Modine Manufacturing Co (MOD) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Modine Manufacturing Company 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 presentation over to your host for today's call, Ms. Susan Fisher, Director of Investor Relations and Corporate Communications, please proceed.

Good morning, everyone, and thank you for joining us today for Modine's first quarter fiscal 2009 earnings conference call. With me on today's call are Modine's President and Chief Executive Officer, Tom Burke, and our Executive Vice President, Corporate Strategy and Chief Financial Officer, Brad Richardson.

Our format for today's call will be approximately 20 minutes of prepared remarks followed by a question and answer period. We will be using slides with today's presentation. The slides are available through both the webcast link as well as a PDF file posted on the Presentation section of the Investor Relations section of our company website, Modine.com. 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. With that, it's my pleasure to turn the call over to Modine's President and CEO, Tom Burke, who will lead us off.

Thanks, Susan, and good morning, everyone. Brad and I will take you through a summary of our first quarter highlights, share some of our strategic initiatives and provide a thorough analysis of our first quarter performance and our outlook for the remainder of the year.

So turning to page three in the package, you can see a highlight of our 2009 fiscal year first quarter. Top line, we had a very successful quarter from the standpoint of growth of 5.4% in sales. This is excluding the foreign exchange impact. What's encouraging is the majority of our segments have shown significant growth during this period. Strong sales growth in Europe at 5.9%, South America an extremely strong year to 17.4% on a year-over-year basis, and our Commercial Products group, again, a strong significant quarter of performance with 7.4% increase, again, after adjusting for the exchange rate impact.

However, we're not satisfied with the performance bottom line. We continue to see underperformance in our North America and South Korea segments, which partially offsets this growth opportunity, as we fail to convert due to operating issues and a slower recovery of the North American truck market. I want to assure everyone, we are moving decisively to address these issues and accelerate the pace of improvement, not only in these segments, but across the globe.

This includes significant leadership changes that we made in the last six to seven months, added resources are in critical areas and a deeper focus on our lean initiative engagement, and we're confident these changes are leading to the pathway forward we need to ensure success over the next 18 months.

We talk about accelerating our pace of improvement throughout the company, that's really focused on our four-point plan that I'm going to highlight a little bit on page three again. You can see our first four-point plan element is the manufacturing realignment. Again, earlier this year we announced the plant closures of 3 plants in North America and 1 in Europe. These closures are on track and the consolidation into existing facilities is on track to ensure we build a higher-scale facility going forward. Again, the operational excellence initiatives that we're bringing into each of our plants globally, is focused to drive faster continuous improvement and eliminate waste through our Modine Production system.

Another key element is our portfolio rationalization. We're doing this on all of our products. And this is a very important segment to ensure all of our products are contributing and where we find issues, addressing them appropriately. One of the decisions we made earlier this year was the divestiture of our electronics cooling business, that we announced on May 1st. Additionally, we're finding that we do find in certain product segments that we have pricing opportunities that we need to be bringing got market as far as not making our hurdle rates on some core selected products and also maybe in certain non-core areas. So with that, we're bringing a focus on and initiative to bring price realization to help us in our gross margin achievement at a faster accelerated pace.

Additionally, in our South Korean business, which is an element that we need to look at from a portfolio standpoint, is how do we get to an acceptable financial performance? And we have our team in Asia, supported by the South Korean leadership, to focus on a thorough analysis to make sure we deliver this business and get acceptable financial performance. And we're looking at all options in that area.

Number three, a very important element we call capital allocation. And this is, how do we ensure we're putting our money to work in the best way possible to ensure we continue our growth focus in the future? And again, we're focused on ensuring we deliver our commitment to a $70 to $80 million net capital spending in this fiscal year.

Our fourth and final element of our four-point plan is SG&A reduction. We have a firm commitment and objective within the company to attain 11.5% SG&A as a percent of sales by 2011. We have a very specific study team in place with senior leadership to engage how we're structured as a corporation regionally, to make sure we have the most efficient and effective overhead approach towards managing our business going forward, and we feel confident with our pathway forward there.

All these changes are leading to the result of an improved footprint, both in a manufacturing and overhead sense, and a very strong product focus to ensure that we have the best portfolio possible that will ensure a more competitive position for growth in the future.

Positioning of the company to leverage the significant orders coming into the pipeline is very strong. We're very happy with the pipeline filled with the new orders that are coming through as a result of these efforts. They're both helping us attain the critical growth rates, the critical gross margin elements of 18 to 20% minimum hurdle rate on gross margins and bottom line, to deliver on our commitment of 11 to 12% return on average capital employed.

I'd like to talk a little bit more about reinvesting on growth, if you could turn to page four. You know about our short-term plans. We're making those very clear in this 18 to 24-month blocking and tackling focus we have. But we're also making sure that we're focused on the future to make sure that we're driving the business the way forward, so we have a sustainable business plan in the future.

The first element I'd like to talk about are the fundamental growth drivers that you've heard us talk about in the past. These growth drivers are very much in play and actually accelerating today. The emissions requirements that have been a big impact in North America and Europe, are also driving around the globe, which brings higher engine content of our core product line to the opportunity to have higher engine content on customer applications to help them solve these problems.

Additionally, the fuel efficiency, which is driven by soaring energy costs is driving and accelerating two new technologies to come forward to help reduce weight, reduce CO2 emissions and improve operating pressures for higher fuel economy in vehicles.

Market penetration in Europe, which has been extremely strong, it continues to look strong, as the wealth projections move through Central and Eastern Europe, providing us great opportunity to ensure that we have growth in this critical segment. And we have a lot of confidence in our team on the ground in Europe that's driving these opportunities, engaging with their customers.

Additionally, the investments we've made in China and India for our greenfield sites to provide the type of products they're going to need to provide solutions to the OEM customers in the off-highway and commercial vehicle markets, are very much on track and we're very encouraged with the initial results we're getting as far as the order book and the pipeline to fill up this manufacturing capacity.

And again, as we look beyond vehicular applications, we're very, very positive, both in our Commercial Products or building HVAC business, which is seeing positive growth in its drive for higher technology, higher efficiency solutions and stationary power as well, going forward, as we see the fuel cell applications on solid oxide fuel cell requirements being actually pulled forward because of the need with higher energy costs and the drive to reduce CO2 emissions.

So these drivers are really directly now affecting us and bringing in the opportunity of new orders coming in and into the portfolio, which we're very excited about.

Some recent new program wins that we've received are very consistent with our strategies and they focus on our advantaged positions of our products to ensure that we make sure we're in the right markets with the right products, returning on the right returns.

A couple of highlights here is that we've had some recent wins on powertrain cooling modules and components for several off-highway and commercial vehicle customers so far this year that we're very excited about, in several regions in the globe. Next generation powertrain cooling module for a premium automotive customer in Europe was an exciting win that we just won in this past quarter and very excited about.

We have a new design platform. It's an air-to-air exhaust gas recirculation cooler, we call Direct EGR, which is a new platform that actually provides additional EGR capacity on an air-to-air site versus a liquid-to-air site, providing more capability for OEM customers to again, attain higher level emission requirements and get a better package arrangement solution for the customers. Again, this is receiving wide acceptance and with several orders that have come in recently that we're very excited about.

With our investment in India, we are timing it right with a new entry of a product for the India market that is a drive for lighter, more efficient oil cooler requirements in this growing segment in the commercial truck and off-highway market. Again, we've timed this investment very appropriately.

A new chiller line that I'd like to announce in our commercial HVAC division, has just been released this year. We call this the Turbo Chill and it's one of the most, if not the most efficient chiller in the specialty chiller market in the UK and EU market opportunities and it also has extremely little noise. The receptivity from the market has been extremely high and our sales are actually already surpassed our annual estimates this year with the amount of orders that have come in. Again, demonstrating the fact of having products advantaged in the market to pull the opportunities forward.

And again, we're going to continue to focus our leverage on the commercial HVAC offerings in North America. We're seeing our order book for fall and winter order sales already up, exceeding last year's numbers, which is very encouraging. And we're also focused to make sure that we're focused to deliver on our school HVAC orders, which is again, growing the markets share.

Last I'd like to talk about, before I turn it over to Brad, is this investment in technology differentiation. This is what we're about. Modine is an innovator of thermal systems and we're always going to ensure that we're investing in the right way to keep us in front of the technology curve with new offerings.

A great example is our Board last week authorized the investment, what we call the next phase of development Origami heat exchanger system. This is an ultra thin-gauged, high performance heat transfer technology that really brings ultra lightweight opportunities, higher strength and lower package volume requirements to our customers to solve their problems, both from a weight reduction and operating performance and fuel efficiency standpoint.

We're working with two partners on a very, what we think is interesting and an opportunity that's coming along at the right time, which we call waste heat recovery technology. Partners are leading engine OEM manufacturing with the idea is to help capture the exhaust energy that's emitted into the atmosphere and wasted and not used for productive purposes, to capture that energy and redirect it back into the vehicular usage, again, improving fuel efficiency and reducing the emissions and CO2 emissions.

Fuel cell components, with a recent study performed by a customer in the UK, we recently had our systems tested in independent testing verification of a residential application fuel cell, used for stationary power and water boil application. We're very happy with the performance it received and the design verification that's bringing this opportunity closer to market reality, which we think is very exciting.

And last, we had our first production order for a patented new intercooler muffler for the fuel cell-driven vehicular market with a leading fuel cell market customer in the marketplace, which again, is very exciting.

These are just to point out the fact we're ensuring we put the investment, the commitment of resources into these critical new technologies to ensure that we have those products in the portfolio in the future.

At this point I'd like to turn it over to Brad, to walk us through our financial review. Brad?

Tom, thank you. Thank you very much, and good morning to everyone. Slide five is just the outline that I plan to follow this morning as we go over the first quarter highlights. So if we can go to slide six, this slide provides the financial highlights for Modine's first quarter of fiscal 2009. And I would note for our investors that all of the results of the prior period have been adjusted to account for the removal of the one-month reporting lag for the foreign operations of Modine. This is a very, very positive step forward and our financial team has worked very hard to bring all of our reporting entities to a current reporting status.

As Tom mentioned, we continue to have relatively strong sales growth, with sales up 12.5% on an absolute basis, and up 5.4% if you exclude the favorable translation of the international sales into US dollars. Each reporting segment showed growth, excluding foreign currency impacts, with the strongest relative growth occurring in Europe, South America and Commercial Products.

The gross margin on an absolute basis was high, at 15.7%. As shown on the lower left graph, the first quarter gross margin is typically the strongest, as it is impacted by positive seasonal patterns and the absence of the normal summer and winter holiday plant shutdowns.

SG&A increased rather steeply versus the prior year quarter, driven by the exchange rate changes and ongoing repositioning costs. Excluding these factors, the SG&A was up $2.8 million, largely in support of growth in Asia.

I will cover the underlying change in pretax earnings and EBITDA on the next slide, however, I would point out that our cash flow from operations, that is cash flow before capital investments and dividends, showed strong relative improvement. The organization is highly focused and properly incented on working capital management to ensure the company has the flexibility to invest to restructure the manufacturing base and invest to support the very strong product line opportunities that Tom spoke to.

Modine's net debt position, that is debt less cash on hand, declined by $9 million versus the year-end fiscal 2008 balance.

On slide seven, the objective of this slide is to show you the underlying results of the company, excluding the most significant items. In the comparable quarters, the most significant factors were the repositioning costs that we are incurring to restructure the manufacturing cost base, primarily here in North America.

On a comparable quarter basis, our gross margins were flat versus the prior year and the pretax and EBITDA showed meaningful improvements. The following slide allows us to look at this improvement by segment. So turning to slide eight, the left side of the table shows the change in sales by segment on an absolute basis and without the benefit of foreign exchange.

On an absolute percentage basis, again, we saw the most significant growth in Europe, South America and our Commercial Products business, driven by overall economic strength in particular in Brazil and new program launches that Tom spoke to.

From an operating income standpoint, I would draw your attention to the far-right column, which shows the change in profitability, excluding the impact of repositioning costs. Europe was able to offset normal annual pricedown impacts with strong volumes and decent operating performance improvements. The same fact pattern applies to our South American and Commercial Products businesses.

Unfortunately, the North American OE business continues to underperform, driven by ongoing operating efficiencies associated with plant closures, very high demand from the off-highway markets and new product launch activity. We have yet to see a quarter to quarter improvement in the operating performance of the North American OE manufacturing organization. As Tom mentioned, this is being addressed.

Absent these factors, the overall margins in the North American business remain depressed, driven by underutilization of our North American OE facilities, as the overall truck market recovery remains anemic.

Slide nine shows the consolidated company factors contributing to the swing in pretax profitability from $14.7 million in the first quarter of fiscal 2008 to $14.4 million in the first quarter of this fiscal year. The impact of higher sales volume contributed to a $7.3 million positive growth in pretax earnings. And further, our purchasing initiatives coupled with the net positive impact of commodities, contributed another $6.2 million in profit improvement.

Partially offsetting these favorable factors were the annual productivity that we offer our customers through pricedowns and ongoing North American operating inefficiencies. The $3 million in other includes higher SG&A, again, primarily related to our growth in Asia. These factors add up to a positive $2.2 million underlying improvement, which was offset by the incremental repositioning related costs of $2.5 million.

Although the first quarter results, excluding the restructuring costs are encouraging, we remain focused on our four-point action plan to address business performance and achieve our 11 to 12% return on capital employed target by Modine's fiscal 2011. Slide 10 shows the estimated cost and expected benefits from the restructuring of the North American and European operations through the closure of four plants over the 18 to 24-month timeline. The cost and associated benefits are consistent with our previous announcements.

Other elements of the four-point plan include the capital allocation discipline, with our 2009 plan set at $70 to $80 net. Ongoing portfolio rationalization activities, as Tom discussed, and driving SG&A down to 11.5% through actions that are currently being formulated.

On the next slide, I am pleased to confirm that at this point our guidance remains unchanged. As I mentioned in May, this fiscal year is promising to be a very dynamic year, with significant external headwinds that are impacting the overall performance of the company. These headwinds include escalation in certain commodity costs, most notably steel. Further, we have downgraded our estimate for the North American truck market volumes by approximately 10,000 units, with Class 8 volumes estimated at 227,000 units for our fiscal year, 210,000 units for the calendar year 2008.

We are also seeing some softening in our volumes in Europe, specifically in the Automotive market.

We do expect that our earnings delivery will follow a seasonal pattern with our second and third quarters being impacted by lower volumes and associated margins in the summer months and around the December holiday period, due to normal customer driven shutdowns.

The guidance includes approximately $17 million to be expended to restructure the North American manufacturing footprint in Europe and in North America. I would also note that this guidance does not assume any potential cost associated with addressing the underperformance of Modine's business in Korea. As we mentioned in May, we will update our investors on the status of Modine Korea when we report our second quarter earnings.

With that, let me turn it back to Tom for a wrap-up.

Thanks, Brad. Page 12, a quick wrap-up and summary of points we just went through. Again, we're seeing strong performance in a majority of our segments, namely Europe and South America and the Commercial Products group. We're seeing significant technology driven growth opportunities and fundamental growth drivers around emissions and fuel efficiency at the 4 to 6% compounded average growth rate that we're very confident with that's going to continue to serve our business well.

The underperformance in North America and Korea are being actively addressed and we're confident with our plans going forward. The portfolio analysis and rationalization part of our four-point plan, as we mentioned, continues and aligns with our company's financial hurdle rates, and again, we're building up momentum.

Fiscal 2009 remains a year of blocking and tackling to attain our fiscal 2011 goals of 18 to 20% gross margins and 11 to 12% return on capital employed. And finally, we're establishing clear leadership model based around specific behaviors to drive accountability and to ensure sustained continuous improvement in our bottom line performance so we can accelerate our pace to better serve our customers and our shareholders. Thank you.

And with that, operator, we'd like to open the call up for our Q&A session.

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

I guess first of all, on the European side, just how much softening are you baking into your numbers for the auto market? And it also looks like the truck market's slowing there as well. Just kind of talk about that a little bit.

I think, David, in our guidance we are building it in. As we had said in May, and certainly we're kind of reiterating today, is the European business clearly has had a very, very strong revenue and profit growth over the last few years. We saw that continue in the first quarter, but we were very candid in May that we expected that the overall profitability of the European business would moderate. And again, we're starting to see that specifically on the automotive side of the business.

At this juncture, we have not seen--we have a very, very good business, as you know, servicing the heavy-duty market and the off-highway markets and those, the demand still looks encouraging there. So that weakening that we're seeing is in the automotive, and again, that's why again, we're saying that the profitability out of Europe, we definitely expect that that will moderate, and that's built into our assumptions.

Who are your larger commercial vehicle customers in Europe?

Volvo, from the standpoint of powertrain cooling on the medium truck. We have one of the platforms on the DAF platform as well as far as powertrain cooling and of course, some engine products that go into others.

Are you selling in the construction market in Europe?

Yes. I mean, we sell into Volvo and we sell into Caterpillar and again, those markets continue. And also into the Ag market. We serve the full range of the tractor manufacturers in Europe, and those continue, again, to be encouraging.

Volvo and Caterpillar, both in Europe are talking about their markets weakening, construction and truck. They are not seeing that yet.

Our participation in our share thus far, we have not seen that softening in those segments, David.

Okay. The other item here is on guidance. I'm looking at your fourth quarter press release and it looks like the numbers are lower. The pretax went from 1.16-1.20 to under 1.12 to 1.16? Am I missing something there?

Okay, so you're looking at the fiscal '08, not the guidance itself. The guidance itself is meant to be--so if you look at the pretax, including the repositioning charges, I don't have the--we showed two different presentations in the press release in May, but we're including and excluding repositioning charges and these are--.

I'm looking at it. It says including repositioning charges. Maybe we can just follow-up on it, but I think the presentation is identical in both.

Okay, we'll follow-up on that.

Andrew DeAngelis from KeyBanc Capital Markets.

I guess just first of all, your CapEx within the quarter appeared a little bit high. Is that just seasonality of spending or I guess could we maybe dig into the timing a little bit better on the CapEx then?

The capital, and again, our guidance is net 70 to 80 million, so the gross amount of the capital that we expect is in kind of the $100 million range, $90 to $100 million range, with $20 million or so of divestment gets to the net 70 to 80. So the 27 million, again, you should be looking at that relative to kind of the 90 to 100 million, which is the gross amount of the capital. Admittedly, you know, the capital spending is heavy right now, as we're in the middle of a launch and building up capacity here in North America and in Europe.

I guess, can you talk about the ongoing capacity expansions and I guess more specifically, I know Tom, you had mentioned a program that you have received to fill those plants, if those are meeting your expectations in terms of the timing of the production fill of the capacity expansions?

Yes, I'll start first with India. I'll be traveling there next week to review the business with the team and visit some customers. But clearly, the expectation, the order book thus far is it's filling in the potential order book is definitely meeting our expectations. So again, it's the right products coming at the right time for that region.

In China, the Changzhou facility, which was our most recent China investment as far as additional capacities going through, I think nine launches between now and spring of next year, so it's going to be extremely challenging fill at a rate that probably is maximum allowable from the capability of what we have to go through, but again, very satisfying that we have that opportunity.

And again, our Hungary facility in Gyongyos, which is being put in place in time to support the Euro 6 market expansion and we think that we are going to be able to attain. It's in place and we feel very comfortable with that as well.

Finally, our final investment in Mexico, which is really a sister plant, adjacent to our existing plant in Nuevo Laredo, is finalizing and is prepared to launch its products at the rate that we feel is necessary, but also leaving us some capacity to grow and pick our product portfolio and customer pursuit carefully to make sure we fill that appropriately.

Okay. I guess on the issue of the plant inefficiencies that you guys are continuing to experience in North America, is there any trend there one way or the other in terms of how those are heading?

I'd say, Andrew, it's a great question and Brad kind of hit kind of the key elements. It's a mixed bag of things. We have a truck market that's underutilized that's causing, let's say, the conversion of Tier4 in the existing facilities. We've got an off-highway market that's just pushing us to the Nth degree, on running the seven-day operation in a couple of our facilities. And then we have the transfers that we have just completed and starting to initiate as part of the consolidation. You put that all together and it brings in together these inefficiencies that we're talking about.

As far as the trend going forward, you know, again, we're doing all the right countermeasures to address those, the appropriate leadership, the appropriate resources, the appropriate deployment of the right initiatives to drive the improvement in waste reduction in those plants. And I'm confident that we will start to see that run-rate going in the direction it needs to be, with those action plans. Again, it's got to be beared out here in the next several weeks as we move forward. But again, all the right things are being applied. I'm confident that with that we'll see this thing continue to perform in the right direction.

Okay. And then I guess just lastly, on the product rationalization initiative, I guess specific to North America, I know you guys announced pretty substantial price increase the other week, but at this point, realizing it's still early, is there any bias one way or the other in terms of rationalizing products or getting customers to accept the proposed price increases?

Well, I guess the first thing, it's always a difficult thing to talk about price increases and I think what we're really doing fundamentally is shaping up the monitoring of our portfolio to ensure that we have the right pricing in the right place continuously, not just a one-off effort. So I think, again, this is an improvement of our operating system approach that the team and the leadership in this region and the other regions are putting in place. I think it's going to drive some natural--some product portfolio questions that are already getting on the table for early discussion that are important.

And again, we feel that this is a significant opportunity but we have to do this in an appropriate manner from a high-ground position that we call it, and that is to really understand our customers as to why we feel that we need to have and are essentially putting in place these actions to realize this pricing. So again, significant opportunity in this element of our four-point plan.

Okay. And then I guess maybe just a follow-up on Europe, following off of David's question. Could you maybe provide some definitive quantitative numbers around your outlook for Europe? I mean, I know anecdotally we've heard about auto softening, and the truck market, while I think is still strong and expected to be strong through the remainder of this year, is maybe seeing some weakening on the margin. You know, the construction market seemed to be more of a concern from some people. I guess I'm just wondering if we can get something more definitive in terms of your expectations there?

Andrew, we certainly don't give guidance by segment, and so I'm not prepared at this point to provide segment. What we have been saying is, with our outlook, is that Europe, again, moderating and certainly that could result in some overall decline in the profitability of Europe, offset by the gradual improvement that we're seeing in the North American as we get the operating inefficiencies that Tom spoke to, behind us, and as we see the North American truck market gradually improve.

And so, if you kind of look at the overall guidance that we have provided this year on the company, if you kind of exclude the impact of the impairment that we had last year and look at incremental restructuring costs that we have this year, it's a relatively flat performance. And we've been very candid about that. Tom's used the term blocking and tackling and that's really what this year is about, is to make some very tough calls on the portfolio, continue to execute on the restructuring, so that we see the improvement start to come through in our fiscal 2010, and then obviously all marching towards 2011, with our return on capital goal. So I think that's about all we're prepared to say.

And again, can't quantify it, Andrew, but along the lines of talking directly to customers in the last, let's say three months, the expansion into Central and onto Eastern Europe for them is a very highly targeted part of their business plan, and I know that they all realize there's going to be weakening in trucking demands and let's say in Western Europe as pressures growth there, but they're really focused on making sure that that infrastructure build, all the things that are going on towards Russia, essentially, are in place and it's a key part of their business plan.

And so maybe just to be clear about the capacity expansions that you guys are making in Europe, I mean, where are most of those targeted? And I mean, I'd assume that you do have definitive production orders in place for those capacity expansions, right?

Well, absolutely right. Just right along these lines is why we're putting this new facility into Eastern Hungary, locate a position for that product with the right focus of where our customers are moving. For instance, you know, Volvo moving to its major new complex in Russia, we'd be able to supply that, which is a targeted area that we can supply into and grow that way. Again, facilities going into our Austria facility on the condenser side, to support that growth that's been just a great opportunity and a very leading segment as well.

And what market is that for, Tom?

That typically-- we call it the PF business. It typically is PF condenser and PF oil coolers that that product supplies, and again, is positioned well in a scaled facility and growing to a larger scale facility that we need to make sure we can supply that. So, we feel, again, our strategy is following a very specific manner, part of the four-point plan and target these areas, these market segments with the right products in the future and having the right footprint to supply them.

Follow-up question from David Leiker from Robert W. Baird.

I think it's understandable that the tax situation here is a little difficult to figure out, but is there some thoughts that you can give us for '09 and the tax rate?

I think, David, kind of roughly, the taxes--we're in the situation, as we pointed out in May, and also pointed out in this release, with not being able to benefit from the losses that are being incurred in North America, because of the heavy restructuring, but yet we have very profitable operations in South America and in Europe. And so, what I would say, David, is roughly our taxes that will be accruing, if you will, that is the cash taxes on the foreign operations, is kind of roughly about $20 million. So you can see that our effective tax rate will be unusually high this fiscal 2009.

We have indicated obviously that as we move to fiscal 2010, we expect the tax rate to start to come down to more normal levels, as we get the North American business turned around and we're able to start to effectively represent or recognize the benefits on a go-forward basis of the losses.

Okay. And then the other item here, and you may have mentioned this, but if you did, I missed it. But the interest expense number is down pretty meaningfully from the fourth quarter and this other income line item is higher. Can you just talk about those?

Yes. Interest expense, which was roughly about $4 million in the fourth quarter, was $3.1 million in the first quarter and it's down--our average debt balances, David, in the fourth quarter we were drawn on our revolver by about $105 million. That's the average balance during the quarter. And in this first quarter, our average draws on the revolver was about $65 million to $68 million. So we had substantially lower average debt balances during the quarter, again, driven by I think decent cash performance. We're very, very focused on, again, the cash performance of the company.

So that brought the interest down and then the rates, the LIBOR from fourth quarter to first quarter, we have historically borrowed at LIBOR plus 87.5 basis points, and LIBOR rates were down. So those factors that really contributed to the decline in the interest expense. The other income was in the fourth quarter--you said it was up. It's not up that much.

It's higher than we thought and it's up from last quarter and down from last year.

Yes. I think the fourth quarter it was 1.6 or something like that. I don't have that data.

About 1.8.

1.8, so it was up marginally from the quarter to quarter, versus the prior year quarter, there are some--the prior year quarter had some favorable foreign currency transactions, which weren't repeated in the first quarter of this year, and that makes up the difference.

Okay. And then just the last thing in terms of this restatement with the accounting, do you have historical quarters restated for us or not?

David, this is a very tedious process that we're going through. We are going through right now and restating the historical quarters, and we will, by the time we release our second quarter results, be able to issue the restated quarterly pattern of earnings.

For all the quarters last year?

Yes.

(OPERATOR INSTRUCTIONS)

All right, operator, if there's no other calls, we'd like to thank everyone for joining us on Modine's first quarter call and we look forward to apprising you next quarter.

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