volume impact Q1 Fiscal 2009 Gross Margin % EBITDA (in $millions) Cost reduction actions are having a significant impact on manufacturing and total company margins - Managing what we can control Focus on the Fundamentals - Significant operating leverage when markets begin to recover 11

12 First Quarter Fiscal 2010 Segment Performance (U.S. $ in millions) Sales Change w/o Exchange 2010 Operating (Loss) / Income Change w/o Exchange & Unusual Items* Change Change vs vs O.E. - Asia $ 6.3 $ 0.7 $ 0.6 $ (1.6) $ 0.3 $ 0.2 O.E. - Europe (111.8) (96.7) 2.2 (24.7) (23.8) O.E. - North America 88.2 (45.0) (44.8) South America 22.6 (18.7) (13.0) 1.2 (3.0) (2.1) Commercial Products 34.4 (14.5) (10.4) 2.4 (1.5) (0.8) Fuel Cell Corporate & eliminations (6.5) (11.8) (3.2) (3.2) Total $ $ (184.3) $ (159.3) $ (4.9) $ (19.2) $ (17.0) Excluding the effect of exchange rates, sales were down $159.3 million or 36 percent due primarily to a substantial decrease in Original Equipment Europe volumes (decline in underlying vehicular sales) and Original Equipment North America volumes (North American truck market) Depressed volumes and underabsorption of fixed manufacturing costs had a negative impact on Europe s operating income compared to the prior year Despite declining volumes, North America operating results improved to slightly positive as intense focus on cost reduction activities are flowing through South America and Commercial Products maintained relatively strong performance despite end market weakness * Unusual items include: repositioning, restructuring and impairments 12

13 First Quarter Fiscal 2010 Sequential Segment Review Sequential Trends by Segment - SALES Q4 to Q1 Q1/'09 Q2/'09 Q3/'09 Q4/'09 Q1/'10 Change Asia $ 5.6 $ 3.5 $ 4.2 $ 4.2 $ 6.3 $ 2.1 Europe $4.8 due to FX North America (8.2) South America $2.3 due to FX CPG (2.5) Fuel Cell (0.2) Corporate & Elims (9.3) (8.5) (6.7) (5.2) (6.5) (1.3) Total $ $ $ $ $ $ (1.2) Sequential Trends by Segment - ADJUSTED OPERATING INCOME Q4 to Q1 Q1/'09 Q2/'09 Q3/'09 Q4/'09 Q1/'10 Change Asia $ (1.9) $ (2.3) $ (2.2) $ (2.7) $ (1.6) $ 1.1 Europe (1.9) (4.8) North America (7.5) (6.1) (4.7) South America CPG Fuel Cell (0.9) (0.4) (0.1) Corporate & Elims (8.6) (14.1) (9.9) (11.8) (11.7) 0.1 Total $ 17.0 $ (1.2) $ (3.4) $ (14.1) $ (0.7) $ Observations: Sales flat Q4 to Q1 Adjusted operating income highest level since Q1/2009. North America sales dropped; still able to maintain operating income level Europe s increase in sales, coupled with aggressive cost cutting measures, drove significant operating income improvement

14 First Quarter Fiscal 2010 Free Cash Flow Summary ($ in Millions) $250 Net Debt (total debt less cash) Q1/' Cash flow: Net cash earnings Working capital (1) 86 (4) Operating cash flow $225 $200 $ Capital (27) (103) (89) Acquisitions Disposition of assets Restricted cash 2 (11) - Other (5) (8) (15) Sub-total (28) (105) (94) $150 $125 $100 Q1/'09 Q2/'09 Q3/'09 Q4/'09 Q1/'10 Free cash flow (20) (11) (12) Dividends - (10) (23) Net cash flow (20) (21) (35) Funding: Cash (incr.) / decr. 20 (5) (12) Debt increase Q1 fiscal 2010 capital spending was relatively high due to pre-recessionary commitments for new programs and plant construction Fiscal 2010 capex less that $65 million Expect net debt to decline in second half of year Proceeds from divestitures Lower capital investment 14

15 First Quarter Fiscal 2010 Liquidity Update Existing liquidity available (6/30/09) ($ in millions) Facility Capacity Utilized Available Expiration 2005 Notes $ 75.0 $ Sep Notes Dec Dec-2018 US Credit Facility Jul-2011 EU Credit Facilities Open Other Various Total $ $ $ /30/09 $ 23.7 Total Liquidity $ Financial covenants Q4/09 Q1 Q2 Q3 Q4/10 Cumulative minimum adjusted EBITDA (25.0) (22.0) (14.0) Actual Results Cushion Debt / EBITDA n/a n/a n/a n/a <7.25 EBITDA / Interest n/a n/a n/a n/a >1.5 During Q1 fiscal 2010, the cumulative adjusted EBITDA cushion increased to $40.5 million, which positively impacts the company s ability to remain in compliance with the minimum EBITDA covenant throughout fiscal 2010 Fiscal 2010 compliance anticipated based on new business launches and the flow-through impact of cost reduction actions 15

16 First Quarter Fiscal 2010 Business and Operating Review Thomas A. Burke President and CEO

17 Four-Point Plan Fiscal Progress Portfolio Rationalization Exited electronics cooling business Sale of China joint venture and intended divestment of Modine Korea Phasing out Passenger Thermal Management and phasing down certain automotive Powertrain Cooling (PTC) lines Acceleration of Origami technology to PTC applications Added emphasis on Commercial HVAC products Continued targeted research in fuel cell, waste heat recovery and hybrid battery applications Manufacturing Realignment Closed or will close eight manufacturing plants in North America and Western Europe Opened new plants in lower cost regions of China, India, Mexico, and Hungary Continuous review of footprint to align to changing customer demands and market dynamics and evolution within Modine product portfolio Modine Operating System (MOS) driving operational excellence Enables: Capital Allocation Discipline Reduced capital spending annual run rate from $100m to $60-70m Created investment discipline based on alignment with product strategies and financial metrics SG&A Cost Reduction Reduced annual run rate from $240 million to $160 million Eliminated more than 25% of salaried positions (35% of management positions) Clear priority on strengthening targeted product segments Long Term Financial Objective ROACE 11-12% Focused Actions to Protect Critical Resources; Leverage Our Considerable Thermal Management Expertise 17

18 Continued Investment in Technological Leadership Waste Heat Recovery Origami Next-Generation Heat Transfer Technology 27% to radiator 32% to EGR and/or exhaust Diesel Design Objective 41% to mechanical energy to drive vehicle $ % $80 5.8% $60 5.6% $40 5.4% $20 5.2% 5.0% $FY2005 FY2006 FY2007 R&D Spend (in mil.) FY2008 FY2009 R&D as a % of Sales Selective Investment in Future Growth Recover waste heat and convert into mechanical energy. Estimated 5-10% gain in fuel economy.

19 Market Outlook 372,000 North American Class 8 Truck Volumes Western European Automotive Sales Total Units Total Units (in Millions) 210, , , , , , ,000 CY 2006 CY 2007 CY 2008 CY 2009 (est.) Sources: Industry and internal Modine estimates 8 CY 2006 CY 2007 CY 2008 CY 2009 (est.) Sources: J.D. Power Automotive Research While End Markets Remain Depressed, Modine Continues to Win New Business 19

20 Recent New Program Launches Americas Strength in commercial vehicle market continues, highlighted by next-generation exhaust gas recirculation coolers for multiple commercial vehicle OEMS Modine continues to win orders for major Tier IV programs While de-emphasizing North American automotive, our forecasted mix with recent launches remains favorable with no material impact from the GM/Chrysler bankruptcies Commercial Products Group continues to win incremental business with new high efficiency offerings to educational, industrial and data cooling markets Europe Asia Despite depressed automotive volumes, we are winning new condenser programs with major premium automotive manufacturers Received first series order from a major commercial vehicle producer to meet Euro 6 standards using our patented Origami heat transfer technology New orders continue to come in for Tier 4 cooling modules from several major off-highway OEMs Our Airedale business has launched new high efficiency computer room air conditioning units and chillers New facilities in Chennai, India and Changzhou, China are now fully operational Multiple oil cooler, as well as cooling module, launches underway Modine technologies gaining market acceptance as we solidify development teams and relationships with local and international customers

21 Summary First quarter fiscal 2010 financial results reflect sequential improvement and the favorable impact of SG&A and manufacturing cost reductions While sales are down significantly year over year, we are seeing signs of stabilization versus Q4 fiscal 2009 We are actively investing in new technologies and programs, while refocusing our product portfolio to ensure the right products and technologies are in place Current customer orders are tracking to our expectations The fundamental growth drivers of our business remain intact We are building momentum through significant cost reductions; continued strong emphasis on preserving cash and liquidity; and delivering on our customer commitments Positioning Modine to Emerge a Stronger Company as Market Volumes Recover 21

22 Questions & Answers