Modine Manufacturing Co (MOD) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2009 Modine Manufacturing Company earnings conference call. My name is Camesha and I will 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 today's call. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Ms. Susan Fisher, director of investor relations. Please proceed, sir.

Thank you, operator, and thank you for joining us today for Modine's fourth quarter fiscal 2009 earnings call. With me today are Modine's President and CEO, Tom Burke, and our Executive VP of Corporate Strategy and Chief Financial Officer, Brad Richardson. Tom will lead us off today with opening remarks and his perspective on our business amid continuing challenging economic and market conditions. Brad will follow up with a review of our financial performance and update you on our liquidity. Finally, Tom will wrap up with comments on our business strategy and specific actions we are taking to strengthen our business. We'll then be happy to take your questions.

We are using slides with today's presentation. Those slides are available on both the webcast link, as well as a PDF file posted on the investor relations landing page of our Company website, modine.com. Also, should you need to exit this call prior to its conclusion, a replay will be available through our website beginning approximately two hours after the call concludes. Before we begin, I will remind you that this call today 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 now, with that, I will turn this call over to Tom Burke. Tom?

Thank you, Susan and good morning everyone. Clearly the economic crisis has tested our industry and our Company. Modine's response to these challenges has been quick and decisive. We've been aggressively building on our Four-Point Plan, which has served us well as a framework to effectively overcome the challenging market conditions and demands by evaluating every element of our Company's structure for opportunity. Nothing has been left to chance. As fiscal 2009 unfolded, we dealt with an unforeseen and unprecedented decline in our markets in Europe and the continued recessionary pressures in North America. In response we took an approach to refocus our product portfolio in target markets. We will discuss the outcomes of this process later in the presentation.

This was an intense but necessary step to ensure we effectively downsized our Company to make it through the recession without negatively impacting the long-term advantages within our business segments. With a simplified portfolio as our foundation, we then initiated intense focus to reduce our structural costs, improve our cash positions and preserve liquidity. We developed a conservative market forecast that would serve as a surrogate model of the recessionary impact through calendar year 2009 and beyond. To facilitate this process we appointed a senior leader to provide oversight of our war room process, with daily meetings to track progress in our actions and to serve as an information gathering point for changes in the marketplace. In short, our forecasting process has become a dynamic, real-time activity. With the results of our actions, both completed and more planned, with a disciplined oversight and framework of our Four-Point Plan and, with the commitment of Modine employees, we will not only survive the near to medium-term pressures of the global recession but are positioning Modine to be a stronger Company as the markets recover.

At this point I would like to have Brad Richardson, CFO, present the fourth quarter highlights and the overview of our financials.

Good morning, everyone, and thank you, Tom. On Slide 6, it provides the framework for the financial review of our fiscal 2009 and fourth quarter. If you look at Slide 7, you'll note that this morning Modine released its fiscal 2009 fourth quarter and full-year results for the period ending March 31, 2009. The results presented exclude Modine Korea, which has been classified as a discontinued operation given our ongoing marketing process to divest of this business. As Tom mentioned, there's no doubt that the global economic slowdown has been severe, with revenues down across all of our major markets, in particular in Europe. The economic slowdown hit Modine right at a point when the Company was undergoing significant restructuring and associated cash outlays, all of which are necessary to permit us to achieve scale in our manufacturing operations and refocus the product portfolio as further explained in Tom's remarks.

As you will note, looking through the P&L on Slide 7, we are highly focused on what we can control, focused on the fundamentals. One thing we cannot control is the marketplace. We saw our revenues decline by $193 million, down 43% from the previous year's fourth quarter. The decline was most extreme in Europe, driven by lower automotive build rates and a near collapse in commercial vehicle production. In North America, after a period of relative stabilization we saw the markets fall, driven by depressed commercial vehicle build rates and declines in the agricultural and construction end markets. The lower sales translated into a drop in the profits earned in our manufacturing operations, declining by $37.6 million.

As we will cover further, we were able to stem some of the decline through aggressive cost reduction actions and lower raw material cost. Further, we reduced SG&A expense by one third, as we took drastic actions to reduce salaried headcount by over 25% and aggressively control expenditures across the board. Modine recorded $2.3 million in restructuring charges and $13 million in impairments. A significant portion of the impairment recorded was associated with Modine's joint venture in France, which has been hard hit by this recession, particularly given its exposure to the luxury marine market. The overall impact of these factors was a pretax loss of $37.4 million.

Modine's EBITDA, adjusted for the add-back of restructuring and impairment charges, was $1.7 million positive, significantly better than the financial covenant in our bank and note holder agreement, which required this metric to be better than a negative $25 million. Modine did use approximately $25 million in cash during the quarter, as the relatively weak operating earnings were insufficient to cover the capital investments that were committed to long before the economic downturn. The negative cash burn was funded through a drawdown of excess cash, resulting in an increase in Modine's debt, net of cash, to $205.7 million.

On Slide 8, we presented Modine's results on a reported basis and excluding the impact of unusual items, including restructuring charges and impairments. Excluding these factors does not change the message, however. The Company's underlying results were down on all profit measures, as the significant actions to reduce our cost structure were not sufficient to offset the decline in revenue, driven by the global recession. Slide 9 reinforces the theme of focusing on what we can control, focus on the fundamentals. We have shown the gross profit as a percent of sales and the adjusted EBITDA for the fourth quarter fiscal 2008 reconciled to the most recent quarter. In short, our cost reduction actions are having a significant offsetting impact on our margins and absolute adjusted EBITDA.

Turning to the left graph, in the fiscal fourth quarter 2008 Modine's gross margin was 14.1%. The decline in revenue had nearly a 13 percentage point impact on the gross profit percent, reflecting the loss of variable contribution on the revenue contraction. Offsetting this was the benefit of materials, with the cost of copper declining by approximately 60% and aluminum declining by approximately 50%. Further, our cost reduction activities improved the manufacturing gross margin percent, as we benefited from purchasing cost reductions, reduced staffing levels, and the positive impact of the Modine Production System.

On the right slide you can see the absolute dollar impact of favorable materials and our controllable cost reduction activities in the manufacturing plants and in our SG&A cost structure. Again, although significant in their own right, they were not sufficient to offset the over 40% reduction in revenue resulting in only slightly positive EBITDA. While, of course, we're not satisfied with our results, these cost actions do position the Company for meaningful gross margin and EBITDA growth when the markets recover.

Turning to Slide 10, the left slide of the table -- left side of the table shows the change in sales by segment on an absolute basis and without the adverse impact of currency translation. Most notable is the decline out of Europe, resulting from significantly-lower automotive and commercial truck build rates. In Europe our business today is heavily dependent upon BMW. We saw shipments of modules to BMW slip by about 35%. I would also draw your attention to the North American revenue decline, as overall commercial vehicle build rates declined by 43% and our agricultural and construction markets bore the brunt of the global recession.

From an operating income standpoint, the far right column shows the change in profitability, excluding the impact of foreign exchange and other unusual items. The overall decline in operating income was driven by Modine Europe, as declining volumes and under-absorption of fixed manufacturing costs had a negative impact on the business. Cost reduction actions in Europe were implemented late in the quarter, thus providing momentum into the next fiscal year. I would point to South America and Commercial Products, both of which saw sizable declines in revenues with only a modest decline in operating income, as these segments implemented aggressive SG&A actions to offset market weakness. Finally, on a bright note, despite declining volumes, North American operating results improved, as intense focus on cost reduction activities is beginning to flow through.

Let's take a deeper look at North America on Slide 11. For the last several quarters we've been using our Four-Point framework to guide aggressive actions, which we are taking in North America, to restore the profit potential of this business. In alignment with our Four-Point Plan, we announced last year the closure of three manufacturing sites to consolidate and create scale in our North American manufacturing facilities. We also identified further streamlining of the product portfolio, where we are concentrating on those advantaged product lines where the Company has a competitive advantage. And further, we are de-emphasizing the automotive marketplace and placing focus on our core commercial vehicle and off-highway markets. The product line rationalization and market refocusing have allowed us to make sizable cuts in our overhead structure and capital investment.

As you can see on this slide, although the underlying markets have brought the overall North American revenues down, we have managed to significantly improve the gross margin performance and reduce the overall SG&A structure, which has enabled us to more than offset the revenue decline. This has yielded an improvement in overall earnings. Clearly, the business still has a long way to go to meet our return on capital hurdles. Nevertheless, the business is very well positioned to show profit growth when the markets begin their eventual recovery. The steps we have taken and are taking in North America have been transferred to Europe. We have a third-party consultant engaged, assisting us in a comprehensive look at our European cost structure and are beginning to take actions as a result. Further, we are thoroughly evaluating our manufacturing footprint, as well as our capital reinvestment and working capital requirements.

On Slide 12, you can see the cash flow summary for the Company for the full-year fiscal 2009 and the prior two years. Despite very weak underlying operating performance, the Company was able to release $86 million in working capital, resulting in operating cash flow of $94 million, an improvement versus fiscal 2008. This was a substantial accomplishment, requiring the full engagement of employees, customers, and suppliers. We reinvested $103 million back in the business, to complete capital investments that were committed to prior to the significant contraction in the economy. These expenditures include capitalization for 2010 EGR programs that support emission law changes in North America and capacity expansion for new business in India, China, and Austria. Netting these factors, coupled with dispositions, resulted in a negative free cash flow of $11 million. We expended $10 million in dividends, resulting in an overall net cash outflow of $21 million for the year. This was financed primarily through an increase in our overall outstanding debt.

In my final slide, Slide 13, I would like to provide an update on our current liquidity situation and our expectations around covenant compliance on a go-forward basis. As a reminder, we completed a full amendment of our bank and note holder agreements on February 17th of this year. Our plans for fiscal 2010 are focused on driving the Company to a free cash flow neutral position. Despite expected weak underlying cash earnings, we remain focused on achieving this through customer and supplier support of working capital initiatives, tight management of inventory, a sizable reduction in our capital investment level to approximately $60 million, and divestment of non-strategic assets. Nevertheless, we do need to be prepared and have access to liquidity in the case there is further erosion in the marketplace.

At the close of this fiscal year, Modine had capacity to borrow $99 million, as well as unrestricted cash on hand of approximately $43 million, resulting in total liquidity of over $140 million. We believe this is more than sufficient to fund the potential needs of the business. Access to these funds does require Modine to remain in compliance with financial covenants that were adopted as part of the February 17th amendment. As shown on the table, for the fourth quarter of fiscal 2009 and for the first three quarters of fiscal 2010, the Company must achieve the stated minimum EBIT cumulative adjusted EBITDA. Based on a covenant in Q4 of fiscal 2009 of a minus $25 million and actual EBITDA of a positive $1.7 million, we built a cushion of $26.7 million that can be carried forward for three quarters, thus providing sufficient cushion during the next three quarters. In the fourth quarter of fiscal 2010, in addition to minimum 12-month cumulative EBITDA of $35 million, traditional leverage and coverage ratios must also be achieved.

We are expecting to pick up momentum on our EBITDA performance, as we look at our ability to achieve cumulative EBITDA for the fiscal 2010 in excess of $35 million. Although we are not planning on any near-term market recovery, we are launching several new programs this year, which will contribute positive variable contribution. Further, many cost reduction activities were implemented late in the fourth quarter and, therefore, the full impact of these actions will benefit subsequent quarters. And finally, we have additional cost reduction activities that are in process or under consideration, depending on the extent of market recovery and business performance. With these actions, and available actions, we are confident we will remain in compliance with our covenants throughout fiscal 2010.

One final note before I turn it back to Tom. Modine's exposure to General Motors and Chrysler is quite limited and we do not expect any significant impact on the Company. A majority of our GM business is with GM Canada, and we've been told by GM to not expect disruption in our payments. Tom?

Thanks, Brad. Turning to Slide 15, I'd like to spend a few minutes with you reviewing our strategic business segments, including important work we are doing, assisted by an outside advisor, to actively refocus Modine's product and technology portfolio to ensure we have the right products, processes and technologies moving forward. I will also review the continued aggressive actions that we're taking part in outside of our Four-Point Plan.

Turning to Slide 16 I would now like to discuss the specific outcomes that resulted from the strategic product portfolio review that was discussed earlier. As mentioned, this process entailed an intense review of each of our vehicular product segments in evaluating our relative strength from a profitability, market share, and competitive position, both technically and from a cost structure viewpoint.

First, let me say that the graphical summaries on Slides 16 and 17 only pertain to the vehicular markets we serve. Our Commercial HVAC group, which is a standalone $200 million business focused on building HVAC market, is performing extremely well, as Brad said, despite the economic challenges. We are placing more emphasis on growing each product segment of our commercial product group. This includes launching an aluminum parallel flow long-coil product, which is well timed with the HVAC industry's conversion to the higher efficiency aluminum from the traditional copper coil. Additionally, we are in the process of bringing new, higher efficiency offerings across our entire range of Modine/Airdale products designed to meet the increased demand for higher building and computer room HVAC energy efficiency.

Turning back to the vehicular side of the business, you can see a depiction of our traditional vehicular product portfolio versus our served markets on Slide 16. Our historical portfolio is organized into six categories that we consider natural business segments. The products are categorized within the product group segments of Powertrain Cooling products, Engine products and Passenger Thermal Management products. The vehicular markets we serve are identified across the top of the slide, that being automotive, commercial vehicle -- or sometimes referred to as on-highway -- and the third market being the off-highway market. As we evaluated our product segments, we were thorough in our analysis to determine which products have what we term a right-to-win in relationship to our position in the market versus our competition.

The outcome of our analysis is shown on slide 17. Our new vehicular product portfolio and targeted market focus is now concentrated on three natural businesses where we hold a right-to-win. The first is the full Powertrain Cooling segment serving the commercial vehicle and off-highway markets, with full modules and related components. This has traditionally been a sweet spot of Modine portfolio, where we have 50% market share of the North American truck, specialty vehicle and bus markets. In Europe we currently hold about 10% to 15% of the market in these products but are well positioned and are targeting to grow this share significantly with our new Origami technology as we pursue the sourcing opportunities with new Euro VI emission regulations coming in 2011 and 2012. In Asia we have established a manufacturing footprint with our recent investments in India and China that provides the reach we need to support our global customers.

The second natural business segment is the Engine group for both liquid and air-cooled products. This is mainly focused on a diesel engine oil cooler market for both the commercial vehicle and off-highway markets. Again, this is a traditional strength of the Company that we have served for many years in both North America and Europe. We hold solid share positions in both markets and have differentiating technology that provides us a distinct advantage. We are also launching these products with our new footprint in Asia.

The third natural business segment is the Exhaust Cooling product within the Engine products group. This is a highly-specialized heat exchanger that enables our OEM customers to meet stringent exhaust emission requirements. This is a growing segment for which we have the capacity installed in North America with our recent 2010 business wins, as well as in Europe with our focus on gaining share with the Euro VI emissions regulations. As a result of our product market analysis, we have made a decision to de-emphasize a large portion of the automotive portfolio. This is shown with the orange shaded area under the automotive market column.

First, we have de-emphasized the Powertrain Cooling module segment in the automotive market. We will pursue specific component business into the automotive market with components that can cross markets with common designs that utilize shared infrastructure, such as condensers and charged-air coolers. Further, we have also decided to exit the small engine, lower-technology automotive EGR and a full range of Passenger Thermal Management product segment where we lack the scale to compete.

Turning to Slide 18 and going back to our Four-Point Plan, our plan continues to provide the framework to manage through this challenging period by focusing on the fundamentals. Again, the core elements of the plan are manufacturing realignment, portfolio rationalization, capital allocation discipline, and SG&A cost reduction. The actions identified within each element are targeted to drive our business to our main financial objective of the Company, which is achieving a long term return on capital employed of 11% to 12%. We remain fully committed and confident in our plans to obtain this objective.

In terms of manufacturing realignment, the actions are being taken to consolidate our footprint to larger scale facilities, with the closure, or announced closure, of eight plants in North America and Europe, while at the same time we are launching four new plants in China, India, Hungary and Mexico. We will continuously review the need to further enhance our footprint to ensure our long-term competitiveness and to attain our financial objectives. As we just reviewed, we have streamlined our product portfolio, focusing on our advantaged segments while de-emphasizing, or exiting, our weaker segments, enabling portfolio rationalization. In 2008 we announced the sale of our Electronics Cooling business. We are currently in the process of divesting our Modine Korea asset and we are considering all options to exit our vehicular HVAC business. And we have made a decision to de-emphasize significant segments of our automotive business.

We will be aggressive in strengthening our advantaged products. In Powertrain Cooling, our Origami technology for our next-generation heat exchangers is now being industrialized for two product segments in Europe. As mentioned earlier, we will be aggressive in pursuing further growth in the building HVAC segment. We also prioritized our research projects to ensure we are developing further technologies that will support the Company in the mid-range timeframe, such as waste heat recovery and hybrid battery thermal needs, in addition to our fuel cell initiatives. Thermal innovation has always been a strength of Modine and will continue to play a key element in our business strategy. The refocused product portfolio has been leveraged to reduce our overall capital spend. By allocating capital only to our advantaged products we ensure that these segment are strengthened. With the product rationalization we are not spending capital on the weaker product segments. This approach, along with other actions, will reduce our capital expenditures to a run rate near $60 million a year from the traditional level of nearly $100 million.

Last and clearly the most painful element of our Four-Point Plan focused on SG&A reduction. Again, guided by our product portfolio changes we made a significant but difficult decisions to reduce our global senior leadership by over 35% and our total global salaried workforce by 25%. Additionally, we sold the corporate aircraft and related assets, reduced or eliminated our post-retirement benefits, aggressively reduced third party and healthcare expenditures and many other costs. As Brad said, this has resulted in an annual run rate reduction of SG&A from $240 million a year to $160 million, a reduction of 33%. The Four-Point Plan will remain the framework that drives our actions to deliver on our near-term commitments, while still allowing us to leverage our thermal expertise for the long-term benefit of the Company.

So in conclusion, on Slide 19, we have been aggressive in our response to the global economic recession. Our fourth quarter results reflect our intense focus on cost reduction and cash generation, which are enabling the Company to weather these historic challenges. We are managing the Company with very conservative financial and operating assumptions to ensure compliance with the covenants specified in our bank and note holder agreements.

This, along with the framework of our Four-Point Plan, is enabling us to successfully steer our way through the economic challenges while also providing us a clear path forward in assuring that our business will be stronger than before when the market volumes return. Our refocused product portfolio is assuring that we invest in the right products to keep Modine in a strong, competitive position by delivering value to our targeted markets and customers. The growth drivers for our business are actually more relevant than ever, as our customers look for ways to improve on energy and fuel efficiency for both the vehicular and building HVAC markets to comply with emissions regulation and take advantage of increased infrastructure investment. As a result of these drivers and our product positions, our order intake for new customer programs is tracking to our revised expectations.

While we are clearly coming through a very difficult economic period, we are building momentum through our actions to reduce costs, improve cash flow, and deliver on customer commitments with many new customer projects globally. We are positioning Modine not only to survive the global economic recession but to emerge as a stronger Company as volumes recover. I am convinced we will look back at this period as a turning point in our Company's history, with the right strategy, along with the full support and commitment from all Modine employees, to position Modine to achieve our vision of being a leader of thermal products in the markets we serve. Thank you.

With that we turn to the Q&A portion of the call. Camesha, would you compile the roster, please?

Yes. (Operator Instructions). Your first question comes from the line of David Leiker from Robert W. Baird. Please proceed.

Good morning, everyone.

Good morning.

Good morning, David.

Two things I want to walk through a little bit. On Slide 17, you have your business segments in the future. Can you give us some perspective of these three -- there's six areas there but three that you're focusing on and three you're de-emphasizing -- of the current mix of revenue how that splits up among those two buckets?

We'll get some actual facts and figures here, but the Powertrain Cooling business segment is traditionally been about, I think, 50% of revenues.

Yes, Tom, you're right on. Powertrain Coling is about a little over 50% of the total revenue base, Engine products is about 25% of the revenue base and then the balance really is primarily our Commercial Products and Fuel Cell businesses.

Okay. And then -- so if you look at the orange areas there, as you look to de-emphasize those three, the modules in automotive, the auto EGR and then the commercial vehicle HVAC, does that end up being a third of your revenue base today or what do you think that is?

Well, I wouldn't say it's quite that amount and what I would suggest, David, is it may be in the -- call it -- 15% of the revenue. And just as a reminder, in Tom's remarks, what is going on is the de-emphasis of the automotive in -- for example, the liquid cooling area, which is being replaced with growth in the commercial vehicle markets, in particular in Europe, where we are targeted to gain market share with the Euro VI emission requirements.

Right.

And in Asia in the Five-Year Plan with off-highway and commercial truck business, so this would be more than offset -- exactly in the spot we want to focus our technologies.

No, I understand that, I'm just trying to get a handle on how much of the current revenue base are areas that you're de-emphasizing going forward, and it looks like that Passenger Thermal commercial vehicle alone is 25%.

No, no.

From the numbers you just gave us before.

Yes, again, Powertrain Cooling in total is 50% of the total revenues and this is on a go-forward basis. When you carve out the Korea business it probably bumps that up to more like 55%; Engine products more up to 27%; and then you've got the Commercial Products, David. So the numbers I quoted you the first point included Korea.

Yes, that's fine.

-- carve those out, then the percents go up.

Okay, I will do a follow up. I think I'm a little confused yet on it. As we look at Europe, obviously the end market there changed dramatically during the quarter and if you look at sequentially Q3 to Q4 the profit/loss relative to the change in revenue was much greater than you would have normally seen. Is that more than -- is there anything more there than just the market going on behind that drop in profitability?

Yes, in Europe, numbers are impacted by fairly significant restructuring costs and impairments that hit the Q3 and Q4, so if you look at the operating income in Q3 for Modine Europe, excluding, again, the impairments that we took which were, again, significant, and restructuring, the loss was about $1.9 million and then in Q4 the loss was about $4.8 million. And that difference can be explained by the sequential run rate change of revenue, which dropped from $112.9 million down to $97.4 million.

Okay. Okay, that makes sense to me, thanks. The last item here on Europe -- and I'll let you move on -- but are you doing enough in Europe? It looks from your realignment, you're looking at --

Yes. Well, Brad brought up the point that what we call our program management office, our restructuring office, has been brought to Europe with support of outside help. We established a formal office, or war room, there and are driving the same type of discipline that Brad went over that we had in North America. Obviously, with the late changing drop in Europe, versus the steady decline we've had since the 2007 conversion, we've had to accelerate that, so you're going to see dramatic changes. We've had SG&A reductions, headcount reductions that have started, managing the plant and overhead and we're going to continue to make that drive so we'll make sure that that focus stays high.

Yes, David, one of the things I said in my remarks, just to emphasize again, is we talked about what we've done to the North American business, which obviously contracted a year ahead -- or almost two years ahead -- of what happened in Europe so, as Tom mentioned, we have taken all of the practices and transferred them to Europe. We also, just because of the exact points you're raising and the need to act with great urgency, is we do have a third party that has been involved in assisting the Company on a look at its cost structure, a look at capital reinvestment, look at the manufacturing footprint and look at working capital and a lot of those actions on the cost structure side were implemented late in the fourth quarter. This is reductions out of the manufacturing plants in Europe, and cost reductions out of the SG&A structure in Europe and so those will start to flow through as we move forward.

Okay. Just a perspective in Europe, what are you -- as you put together this cost plan in Europe, what are you expecting that commercial vehicle market to do going forward?

As far as market share?

Yes. Well, no, end-market demand in the commercial vehicle market in Europe, just macro perspective?

Well, obviously we think that sales are down about 50% now from year-over-year perspective. We have a planned very slow return of that volume coming back. Clearly, we've built a very conservative model that we don't want to overspeculate on. The outlook for us is for the years of gaining market share, as you know, is a major objective of ours over there, but again, a slow return of the markets that we don't see coming back any time soon.

Okay, great. Thanks. I'll come back in here after, I'll let someone else go. Thanks.

(Operator Instructions). We have a follow-up question from David Leiker from Robert W. Baird. Please proceed.

I'll just stay on the line, I guess.

Go ahead.

In Asia, the piece that's left there, is that all China?

It's China and -- right now it's China with a growing India starting to launch right now.

Okay. And then in the discontinued operations, you reported a net income number. Is there a way you could give us some sense of what the revenue number and operating income number would have been in the discontinued operations?

Yes, we do and we recorded a loss from the Modine Korea business, shown as discontinued operations. Roughly in the fiscal 2009 fourth quarter, our Korea business, which is shown as a discontinued operation, had sales of about $26 million and pretax earnings of about $7.1 million loss. On the income statement you can see the after-tax effect of that is $6.7 million.

Yes, I suspect that there wasn't much tax in that. And then it looks like -- if I take the assets held or sale and the liabilities held for sale it looks like the book value of what you have in there is about $23 million?

That's correct.

And how much -- the impairments you took, is any of that taken in the Korea business here in the quarter?

Well, the $13 million was all associated with continuing operations.

Okay.

There was a loss, recognized on the Korean assets of about $6 million. That's obviously -- I should have pointed that out. That's part of this large pretax loss that the Company has.

It's impairment, okay. And then the other $13 million impairment, what were those for?

Roughly about $7 million was associated with our joint venture in France, which is a heat exchanger business that services the the luxury marine market, which has declined significantly in this recession.

Yes.

And then there was roughly --

-- it's hard to find something that's worse than commercial trucks in Europe, but that's it.

Yes, that would point to it. You're exactly right. And then there's $4 million to $5 million here in North America associated with certain programs.

Okay. And what do you think the timing is on the exiting the Korea business?

Well, I can say this, that we are actively marketing that business at this point. I really can't say anything further. But we clearly have interest in the business and are moving forward in the marketing process.

We're encouraged, David.

Okay. Couple of other items here. The revolver is $99 million that you're saying is the capacity. Is all of that available at the end of the quarter?

Yes. $88 million was here in North America under the revolving credit facility, the balance was in the Europe, outside. But yes, that was available for Company access.

And what's the -- of that $88 million what's the total capacity that's there, that's not -- or can you borrow the whole revolver today?

Well, we have the ability if we need to, to draw down on that revolver with obviously -- the bank, as it's standard practice these days, is not allowing companies essentially to draw down and put into their cash account. We have certain levels of minimum cash -- or maximum cash that the Company can have to abide by. but if we needed the money to fund the operations, we could do that.

Okay. And then if we look at these -- if you take the fourth quarter earnings, what do you think the cumulative -- what do you think the amount of cost savings are that you have coming ahead of you that aren't in the fourth quarter numbers. Can you give us some sense of what that size is?

Well, certainly out of our European business, which we're targeting to take roughly $10 million out of the cost structure, out of Europe. Most of that took place in the fourth quarter so there's fairly significant momentum in Europe on the SG&A and then -- which I just quantified for you. There are similar actions in the gross margin, which I can't dimension exactly, but on the overhead structured in the manufacturing plant, both in Europe, as well as coming out of some actions that we took here in North America that haven't fully flowed through.

David, we had a 20% reduction in each of our plant overhead cost structures and that process is initiated in Europe. We've had some success in some of the operations. We'll continue with that same focus so that will flow through yet, as well.

Well, what I'm trying to get at is you had a $20 million operating income loss here in the quarter and I know there are some plusses and minuses and non-recurring items there, but that annualizes to something that's pushing $80 million and I'm trying to get my arms around what kind of actions you're doing to reach breakeven within that bus -- to get that to breakeven. Do you have $80 million of cost actions that are there?

We don't have $80 million worth of cost actions. As we pointed out in the remarks, clearly, at the level of revenues that the Company's operating at right now to return to profitability is going to be a challenge, especially at the depressed level. So we are focused on, clearly, the EBITDA targets and specifically that the EBITDA that is carved out of the financial covenants and our bank agreement. So clearly, we're trying to get the Company up from where it's running right now on an adjusted EBITDA, up to a $35 million cumulative EBITDA for the end of our fiscal 2010. And certainly, as you were just pointing out, there are cost actions that we've taken. We've quantified the SG&A component of that, but there's also -- we're not banking on a significant -- any improvement in the marketplace. We ran at $255 million of revenue --

Right.

-- in the fourth quarter. So you annualize that, that's a little over $1 billion. And then we've got about $100 million worth of new business launching in fiscal 2010 at a variable contribution margin that is a combination of those, the variable contribution on that incremental volume as it comes through, coupled with the cost actions out of Europe that will, we believe, get us north of the $35 million EBITDA target.

David, on top of that, there are other margin improvement actions we're taking and working with selective customers on price realization that also are factored into our plans, as well. So we're not just looking at costs only. What can we do to increase the pure margin, as well.

Okay. That's -- okay. That's all I need. Thank you.

(Operator Instructions). At this time, there are no questions in queue. I will now turn the call back over to Ms. Fisher for closing remarks.

Thank you, operator. We appreciate everyone joining us for Modine's Q4 and full-fiscal '09 earnings call and very much look forward to updating you on the Company in our Q1 fiscal '10 call in late July. As a reminder, the webcast replay of this call will be available in approximately two hours through IR home page of modine.com, or if you prefer a telephonic replay will be available for approximately one week beginning in two hours at 888-286-8010, or international dial-in 617-801-6888, and the passcode for both the toll free and international dial-in for the telephonic replay is 69679910. Thanks and have a great day.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect and have a wonderful day.