Modine Manufacturing Co (MOD) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Modine fourth quarter earnings conference call. My name is Carmen and I'll be your coordinator for today. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Susan Fisher, Director of Investor Relations, Corporate Communications, please proceed.

Good morning, everyone, and thank you for joining us today for Modine's Q4 and full fiscal year 2008 earnings call. With me today are Modine's President and Chief Executive Officer, Tom Burke, and our Executive Vice President, Corporate Strategy and Chief Financial Officer, Brad Richardson. As most of you know, both Tom and Brad moved into expanded roles with the company upon the retirement at the end of our fiscal year 2008 of our former CEO, David Rayburn. Our format for today's call will be approximately 30 minutes of prepared remarks followed by a question and answer period. We will be using slides with today's presentation. Those slides are available through both the webcast link as well as a PDF of the Powerpoint posted on the Investor Relations section of our company website at Modine.com. Also, should you need to exit the call prior to its conclusion, a replay will be available through our website beginning approximately two hours after the call concludes. Before we begin, a brief reminder that this call may contain forward-looking statements as outlined in today's earnings release as well as in our company's filings with the Securities and Exchange Commission and with that said, it's my pleasure to turn the call over to Tom Burke. Tom.

Thank you, Susan, and good morning, everyone. In this, my first earnings call, with you as President and CEO, it is very difficult to have to report our largest loss in our company history. Although this was a difficult year, it also sparked important and pivotal changes as we move forward into fiscal 2009. Simply put, 2009 is going to be a year of blocking and tackling to build a foundation so we can attain our goal of top tier earnings performance by 2010/2011. We are making the necessary changes now to insure the future viability of Modine. To put 2008 in perspective, we had continued strong growth in Europe, South America and our Commercial Products group, as you can see in the year-over-year percentages over Q4 of 2007. This growth was largely offset by significant underperformance in our North American and our Korean business operations.

As we have been actively transforming the company from a regional base component supplier to a global thermal solutions provider, we've had our challenges, specifically and most notably, the slow recovery in the North American truck market, the rising input cost and recessionary pressures in North America. While business conditions have been challenging, we've also had internal execution issues as well, namely around the inefficiencies of our plant closures and product transfers from our earlier announcement restructuring in 2006, and some new product launches earlier last year. We've also suffered from not moving fast enough to a greater scale positions in our North American operations and facilities. This is now changing. And lastly underperformance in Korea, where the profitability and customer diversification that we envisioned when we bought the business in 2004 have not been realized and we are moving decisively to correct this problem.

While our financial results are disappointing, Brad and I are here today to affirm that we know the issues, our plans are well designed, and the Modine leadership team is aligned and committed to accelerate the pace of improvement in the company. Our actions fall into the same four point strategy that we've communicated on prior calls and discussions, and this is shown on page 4 under Action Plan To Address Business Performance. First, manufacturing alignment. We are moving very aggressively to address our manufacturing footprint issues globally. Secondly, portfolio rationalization is an effort that we have undertaken recently to insure our current product portfolio is properly assessed and optimized to return to maximum earnings potential. Capital allocation is a critical process that's been deployed that uses the product portfolio assessment in anticipated market opportunities to insure we're putting our hard earned capital and talented human resources to work on the best return opportunities. And finally SG&A cost reductions simply put, we need to drive continuous improvement into our administrative processes just as we do our factories.

So let me talk about manufacturing realignment. In Q3, we announced three additional plant closures in the U.S. and one in Europe to right size our manufacturing footprint through higher utilization and to take advantage of the increased scale of efficiencies that were a result. To insure we get this right and a lesson learned from our last round of restructuring, we have formed a dedicated internal team to focus solely on the plans and needs to successfully accomplish these projects. This team will be supported with full time resources from a reputable outside firm that specializes in plant consolidations and closures. At this point, we're about two months into this project since our formal announcement of the plant closures and I will tell you that we're on track to our schedules and feel very confident with our plans. The level of success will be directly related to the level of leadership intensity, committed resources and detailed planning that we put in place, and we have not taken any short cuts and we are going to attain our objectives.

The forecasted savings from these projects will save the company approximately 20 to $25 million annually when completed over the next 18 to 24 months. At the same time, we've announced we're launching new plants in India, China, Hungary and Mexico to serve our global customers in these fast growing markets. These are state-of-the-art facilities with enthusiastic teams and the appropriate level of leadership experience. Our resulting manufacturing footprint will be highly competitive and globally positioned to insure success in competing in our targeted markets. Finally, I'd like to say I'm a big proponent of global capability consistency to insure we learn from each other around the globe. This has been accomplished through the launch of our Modine Production System in which the regional leaders drive continuous improvement through combining our clear leadership behaviors with the core continuous improvement principle.

Next, we would like to talk about the portfolio rationalization, and as another key cornerstone of our profitability restoration plan. As part of this focus, we just completed the sale of our electronics cooling business early in May. The product focused organization structure that we put in place in 2006 is providing global accountability for our product and technology strategies. This focus is providing much improved speed to market for our new products and is enabling more informed choices as to where we invest our capital. We are seeing results. Beyond this, we are conducting an in depth product by product analysis of our entire product portfolio with our initial focus on our North American OE, Korea and commercial product segments. We are being very methodical in this approach, using what I call Red, Yellow, Green Framework which assesses each of the products for market attractiveness and profitability. We are accelerating the assessment of all of our products for market attractiveness and profitability. Where a given product program, for strategic customer relationship meets our financial hurdle rates we are actively reinvesting in this business. Conversely and just as importantly, where a product line for a non-strategic customer fails to meet our financial targets we are moving decisively to improve, exit, or divest those product lines. This kind of blocking and tackling is a pivotal component of our plan to turn around the company's performance and achieve our stated growth and profitability objectives.

The portfolio analysis provides a framework for the capital allocation process. Through it, we are better able to identify the optimal areas, that is the green areas depicted on the chart, for reinvestment as we reposition the company to capitalize on significant growth opportunities. These are areas assessed with high market attractiveness with growth, technology and competitive assessments and high gross margins that will insure we attain our financial objectives on our new investments. We call these optimal areas advantage positions that provide the opportunity to offer our customers higher value and attain premium pricing. We are now able to strategically and more effectively allocate our capital in terms not just of dollars invested but also the human capital of our workforce. It is bringing a lean or continuous improvement focus on our product development processes that aligns leadership and prioritizing our research, new product development, and application projects with a return on investment mentality, simply put, we are making better bets as we invest in our future growth opportunities.

With the capital allocation process in place, we are better aligned for reinvestment in our growth. The fundamental growth drivers in our business remained intact. The emission regulations are increasing engine content significantly around the globe. A good example is 2010 in North America where we landed $125 million of very profitable business with the 2010 regulations. The same is happening in Europe with Euro VI and of course in off highway tier 4 and other regulatory changes globally. We're building stronger relationships with our targeted customers, leading to more opportunities on top of this. Innovations in fuel efficiency driven by soaring energy costs is another key driver. This is setting a great opportunity for our technology such as Origami which is is our next generation heat exchanger, which reduces weight significantly while providing a more robust and stronger product. Waste heat recovery projects, are again, with targeted customers where we are working to develop systems to extract waste heat from the exhaust to be reapplied to the powertrain system, thus improving efficiency. These are great examples of Modine's technology that are positioned well for the market in the future.

Increased market penetration in Europe is also a significant driver. Both in automotive, we're receiving significant business wins with premium automotive suppliers and premium high performance automotive suppliers in products such as condensors, and powertrain cooling modules, but also very importantly in the truck market in Europe where we see a great opportunity to increase market share with the Euro VI, 2011-2012 sourcing. Additionally with our expansion into China and India and other regions we're seeing new business growth with the opportunity of these positions and we're seeing very significant wins in these markets that are with targeted customers. I am extremely excited with the quality of our order book globally, both in the terms of the win rate and gross margin expectation exceeding our hurdle rates.

We also see a great opportunity beyond vehicular. We've talked a lot about fuel cell but our stationary power applications in the alternative energy space are very promising. We're working with two great customers in Bloom Energy and Ceres Power on stationary power applications both in the distributed power generation and in the micro CHP process and we're very excited about those opportunities in our five year plan. Additionally, the Commercial Products group is bringing great technology to market in the near term through Airedale in the U.K., we have a TurboChill product which is the leading, most efficient chiller in the market and it's being well received in the market today, and in North America both the school conversion and high efficiency unit heater development projects are looking to really boost sales as well. We're focused on converting on these growth opportunities. This is indicative of the kind of growth that continues to accrue to Modine based on superior technology and operational excellence.

As I mentioned before, 2009 will be a year that clearly sets the foundation for our future. The restructuring of our manufacturing footprint, driving the product portfolio rationalization, ensuring we launch flawlessly with our new programs at targeted customers, and of course, bringing new technologies to the marketplace on time. These are the actions that will insure Modine will be well positioned to return our company to top tier performance by 2010 and 2011 while steadily enhancing returning to shareholders. With that I'll turn the call over to Brad Richardson for a review of our fourth quarter and full year fiscal 2008 financial results.

Thank you very much, Tom, and as seen on slide 9, you can see the format that I plan to cover as Tom mentioned, the fourth quarter highlights, the fiscal 2008 highlights, an update on our action plan to address business performance and our guidance. I think those of you who have read our release, this is certainly a very very complicated year in trying to understand the underlying performance and so what I'd like to do is to turn to slide 10 and start to walk you through the overall performance. This slide provides the highlights of the reported financial results for Modine's fourth quarter 2008 and again, I'll just repeat we recognize the difficulty in trying to understand these results and therefore, have provided additional clarity in subsequent slides to demonstrate the underlying earnings level and momentum of the company.

As identified on this slide, sales were quite strong with the continued strength in Europe and South America and recent strengthening of our Commercial Products segment. On an underlying basis, excluding the favorable foreign currency translation benefits, sales were up 9%. The gross profit conversion on this increase in sales was adversely impacted by $3 million in repositioning costs and $ 2 million in an out of period adjustment. As well as ongoing operational inefficiencies stemming from the restructuring of the North American OE business. The results were also impacted by impairment related charges associated with Modine's operations in Korea. The outlook for this business has been reduced due to continued pricing pressure from the key customer for this business and the current inability to affect the manufacturing related cost reductions necessary to make this business successful. Also, as part of our product line evaluation process, we cancelled our development of the PF-Squared or PF2 product line in the commercial products business, resulting in an impairment charge of $3.5 million. And SG&A, while up on an absolute basis, reflected the impact of executive retirement charges and foreign currency exchange rate changes. Excluding these factors, SG&A was actually down.

As if this understanding of these results couldn't get any more complicated, I would draw your attention to the difference between the $27.5 million in pre-tax loss and the after-tax net loss of $40.3 million. The difference represents the impact of accruing taxes on our profitable European and South American business and the inability at this time to recognize a tax shield or benefit on the losses that are being incurred in the United States. We also recognized a $6.7 million charge against Modine's net deferred tax assets in Korea, again related to the reduced outlook for that business as we go forward. Turning to the next slide, titled Fourth Quarter Fiscal 2008 unusual items, our objective on this slide is to show you what happened on an underlying basis to Modine's gross profit pre-tax results and EBITDA for the fourth quarter. By adjusting for the factors discussed on the previous slide, you can see that our gross profit was $64 million, representing 13.4% of sales with pre-tax results at $1.8 million and EBITDA of $28.3 million. I would draw your attention to the fact that our adjusted pre-tax result exceeded the guidance that we provided in February of a $3 million loss and also exceeded the reported loss of $4.8 million in our equivalent period fiscal 2007 results. Further, the EBITDA showed significant strength, increasing approximately $12 million versus the prior year to an absolute $28 million, reflecting the underlying strength and performance out of Europe, South America, and our Commercial Products Group.

Transitioning to the full year results shown on the next slide, it's prepared in a like format to the fourth quarter slide showing reporteded and then adjusted financial results for the full year. On a full year basis, Modine's gross profit as a percent of sales was 14.6% with a pre-tax loss of $21.1 million and EBITDA of $72.8 million. Adjusting for the impairment in the various segments coupled with repositioning and other one-time costs, the gross profit percent was 14.9%, generating $39.8 million of pre-tax earnings and $133.7 million of EBITDA. Our pre-tax results were below the prior year, reflecting the volume reduction of the higher margin North American truck business as well as ongoing operational inefficiencies in North America resulting from plant consolidation and product launches; however, the pre-tax results did have higher depreciation and interest costs, which when added back in the calculation of EBITDA, lead to the overall improvement in EBITDA to $133.7 million in the current year versus $125.1 million in the previous year.

The next slide shows the various factors contributing to the swing in pre-tax profitability from $45.2 million in fiscal 2007 to the reported loss of $21.1 million in the year just completed. What is most telling is the impact of the North American truck market on the profitability of the Company, and certainly provides some insight into the earnings leverage when the truck market recovers, and further, you can see earnings leverage when we get the North American business restructuring and performing to expectations. As shown on the fourth bar in, the impact of the operating inefficiencies in our North American business resulted in a $ 14 million impact on profitability reflecting efficiencies from the closure and consolidation of facilities and less than optimal launch performance including certain EGR programs at our Joplin, Missouri plant.

Looking at our results on a segment basis, this slide, the next slide shows both sales and operating income. The change in sales for Modine by segment are shown on an absolute basis and without foreign exchange benefits. Most notable is an absolute plummet in our sales out of North America, down 22% reflecting cyclical decline in the North American truck market. Decline in North America was offset by significant strength in Europe, up 14%, South America, up 41%, and commercial products, up 9%. From an earnings standpoint, I would draw your attention to the far right column, which shows the change in profitability, excluding the numerous unusual items recognized in the two periods. It is clear that the strength in sales for the European, commercial products and South American business flowed through to a favorable change in operating income. A material decline in sales in North America resulted in a significant decline in operating income, which was further compounded by the operating inefficiencies within this segment. The OE Asia segment which is largely comprised of the results from Modine Korea were disappointing, as strong volume was given back in the form of pricing and rising per unit manufacturing cost.

And the next slide shows our cash flow and debt levels for the corporation. For fiscal 2008, you can see we ran a net cash deficiency of $30 million. This coupled with a cash build up primarily in Europe Resulted in an increase in borrowings of $47 million bringing the debt to approximately $227 million and the debt-to-capital ratio up to 32.6%. As shown in the lower right box, we were in full compliance with our covenants under the various debt instruments of the company. You will note that in a separate release today, the Board did approve a reduction in the dividend from the current annualized rate of $0.70 per share to $0.40 per share. We believe that this is the prudent decision at this point to insure that we have the financial flexibility to handle economic and commodity uncertainty while supporting the reinvestment for growth and restructuring the company over the next 18 to 24 months. Our current forecast of cash flow for Fiscal 2009, subject to the assumptions that I'll discuss in a few minutes, projects a free cash flow surplus, and therefore a modest deleverage in the company in fiscal 2009.

On the next slide and Tom spoke to our action plans to address the business performance, and what I'd like to do is just give you an update on where we stand on that. The company as you know announced in February our plans to commence further restructuring of the business with closure of four facilities, three here in North America and one facility in Germany. The total cost of this restructuring, estimated at 38 to $44 million is consistent with our previous release and we expect in 18 to 24 months when these closures are completed that we will save approximately 20 to $25 million annually. Included in the costs are expenditures for severance, equipment transfer cost, project consulting, as well as productivity and scrap related costs, which occur when products are transferred. The benefits we expect to achieve factor in labor and overhead savings but also scaled benefits from operating our facility at significantly higher levels of utilization. Our average revenues per plant in our North American OE segment will double over the 18-24 month time frame. Other elements of our action plan to address the financial condition of the company include the capital allocation and portfolio rationalization activities that Tom spoke to. In addition, we also continue to be focused on the target of driving the SG&A levels of the company down to 11.5% and we'll have more specifics around the road map to meet this objective in our second quarter release.

So what's the impact on our overall objective of achieving 11 to 12% return on capital deployed? This is the top quartile performance that the company is aligned around. On the top left chart, you will see that our fiscal 2008 gross margin was 14.6%. For fiscal 2008 results were burdened with the repositioning cost of 30 basis points and significant operating inefficiencies of 70 basis points driven by the previously announced closures. North America was impacted by a material decline in the truck market resulting in 140 basis point of under absorption assuming a normalized truck market of 280,000 units. The sum of these factors adds up to a 17% gross margin and the additional restructuring benefits announced in February, that is the reduction of 20 to $25 million of cash cost will add another 1.5% to our margins. There will be negative factors such as product mix impacting the company, and there for, it is critical that we focus on other factors within our control including culling the product portfolio and driving a significant improvement in the Korea business, which is a drag on all of our metrics. The improvement in gross margin coupled with steps that are being formulated to drive the SG&A down to 11.5% and capital turns to 3, yield the fiscal 2011 target of 11 to 12% return on capital employed.

Let's turn to our guidance for 2009, and let me say at the onset that this is going to be a very dynamic year with significant external headwinds that will impact the overall performance of the company. These headwinds include the rapid escalation in commodity costs we have seen lately, the overall weakness of the North American truck market, and the moderation of the European economy. Also impacting the results are the significant restructuring activity that is underway to affect the turnaround of the North American OE business. Bottom line, 2009 as Tom mentioned is a year of transition with significant blocking and tackling required to achieve the guidance set forth before you. The guidance assumes continued strengthen South America and commercial products, softness remaining in the North American truck market, moderation in European profitability and an unacceptable deterioration in the contribution out of Modine, Korea. We have shown our guidance both on an unadjusted and adjusted basis.

To arrive at the adjusted guidance range, we have added back pre-tax and EBITDA approximately 8 to $12 million in directly identifiable restructuring cost such as equipment transfer cost and the cost of the third party we have retained to facilitate the closure activity. I would note that guidance does include approximately $7 million of operating inefficiencies associated with the ongoing closure and product line rationalization activities here in North America. This guidance does not include potential costs associated with the restructuring of the Korea business which is currently under evaluation. Versus Fiscal 2008, we are expecting an improvement in earnings and EBITDA reflecting absence of the impairment charges. Capital spending net of divestitures is expected to remain in line with our fiscal 2008 spending. With that, I will turn it back to Tom for a wrap up.

Thanks, Brad. So in conclusion in 2008, we saw continued strong performance in Europe, South America and in our Commercial Products Group, while the North American OE segment and our Korean business clearly underperformed. As we enter 2009, we've received continued strong growth in South America and commercial products. Europe, while continuing to perform very well, will experience some moderation of its strong growth. In Korea, our near term expectations are, as Brad mentioned, for deterioration and underperformance. We are actively addressing the performance issues in both North America and Korea. With that said, we are very pleased with the quality of our order book, and foresee significant technology driven growth and solid fundamental growth drivers around both emissions compliance and increasingly, fuel efficiency.

We are continuing to execute on our four point plan including manufacturing realignment, portfolio rationalization, capital allocation discipline and SG&A cost reduction. 2009 is very much a transitional year for Modine, a period of the needed blocking and tackling to restore our profitability and attain our stated gross margin and return on capital deployed targets between 18 and 20% and 11 and 12% respectively. Finally, to conclude, we have a great team spirit in our company, and our technical capability is unmatched. We are establishing a clear leadership model based on specific behaviors that drive both accountability and a continuous improvement in our bottom line performance, as we teach and drive these behaviors across the company, we will see accelerated improvement in our results. With that, Brad and I would be happy to take your questions.

(OPERATOR INSTRUCTIONS).

The first question comes from the line of Andrew DeAngelis from KeyBanc Capital Markets. Please proceed.

Good morning, Andrew.

Just a couple questions on FY '09 guidance. First of all, I guess looking at the various segments, incorporated within that guidance, was wondering if you could flush out what you expect North America and Asia to do specifically? Incorporated within that guidance range.

Andrew, I can speak kind of qualitatively.

Sure.

I'm not going to provide specific segment guidance but we can certainly provide some qualitative and what we're expecting clearly with North America, if you kind of sort through again all of the underlying restructuring, repositioning inefficiencies, we are expecting the North America business to improve. You would expect that given the moderate improvement that we're seeing in the build rates in the North American truck business. Having said that clearly the North American business is facing some headwinds around the commodity prices, in particular on the steel cost, but again, underlying North America, we're seeing the turn in that business with improvement. It is as Tom mentioned, and as I mentioned in my prepared remarks, that the OE business specifically in Asia, specifically related to Korea is projected to actually decline, and this is because of as we mentioned, we are currently working with a customer trying to resolve some commercial issues. The primary customer for that business and we clearly have a lot of work to do on the manufacturing costs in order to arrest what is a deterioration in the Modine Korea performance.

Okay. I want to get back on Asia at some point, but I guess also you had mentioned a moderation in the European profitability during FY09 and just wondering, what is your expectation around that?

Yeah, I mean, I think Europe as you know has done very very well. You can see it from the segment performance and we've been very very pleased but what we're assuming again is a moderation to flattening if you will of the performance out of Europe in our Fiscal '09.

Okay. What do you guys expect the commodities impact to be during FY '09?

It is included. I mean the impact of the commodities is included in the guidance. We're assuming $3.80 copper, $1.35 aluminum and 12.50 for nickel. Certainly, if you look at year-over-year, the change in the performance of the Company, copper was high last year. We're expecting it to remain high again this year so it's not a huge factor in the year-over-year. It is the aluminum that's up $0.10 to $.15 a pound and so, Andrew, we do have and we're very pleased with the hedging activity that we have in place but there probably is a negative impact on the year-over-year guidance of about $5 million.

That's all in or that's just aluminum?

That's aluminum.

Okay, and so all in what would you expect the commodities cost increases to be year-over-year?

Yeah, I think clearly, copper being flat and nickel down moderately, and then you factor in the steel inflation that we're seeing, I would estimate we're probably in the $10 million range on a consolidated Company basis. As you know the steel, we've taken active measures obviously with our contracts but also with the futures market to try to mitigate the impact of aluminum/copper and there's just not a good market for purposes of hedging our steel exposure , so clearly, and Tom may want to speak to this, that we are clearly working with the customers on the

Yeah, we're working with all of our customers very aggressively and appropriately to make sure that there is a sharing of this burden that can be passed through Modine. We cannot absorb that, so the sales teams around the globe are all focused on a common process approach and to make sure that we address that appropriately.

How do your steel buys normally work? Are they mainly on a spot basis or do you have contracts in place?

Yes, we are, we do have contracts in place and with a semi-annual price redetermination. We're typically locked for about six months so we will be seeing some increases this year.

So that $10 million that you spoke about kind of anticipates what may happen in July?

Correct.

Okay, and then I guess last one just before I turn it over, you talk about kind of a strategic review of the Korean business, expected restructuring in that business, I was just wondering if you could maybe provide a general overview of your strategic perspective on that business and flush out any expectations on the restructuring.

Well we start fundamentally just looking at the business elements and the changes that have happened. Brad said we've got a tough situation commercially with our customer. We're probably not as, we're penalized a little bit more with the pricing pressures in that market and we're working aggressively on that end. Operationally, we've been working very hard for the last couple of years, the team in Korea has been focused on that, but we just have run into some tough situations on getting those operating efficiencies in place. We're going to take the next step up to evaluate what those changes can be, and from there, you look at all options quite frankly, but right now it's fix the business whatever we have to do and that's our focus.

And what determination on the restructuring actions be, any time frame on that?

Andrew, I think this is something that again, there's quite a bit of activity going on right now and I think that this would be kind of in the second quarter, or our second quarter when we would be able to update you as to how successful we think we're going to be to affect again both the commercial side of the business which is critical but also the manufacturing cost reductions, and just to insure clarity, again in my prepared remarks, in the guidance that we have provided here, we have not assumed any costs associated with restructuring. We clearly would update that. That is restructuring of Korea. We clearly would update that again along with progress on our activities in the Second Quarter.

Okay, very helpful. Thanks, guys.

Thanks, Andrew.

The next question comes from the line of David Leiker from Robert W. Baird. Please proceed.

Good morning. This is Keith on the line for David.

Keith, how are you?

Doing well, thank you. Brad, I just wanted to dig into some of the special items that we've pulled out this quarter.

Yeah.

Is there by any chance an after-tax number that you could provide us with?

On the special items?

Yeah, you know the long lived asset impairment charges if we kind of want to get down to an adjusted EPS number on the bottom line, I guess that's really what I'm hitting at. We can get down to an adjusted pre-tax numbers.

We've provided the guidance for pre-tax. I'm really, I guess what I would do is leave it to you, if you want to try to apply some normalized tax rate as we put in our forward thinking, as we are expecting the Company to get back to a normalized tax rate in the 2010 time frame, that's our Fiscal 2010 when the U.S. business returns to profitability and therefore, we're able to start to release, if you will, some of the valuations that we're having to put on the losses that we're taking in North America and Keith, my best guidance at this point is if you want to just assume our normal 30% tax rate, which we had been running at for many years, right? And then we ran into the situation that we've run into with the U.S. losses. That's the only thinking I can provide to you at this point.

Okay, that's very helpful, and then maybe I missed this, but with Korea, we expect that to deteriorate in Fiscal '09. Is that at the top line, the operating profit line or both?

No. The top line has been quite frankly positive. We've had very very strong revenue growth out of Korea and we're not expecting a deterioration in the top line. It is the pricing issues from the key customer and the inability at this point to take a corresponding amount out of the manufacturing cost to protect the margins of the business and that's the equation that Tom spoke to and that we're focused on is to figure out how we can have the margin decline in that business. It's not a top line issue.

Okay, and then just lastly, could you offer a little more detail on the strength in Europe that that business has really been doing quite well recently. Is that on the truck side, the auto side, both?

I'd say both.

Yeah, it's been both, Keith. The automotive has been strong. The truck has been strong, especially with the exports going into the East and into Russia, our engine products business in Europe has been very strong, so that's been a combination of both markets as well, we've been launching new programs in particular in the engine products area and condenser programs.

Keith, I'd add that the manufacturing utilization is very high in Europe, so the pattern that we're following in North America to build up that capacity utilization and get that scale the Europe team has done a great job of really getting the maximum amount of their assets so that's been another key factor for that.

Sounds like you guys are taking market share over there. Next year we expect that business to moderate a little bit. Is that just general economic activity over there is slowing down or is there anything Modine-specific where that the business isn't going to grow quite as fast as it did this year?

Yeah, I think the growth is down a little bit but the market is churning. There's going to be a lot of resourcing on the truck market with sourcing in 2011 or 2012 with Euro VI so I think the growth rate will just slowdown some but we'll still remain very healthy.

Thank you, Keith, just to build on that, the market share gains that we're expecting again is with the Euro VI vehicle change overs which will be in the 2011 time frame.

We have won some great product sourcing over there with premium brands both in automotive and commercial truck.

Okay, that's great. Thank you.

You have a follow-up question coming from the line of Andrew DeAngelis from KeyBanc Capital Markets. Please proceed.

Guys, just wondering if I could maybe get a snapshot in time here as you update people on the various footprint actions that you're taking. I know you've opened a few plants in Asia, one in Hungary and then the closure of the first set of plants in North America, just wondering if we could get a snapshot in time here?

Yeah, on the new plants let's start there. We are actually filling the plant in Chennai. It's launching its initial products over the course of this year and there will be another eight product launches by the end of this calendar year. By the end of this calendar year, that plant will be reaching a lot of its capacity, I meant China, excuse me. In India, we are just finishing off the plant. It's going to be launching later this year with its first product in the September time frame. It's going to be controlled atmosphere with aluminum products, charger air-coolers and also aluminum Layered oil coolers will be coming in online later in the year so it's a little bit behind China. In Hungary, the plant is going to be a highly leveraged plant for the Euro VI sourcing that Brad mentioned, so that's a real key part of the footprint, we'll be looking at again aluminum CAB braising with modules in that plant to satisfy the truck commercial opportunities on powertrain cooling modules. In Mexico the plant is launching in North America with target automotive applications in this region and that plant will be available by the end of this year still for further growth so we're looking at that growth very carefully as to what market we want to target that growth so we view that as a very key opportunity. On the closure side, we're going to be spending pretty much all of this calendar year focused on preparing for the transfers and so we're not going to see a whole lot of activity in this calendar year, Andrew, to be specific but it will be the inventory build up preparation along those lines will be starting in early next year. On our 2006 restructure announcements though, we have closed of course the plant at Richmond, South Carolina and Toledo and Jackson, Mississippi is now closed and we're targeting the Clinton plant for closure this fall with the balance out of the product line with the customer there so we'll be finishing up this year. The previous restructuring announcements and preparing this year for the major activity and closure in the following fiscal year.

Okay, and what is driving the I guess the $34 million increase in cash, restructuring costs versus the range that you initially laid outlast quarter?

Yeah, what's driving that, again, the total costs are the same but one of the things, the third party consulting costs are up slightly because we have expanded the scope of the project with this consulting firm to assist us not only on the original scope which is the manufacturing closure but also on the product line rationalization activity we have going on in the North America business where we're going through plant by plant, product by product, customer by customer and making decisions on either commercial decisions or exit decisions so that's the incremental cost but again the all in cost on cash and non-cash are the same. That's very observant, Andrew.

So really, more of a scope issue than any issue related to timing?

That's absolutely right. It's scope expansion and the economics of that we think are very attractive.

Okay, and then just one last one. I know you touched briefly on the charge you took in the Commercial Products Group for the product line closure. Just wondering if you could expand on your comments there and as to why that decision was made?

Yeah, this is a product that's been under development since 2001, a very innovative product that quite frankly was received very well in the market but the problem was that this is a PF coil product so going away from traditional round tube plate finned offer, our customers in this segment, the opportunity for efficiencies to be gained in that to get out of the copper and to reduce their refrigerant charges in their systems and so on, the problem was really faced manufacturing launch issues, so the development process was not as robust in the end as it should have been, so the simultaneous engineering that needed to happen to make sure that we had a capable process to insure delivery to our customers and to insure profitability to the company, we could not, we did not have confidence in that and have decided to drop that product line and focus on a different direction for that market, so it was a responsible decision, a lot of lessons learned, we look at that very carefully and quite frankly the new organization structure is focused to make sure we address that issue in the future that we have that simultaneous engineering effort up front to make sure that we launch appropriately.

Okay, thanks, guys.

Thanks, Andrew.

(OPERATOR INSTRUCTIONS).

Okay, thank you very much for joining us today for our discussion of our Q4 results. We look forward to apprising you of our progress next quarter. Thanks again.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful week.