Modine Manufacturing Co (MOD) 2005 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Modine fiscal 2005 full-year and fourth-quarter financial results conference call. Today's conference is being recorded. For opening remarks and introductions, I will now turn the call over to the Director of Investor Relations, Mr. Dave Prichard. Please go ahead, sir.

Thank you, operator. Good morning and welcome to Modine's fiscal 2005 full-year and fourth-quarter earnings and cash flow conference call. I'm Dave Prichard, Director of Investor Relations and Corporate Communications for Modine. Joining me on the call today are Dave Rayburn, our President and Chief Executive Officer; and Brad Richardson, Vice President, Finance and Chief Financial Officer.

As most of you know, we issued our full-year and fourth-quarter results after the market closed yesterday and we hope you have had the chance to review the release and the tables which are available on First Call as well as on our newly designed Modine website at www.modine.com. A reminder that today's conference call will be available as an audio replay through Modine's website as well as by telephone through Friday, March 27 by calling 719-457-0820 and using confirmation code 7455163.

We will follow our normal agenda for quarterly conference calls this morning. First, Dave Rayburn will make some opening comments to be followed by Brad Richardson, who will give additional perspective and greater detail on our financial results including segment analysis. Dave Rayburn will then close our comments section with an outlook for fiscal 2006 before we move to your questions.

At this time I would like to inform you that all participants are in a listen mode only. Before we get started I would like to read Modine's Safe Harbor statement. This conference call may contain forward-looking statements that involve assumptions, risks and uncertainties and Modine's actual results, performance or achievements may differ materially from those expressed or implied in these statements. A detailed discussion of factors that could affect Modine's results are on page 31 of the Company's fiscal 2004 annual report to shareholders and in recent public filings with the U.S. Securities and Exchange Commission. Modine does not assume any obligation to update any of these forward-looking statements.

I will now be pleased to turn the conference call over to Dave Rayburn, Modine's President and Chief Executive Officer.

Thanks, Dave, and good morning and welcome to our call. With the release of our fourth-quarter results after the close last night, Modine has completed a year of real progress. A year of sales and earnings growth, transformation and diversification of our markets and customers, continuation of our journey of globalization both externally, our footprint, and internally, our processes. And with a continued strong commitment to our four corporate priorities we initiated three years ago.

Full year sales were a record 1.5 billion, a 29% increase over last year. The fourth quarter was the eleventh consecutive quarter of year-over-year sales growth. Net earnings for the year were 61.7 million or $1.79 per diluted share, which is 52% over last year's $1.19. Our primary drivers were strong performance in our North American and European Truck and Heavy-Duty businesses, as well as the European Automotive sector. Both the full year sales and earnings per share growth were for the third consecutive year in a row.

We had a record operating cash flow of 156 million, up 43% over last year, the fifth straight over 100 million. This performance continues to assure Modine's commitment to maintaining historically strong balance sheet and liquidity to support our future growth opportunities. Also noteworthy is our improvement and our return on average capital employed to 9.1% and 6.7%.

The year was not without many challenges; higher costs, certainly materials, energy costs both direct and indirect, healthcare costs in North America and Sarbanes-Oxley 404 audit fees. Continued price down expectations from our customers are very real. Volume reductions in some segments, specifically North American Automotive, and softening markets in Asia. And finally the continuation of the slow recovery of the electronics industry.

In short, 2005 was a busy and challenging and rewarding year for Modine. I would like to go over some highlights and then Brad will comment on some specific details of the fourth quarter and the full-year financials.

In October we moved to the New York Stock Exchange to better serve our global investor community. In late 2005 we announced $330 million of net new business that will launch over the next five years, with two-thirds of that occurring in the first three years. I reference our recent announcement of our new contract with Volvo Construction that will reach over $20 million in revenue per year.

With respect to reshaping and restructuring our business model, last October we announced the spinoff of our aftermarket business and the merger with Transpro. We now expect that deal to close this summer and as a result our shareholders will own 52% of that new company. Last summer and fall we closed on our $88 million purchase of the ACC Division of WiniaMando in South Korea and China. This was an important step in our globalization of our Company by establishing a significant presence in this growing region.

Plus we now have extended capabilities in automotive HVAC systems that is very complimentary to our new C02 refrigerant technology. It also provides a very important new relationship with a global customer in the name of Hyundai/Kia. This acquisition also enables Modine to introduce new powertrain cooling and engine technologies to a new region to support our existing global customers and new customers in this region.

In February we closed on the acquisition of the Transpro Heavy-Duty OE business bringing several new truck customers. And finally we are very excited with our just announced acquisition of Airedale International, the air-conditioning business, UK based business with sales of 75 million that serve the commercial HVAC&R market. This supports our strategy to diversify our businesses into new markets without compromising our core focus of thermal management.

In total these acquisitions have a combined total revenue of $325 million and significantly reshape our business portfolio. We are now focused on the integration of these businesses into Modine.

Let me turn it over to Brad to discuss our fourth quarter and our full year financials.

Thanks, Dave, and good morning to everyone. Let me start -- as Dave mentioned -- with a review of the full year and then move to the fourth quarter including a review of our segments. Let me also note that our results are preliminary at this time subject to year-end accounting review procedures by our independent auditors including completion of the Sarbanes-Oxley process. Audited results will be included in our 2005 annual report to shareholders, expected to be available in the first half of June.

As Dave mentioned, it was a very strong fiscal 2005. Net earnings rose for the third consecutive year, up 52% to $61.7 million or $1.79 per share versus $1.19 in 2004. Excluding net favorable currency exchange rates, EPS rose a respectable 43%.

Sales of 1.54 billion, a new record rose 29% versus last year's previous record of 1.2 billion. Excluding the Asia acquisition impact, sales rose 19%. We would emphasize here that in fiscal 2005 no single customer accounted for more than 10% of our revenues. In the Automotive area, BMW, DaimlerChrysler, Volkswagen, Hyundai are in our top ten customer list, along with customers in other non-automotive markets such as Caterpillar and International Truck. On the other hand, General Motors and Ford, emerging customers for us are not in Modine's top ten list, which was the case in the prior fiscal year as well.

Gross margin as a percent of sales fell 1% to 22.7% due to mix, pricing pressure and in part the lag impact of passing higher raw material costs through to our OE customers. As a reminder, raw material costs primarily copper, steel and aluminum, represent about 60% of our cost of goods sold. We experienced no supply disruptions during the year.

Income from operations of 85 million rose 69.8%. Better conversion on higher sales generated higher operating margins of 5.5% versus 4.2% last year, primarily from better SG&A leverage. Positive currency exchange rates added 6.8 million to pretax earnings for the year, primarily due to the strength of the Korean won as well as to the euro. The impact of higher sales and cost discipline is apparent for the year.

SG&A expenses were 12% higher than in 2004, of which 4% was due to the ACC acquisition. But as a percent of sales, SG&A declined to 17.1% from 19.6%. Our efforts remain focused on leveraging our SG&A base, which includes R&D expenditures to support higher revenues going forward.

The full-year tax rate was 36.3%, which was in line with guidance and essentially flat with last year. Our Asian acquisition reached the high-end of our original EPS accretion forecast by adding $0.11 per share, although this is largely due to higher-than-expected favorable currency exchange rates versus a lower-than-expected operating performance from softer Korean and Chinese markets.

We do remain optimistic about the strategic importance of this acquisition to Modine, in part due to the opportunities for cross product pull through. As evidenced, we have recently secured four meaningful programs in the traditional Modine powertrain cooling and engine areas and we are encouraged by incremental HVAC opportunities as well.

Just as important as our strong EPS and sales gains are the improved returns and record cash flow generation we achieved in fiscal 2005. I am pleased to report that our annualized return on average capital employed at the end of the year improved to 9.1% from 6.7% last year, putting Modine closer to its stated target of 11 to 12% through a cycle. Better pretax margins and increased turnover of fixed assets drove the improvement. Attached to the press release is a definition of how we calculate return on average capital employed.

Finally before turning to the fourth quarter, let me spend a moment on the cash flow story. Modine achieved record operating cash flow of 155.7 million in fiscal 2005, up 43% from 2004 and the fifth consecutive year in excess of $100 million. This included a strong 65.6 (ph) million in the fourth quarter, up 57 million from Q3 when Modine had all-time record Q3 earnings.

In stark contrast to the balance sheet and liquidity challenges coming out of Detroit, it is important to emphasize that Modine has a strong history of strong balance sheets and excellent liquidity. And this year-end 2005 is no exception.

Total debt to cap fell to just 13.8% at the end of fiscal 2005, compared with 16.6% at the end of the third quarter and 19% at the end of the second quarter. We were able to pay down in the fourth quarter -- pay down debt in the fourth quarter by a net 19.5 million, acquired Transpro's Heavy-Duty business for a little under 17 million, fund capital expenditures of 24.5 million, pay the quarterly dividend, and still increase our cash balances by 5.1 million from the third quarter.

Total debt at year-end stood at 105.6 million, down 36 million from Q2 and 22 million from Q3. At year-end 2004, debt was 88 million. The higher debt is due to the borrowing of 17 million to finance the Heavy-Duty OE business, while we have completely paid off the 49 million borrowed earlier in the year to finance the ACC acquisition.

In terms of working capital management due to a reclassification of 65 million of debt ahead of a planned refinancing of the September 2005 note, working capital fell sharply to 164 million at year end versus 229 million a year earlier. As one looks at our cash-flow statement, we have been working to grow our business significantly and yet still free up working capital.

Our inventory turns improved 8.8 -- to 8.8 compared with 7.3 last year at this time. Even though Days Sales Outstanding stood at 54 days versus 49 last year, much of the increase was due to the longer payment terms with the acquired customer base in the ACC acquisition. Outside of that impact, we made very good process in reducing our accounts receivables and arranging for more parallel payment terms with our suppliers.

Finally I would note that 2005 capital spending was 69 million, which approximated depreciation of about 65 million consistent with our guidance of comparability. Our CapEx budget for 2006 is about 75 million, again roughly in line with expected D&A.

Let me quickly review the fourth quarter and provide some segment color before closing with an update on the aftermarket transaction as well as our Airedale acquisition.

Fourth quarter net earnings of 14.9 million or $0.43 per share rose 19% from last year's $0.37. A 29% increase in sales to 414.6 million helped drive the better performance and as Dave mentioned, represented the eleventh consecutive quarter of year-over-year sales growth. Even excluding the impacts of the ACC acquisition and one month of the Heavy-Duty OE business acquired from Transpro, sales grew 12%.

Our global Truck, European Heavy-Duty, and commercial HVAC&R businesses had improved results, along with better performance from the electronics cooling division. There was an offset in reduced income from the North American automotive segment from pricing pressure and reduced vehicle platform volumes we had mentioned before as well as lower European automotive income largely due to the expected ramp down of BMW's successful 3-Series ahead the launch of the newly designed 3-Series now in progress.

As noted in our release, Q4 included income of 1.6 million or $0.05 per share from net favorable adjustments made for both current and prior year foreign currency translations and a related material cost at two non-U.S. locations in our aftermarket business. I would note here that this item which had no tax impact is the reason why our effective tax rate in the quarter was only 28%. Last year's fourth-quarter results reflected an after-tax gain of 1.1 million or $0.03 per share from the sale of two Modine facilities.

Income from operations improved 6% to 18.4 million, although operating margins or 4.4% (ph) decline from 5.4% in the previous year. Consistent with the year, overall SG&A expense as a percentage of sales declined 2.1 percentage points to 17.1% in the fourth quarter.

Let's turn now to our Q4 segment results, which are included as an attachment the press lease. Original equipment sales grew 47% to 210 million, while operating income fell 6% to 22 million. These results include Modine Asia and the first month of the newly acquired Heavy-Duty business. Truck and Heavy-Duty units had double-digit revenue growth, offset partially by a revenue decline in North American Automotive. The truck unit had yet another quarter of solid operating income gains due to the strong Class A truck build rate and our strong market share. We note here that for our fiscal 2006 year, we have a plan for a Class A build rate of 302,000 units, up from 265,000 last year.

Truck's solid performance however was more than offset by a double-digit decline in the Automotive area due to the vehicular platform weakness we have discussed and price pressures and in the Heavy-Duty and Industrial business due to product mix shift and delays in passing through higher raw material costs to OE customers.

Sales for the distributed products segment were essentially flat with the prior year at 84 million. A strong HVAC&R performance offset reduced aftermarket sales. We did see a major swing to profitability of 1.4 million in the segment from a loss of 1.6 million last year. HVAC&R led the way with positive gains while the electronics cooling and aftermarket narrowed their operating losses.

European operations had the best quarterly performance of our three segments. Sales grew 22% to 124 million. Double-digit gains in Heavy-Duty and Automotive and a favorable impact from the stronger euro drove the revenue growth. Operating income growth of 18% to 12.1 million was the result of the Heavy-Duty business in currency exchange benefits. The partial offset was a single-digit decline in income in the Automotive component and again as I mentioned earlier, we had anticipated and suggested in the last quarterly call the unit was impacted by the planned BMW 3-Series ramp down ahead of the launch of the new 3-Series now underway for which Modine is pleased to be part of in supplying the engine cooling modules.

Before I turn it back to Dave, let me comment on two important portfolio items, the aftermarket transaction and our recent acquisition of Airedale. With the recent filing of the Form S-4 registration statement by Transpro with the SEC, we now believe this transaction to spin off our aftermarket business on a debt free and tax-free basis and merge it into Transpro should close late in the second quarter or early in the third quarter of calendar 2005.

We noted in the press release that Modine is working to be able to classify the aftermarket business as a discontinued operation in the quarter the transaction closes. It is at that time Modine will record a non-cash pretax charge of about 40 to $55 million. This will reflect the difference between the asset carrying value of Modine's aftermarket business and the value Modine shareholders receive in the merged company at closing which is a function of the stock price of Transpro multiplied by the number of shares our shareholders receive, or about 8.1 million shares.

We note that the spinoff of the aftermarket will squarely establish Modine as a predominantly OE supplier to technology driven OE suppliers and that our pretax margin and return on capital employed will both improve.

Turning to Airedale, we are very pleased with our accretive acquisition of the 30-year-old privately held Airedale International air-conditioning of Leeds, United Kingdom last week for $38 million. This acquisition is the result of a rigorous and very disciplined review of some 30 HVAC opportunities in Europe and is a model fit with our strategy of global market, customer and product diversification within our core thermal management competency.

While nearly doubling our largely North American commercial HVAC&R business, Airedale's 75 million of annual revenues are 60% UK and 40% in Europe, North America, South Africa and Asia. The business continues our focus on specialty low-volume value-added products and premium services for select nonresidential markets including close control units for precise temperature control and humidity control, chiller and condensing units and comfort products.

Airedale allows for cross-selling of Modine HVAC products through Airedale UK and European channels and likewise Airedale products through our existing North American channels. We also have opportunities to grow in the untapped Asian market through Airedale's new presence in China. Airedale is accretive to our fiscal 2006 EPS. We paid 6.5 times Airedale's normalized EBITDA for 2004, which we think is a highly competitive valuation. Airedale is debt free with a history of a strong balance sheet. Customers and competitors are highly fragmented and we plan to use the Leeds (ph) facility in England as a beachhead, if you will, to expand into Western and Eastern Europe over time.

All in all we believe Airedale is a strong new addition to Modine's thermal management business.

With that, let me turn it back to Dave for some closing comments.

Thanks, Brad. Let me now say a few words about fiscal 2006, which began April 1. As we have stated, our continued growth in EPS, cash flow, revenues in fiscal 2006 may be impacted by a number of factors that we have seen this past year. Higher material costs and other inflationary costs, OE price down expectations coupled with very aggressive competition, the contracting North American automotive market with several OEs; as Brad mentioned though, we have limited exposure with Ford and GM. A softer economy in Asia, potential currency exchange rate changes, and other issues.

So we are encouraged with our launch of new business like the BMW business that Brad mentioned; the new Blue Diamond Truck which Modine has both the powertrain cooling and HVAC systems on; the recent acquisitions like Airedale; improving of the Electronics Cooling business; and the absence of the underperforming aftermarket business; and certainly our strong balance sheet. It is premature though to comment on the range of our expected growth given my comments, but we are very encouraged.

So with that, operator, we would be glad to take some questions.

(OPERATOR INSTRUCTIONS) David Leiker, Robert W. Baird.

First of all, a housekeeping item. The currency number, Brad, can you split that between Korea and Europe?

Yes I can. Roughly the total for the year, the 6.9 million, roughly about 4.3 of that -- 4.5 excuse me, is the Korean one about 2.3 is the euro and then the balance, which is 0.1, is other parts of the world.

That's for the fourth quarter or for the year?

That's for the year. That is the 6.9 (technical difficulty) and for the quarter it is predominantly the won.

Great. And then, Dave, you made a comment that jumped out at me just in your last comments there about competition and you used the word very aggressive. Is that more so than what it has been before and where are you seeing that regionally and from what kind of folks?

I don't think it's any more aggressive than it has been over the last year, but Dave, I think this last year has been very interesting with some of our competition. Certainly I can't judge on their costs and pricing models but there are some that have been very aggressive in certain segments.

And part of that, Dave, is driven by the segments themselves. If you take Automotive for example in North America and giving the considered situations that several of the OEs have, they have had no choice to be very aggressive. And as a result, they -- I would say probably have been pretty aggressive wins signed and people respond. The good news I think that we have although it has had certainly an impact on us -- is with our diversification and candidly the customers that we have partnered up were able to one, aggressively work on cost reductions with them and in some cases we say no.

And then the last thing here and I'll get back in line -- the 330 million of new business -- I don't think you give a split between commercial vehicle and light vehicle on that, did you?

When we announced it last fall, we basically said it was about 50-50 between automotive and truck, or the heavy side, truck and off-highway. And when we do that, we don't include businesses that have short cycles like our electronics and like our HVAC businesses. What we are really addressing is that OE segment,

And that number is unchanged from last fall, correct?

Correct. We really update that on an annual basis unless something significantly happens during the year, we would revise it. Obviously through the year there's some wins and a couple surprises but they tend not to be material. Certainly my goal and our goal is the next year number will be larger. As some of it matures and launches, we should be putting more on the other end at a higher level. So stay tuned on that one.

Great, thank you.

(OPERATOR INSTRUCTIONS) Dennis Scannel, Rutabaga Capital.

Just a couple quick things. First just on housekeeping. Brad, year-on-year in the fourth quarter, revenues were up 29%. How much acquisition and how much currency? I didn't get that.

Yes, what I said was -- I will just go back to my prepared remarks -- 29% and if you exclude the impact of the ACC acquisition and the one month of the Heavy-Duty OE business, sales grew about 12% and then we did disclose in our earnings that the impact of currency was another 7.5 million. So I don't have that math but you can probably do that calculation.

Absolutely. There is a little bit that we could do.

I think you can do a lot, believe me.

Just a little bit about the outlook, looking at North American Truck, any concern with the softening of orders that we us all saw in April -- I guess it was April -- where it dropped down to 20,000? Obviously you guys are having your plan that units are going to go up year-on-year for your fiscal year and we certainly do have the pre-buy that people are expecting ahead of the new engine changes. But do you have any concerns that we might be seeing some softening there?

There is some softening that's taking place, although the rate of those order intakes over the prior months were phenomenal. And it can't continue for an extended period. I think the industry is certainly going to be flattening out at this higher rate. I think the good news is maybe it will spread the peaks and valleys so they are not as extreme, because there's a lot of money thrown at peaks and there's a lot of things going on during the valleys. So I think our 302 is a pretty good estimate for the business, for our fiscal year.

Yes, great. And then turning to the Asian (multiple speakers).

I in fact have a bet internally that I think it's going to be a little higher, but only one dollar. So we'll see.

Terrific. We will be hopeful bear. In Asia, how much of that is just the market slowing versus what is going on with -- and I just don't know the market well enough but in terms of anything going on within Hyundai, Kia, and share losses? Can you just shed a little light there?

Certainly right after the acquisition we did have some softening both in their domestic market, rather significantly in the Korean domestic market as well as their exports into China as China tried to slow their growth. A lot of their exports were supporting the construction markets, excavators and etc. So that is certainly a piece of it. They have also had some of the similar impacts on inflation in regards to materials and that is going to challenge.

We're working hard in Korea by a number of initiatives. We have mentioned in the past the establishment of a purchasing office in Shanghai and they are very engaged with working with the Korean organization to leverage some source costs opportunity and the other thing that we have done and its really for the long haul, but I'm really pleased -- we have really put a real quality management team into Asia to oversee that whole region. They will be located in Shanghai but we have got a very good cadre of both experienced Modine people over there and some recent new hires from the region that I think will help make sure that we stay between the white lines.

Do you think we'll see further slowing there or is it just too early to tell?

Let's stay tuned. We're new to the region but I don't have anything off the top of my head that tells me one way or the other. Brad, you may have a comment.

Dennis, just you might say that I have been seeing the export market out of Korea being quite strong in terms of their passenger cars and just as a reminder, our business is focused and exposed primarily to the commercial vehicle market, the light truck and commercial vehicle markets, for primarily for domestic Korea production and use. Therefore, we have been faced with the slowdown of the commercial of the economy there and therefore that has directly impacted the commercial vehicle.

There are some statistics out there that do indicate that it flattened, and stay tuned on whether or not it is going to grow. At this point, there are again statistics that indicate that the vehicle production has stabilized.

Just one in embellishing point, the relationship with ACC and Hyundai/Kia is very good. I had some personal meetings with some executives there that I'm very pleased with that relationship. Because of that relationship in the region, we have been able to secure a number of new programs both in the region and more importantly outside the region, specifically in Europe and North America. And I would say that those would not have happened or certainly would not have happened as easily as they have without this acquisition and this relationship that exists in Korea.

Absolutely. One last thing, on the raw material side, really excluding copper it looks like we are getting some at least sequential benefit. Are we at the stage yet that you might be able to be showing a little extra profit there because of the lag effect in some of the contracts?

I would say not. We're still actually seeing some economics in some -- I think steel has actually softened a little bit but our steel content is minimal, versus copper and aluminum, which aluminum is very significant. We also are seeing inflation what I call secondary inflation because of oil into plastics and those we do not have the ability to recover via contract. We have to use our relationships and then we have other suppliers that provide components that are seeing some inflation that eventually get passed through to us or attempted to pass through to us from their tier ones or even their tier twos. There is a real challenge in fully recovering the materials. We are very fortunate to have our relationships we have with our customers though on what I would call the semi-precious materials.

Yes, but aluminum does -- at least -- aluminum does seem to be coming down from the peaks that we saw in the first quarter. Are you not seeing that?

Yes, we do. Aluminum prices, Dennis, as you say have stabilized and actually have started to come down a little bit. Again, as we look to the future. We’re certainly not prepared to say how that will impact us because there are forecasts out there that indicate that the aluminum decline is only temporary at this point.

And I think part of that will be driven by what happens in Asia in regards to whether that market heats back up or not. They were a big driver for some of this economics that we have seen. So I would have to say stay tuned.

Absolutely. Thanks a lot.

(OPERATOR INSTRUCTIONS) David Leiker, Robert W. Baird.

Hello again. On this whole issue in Asia and Korean, can you quantify for us what the end market is doing? How much that is down year-over-year? Or any color you can provide there beyond just the qualitative comments?

Not the top of my head. I have read some stuff but you're catching me with those facts dangling.

On the aftermarket in the Transpro filing that you have calendar '04 numbers in there. Can you tell us what your fiscal numbers are in terms of revenue and profit in the aftermarkets business?

David, as you mentioned, I am sure you have scoured the 300-page document.

I have it memorized.

We have disclosed, obviously, the first nine months performance, which is in the document, but we have not yet disclosed the full year. So we can't provide that information at this point.

What is the timing for doing that?

Latter part of May.

I am a little confused by the comment that you're trying to classify this as discontinued in the last quarter, and that you're not able to classify it as discontinued today. Can you help reconcile that?

Yes, that is a very good question because a normal straight-out assets divestment, as you have seen others, will classify as discontinued for several quarters actually in a row until they complete the transaction. The accounting rules are quite unique to a spinoff and, therefore, again we are in the process of working this. And again, because of the unique nature of the spinoff, it looks like that it would be classified in the quarter in which it occurred versus discontinued operations today. Again, we have got some work to do and that is why we put that in our press release to finalize the accounting for the spinoff.

But we have concluded again that because of the ongoing relationship we have with that business today that it is not appropriate in this year's results or in our next fiscal 1Q quarter to classify it as discontinued ops.

Okay, that makes sense to me. Are you -- where are you capacity-wise in the truck market here in North America?

As far as utilization of our assets?

Well, utilization, but the ability -- you've got annualized billed rates that are up 320, 330,000.

We're just fine, David, and in fact we will be announcing over the next few weeks some new incremental business that we are securing for '07 and '10. From an asset-based standpoint, we can absorb that incremental without any additional assets. We will have some equipment requirements, so we are not constraining that market at all, and I wish the axle guys and some of the other guys get their acts straight. So our order boards would settle down because there is an awful lot of volatility because of available material. But it ain't Modine.

And the original equipment business, you kind of talked about the key drivers on the revenue line. Can you break out what your commercial vehicle revenues increased year-over-year? I know it's a little bit more detailed, but --?

We can do that, but what I would prefer to do is to just stick with the comments that we have in our press release, which indicates again that there was significant growth in the North American Truck as well as the Heavy-Duty business here in North America again.

And part of this is driven by not just the markets but we are enjoying some nice incremental business -- both I mentioned the Blue Diamond which is just starting but also we've got a number of pieces of nice business starting up this last year in the engine side.

I've got a few more but I'll come back if needed.

Just follow upon your comments on the aftermarket, certainly this has been a journey in regards to getting the deal finalized but I am still very, very excited for our shareholders and candidly our employees in regards to what this spend in combination with the Transpro business brings to that business and our shareholders. So we had earlier identified significant synergy savings and I really feel those are absolutely real and so we continue to feel very strongly that this is a good deal for our shareholders.

Okay, thanks.

Jerry Heffernan, Lord Abbett Money Management.

Good morning, everybody. A couple of different things here if I could and I will just try to hit them one at a time. We talked about the European business, the Automotive having a pull back as you had forecast due to the ramp down of the 3-Series. Can you tell us about the ramp up of the new platform?

Yes. The 1-Series actually ramped up faster than we had planned and we have been very, very pleased with the 1-Series ramp up. The 3-Series at least versus the plan we had has been a little slower, but the vehicle is getting some great press. In fact I saw something this morning on a release -- and we are actually -- they are showing some increased volume in what would be our second quarter for that vehicle over our plan. So the balance of the two vehicles are slightly ahead of what we expected for our first half. But the good news is the dog likes the dog food. Both vehicles look like they are going to be real hits.

Okay and I just want make sure I understand your comment on the 3-Series. So the ramp up of the new platform from what we have seen in the just reported quarter was somewhat behind what you have expected. That said, current period we're seeing a pretty strong acceleration?

I need to call it -- when I say our plan -- when we build our budgets, which were some time ago, we make assumptions based on inputs of the customers and etc. And what we had planned for Series-1, it ended up being stronger and a little softer in the new 3 versus our plan. But all in all through our first half, the two in combination will be a little stronger than what we had anticipated.

And Jerry, if your question -- it sounded like you were focused on our fourth quarter, which just for clarity we booked Europe one month late, so therefore, our results are basically December, January, February. And therefore again, that was the period in which the old Series-3 was ramping down and the new Series-3 really didn't get kicked off until late February, early March.

Right, okay. The focus of my question was really more prospectively where are we going, how is the ramp ongoing now?

We are encouraged.

Good. There is a customer of yours who makes real big equipment, off-road stuff that had been resisting the contractual material cost passthroughs that you should be pushing through to them as per contract.

I don't know what your specific source is, but we work with all of our large customers on materials. I would tell you that in most cases because of the environment we're in, the time to get those things approved tend to take longer than they used to. But I feel satisfied that whether it is the company you are referring to or others that those customers will meet their contractual obligations. Some of them get delayed a little bit versus what we would hope, but at the end the day they are quality folks and we get what is appropriate.

Understanding that, and I just want to make sure -- so it is fair to say in the quarter just reported that perhaps some of the receipts were not at the build level because of the ongoing back and forth that you all are having with your --?

You have a natural delay to start with. Depending on the contract, it can be as much as three and in some cases six months delay. Of course that delay is good news on the other end when the materials start to come down, there's a lag in the documentation and the give back. There probably is some examples with the material of where these things take a little longer than the absolute. There are some examples probably within the quarter but it is not I would say material, those delays.

And these areas we had just again just point you to our press release. Again, we did mention that our Heavy-Duty business did experience this lag effect that Dave was referring to.

Again I am looking forward. I just want make sure that you don't have anybody who is saying look, I don't care what the contract says, I'm not paying you any more -- that everybody is being upright fair citizen and is agreeing to the contractual terms?

I would say we're working the ball and everybody is being professional about it.

Okay, you have had the Jackson, Mississippi plant under your control for a month of the reported period here, two plus months of total time. Now that you have this under your hands now, can you tell us what a better sense of what you have? Our understanding is your initial review was that it is a plant that is a good plant but not operating at Modine margins. And has your sense of your timing to get this up to Modine margins changed at all?

Well, it certainly -- we are pleased to have the organization. I have been personally down there. They are highly motivated to be successful with Modine. They have some technology in charge air coolers that Transpro had developed that candidly we find unique that I think we can apply probably into some off-highway applications. We are on what is called a 100-day plan. There are some opportunities in the material size that we're going to be leveraging our size and our volume by. So I think it is going just fine.

They brought to us a few new customers that we have not had relationship with and we have been to see all of those and those relationships will continue. And with our bag of tricks on technology and other componentry, we actually hope to leverage those relationships to even more penetration. So I am not disappointed.

If I could get back to the 100-day plan that you commented on, again I am really -- I know we talked about the technology that they brought to you in the past, the new customer set, but again just thinking about purely in the sense of profitability here, do you see the plant today the same way that you saw it two, three months ago?

I feel better about it now that we have learned about it. We are applying what is called a sister plant approach and we have a very good plant in Lawrenceburg, Tennessee that makes aluminum brace products, vacuum. And they are a sister plant now in that we are leveraging some of their skill sets and bringing some of the Modine methodologies and metrics to them. So the business is accretive and they've got some good relationships and so stay tuned where we take it.

Great, sounds very good. And one last thing. In the electronics business and being respectful of the fact that this is actually a very small part of the business of Modine, any changes on your long-term thoughts there on that business? You have done a very large capacity expansion. It is still an underperforming asset per your group of assets there. Has management's mindset changed at all in regards to this asset in relation to all of Modine's assets?

I certainly have to be candid that I have had some personal frustrations with getting this business to be accretive. I know a large part of that is the marketplace on when will we recover in that business? This last year we took a pretty large restructuring charge in closing our facility in Mexico at the same time growing our business in Taiwan. The ramp up in Taiwan for heat pipes, which serves the commercial side with computers has gone quite well and continues to ramp. And we have some more capacity coming on board in our second quarter which will take another step function in their volume.

It is key for this business for the telecom market to recover. We are working hard on relationships and so has my attitude or has attitude changed on the acquisition? No, I think the long-term fundamentals are right. Are we frustrated with the earnings performance of the business, some of which is controlled by ourselves and some of which is an impact of the external market? So it is taking -- you mentioned the size of the business. It is taking a little more percent of my time than the sales of the total Company and that is what senior management does. You go where your problems are and you see what you can do to accelerate the improvement.

Very good, thank you very much.

David Leiker.

Nothing else, thanks.

It appears there are no further questions. Mr. Prichard, I will turn it back over to you.

Okay, well if there are indeed no further questions, that will conclude our conference call this morning. Certainly our thanks to Dave Rayburn and Brad Richardson. As a reminder, this call is available again on replay at 719-457-0820 and you need to use confirmation code, 7455163 and that is through Friday, May 27. Or you can go to the webcast at the good old Modine website at modine.com.

Thank you, operator, and thanks to everybody for calling in this morning. We will talk to you again in mid-July about our fiscal 2006 first-quarter results. Have a good day and a great weekend.

And that does conclude today's conference. Again thank you for your participation.