Good day, ladies and gentlemen and welcome to the Q2 2013 Modine Manufacturing Company Earnings Conference Call. My name is Casey and I will be your operator for today. (Operator Instructions) As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Kathy Powers, Vice President, Treasurer and Investor Relations. Please proceed.

Thank you for joining us today for Modine’s Second Quarter Fiscal 2013 earnings call. With me today are Modine’s President and CEO, Tom Burke and Mick Lucareli, our Vice President, Finance and Chief Financial Officer. We will be using slides with today’s presentation. Those links are available through both the webcast link as well as a PDF file posted on the investor relations section of our company website, 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. On slide two, is an outline for today’s call. Tom and Mick will provide comments on our second quarter results and update our fiscal 2013 guidance. At the end of the call there will be a question-and-answer session. On slide three is our noticed regarding forward-looking statements. I want to remind you that this call may contain forward-looking statements as outlined in today’s earnings release as well as in our company’s filing with the Securities and Exchange Commission. With that it is my pleasure to turn the call over to Tom Burke.

Thank you, Kathy, and good morning everyone. We continue to see weakening in our markets during the quarter resulting in a 14% decrease in sales as compared to the prior year or 8% excluding currency effects. This includes the impact of volume declines in the commercial vehicle markets in North America, Europe and South America, and in the construction equipment market in Asia along with the planned wind down of automotive programs in Europe and Asia. Although we cannot control the market conditions, we are doing all that we can to control costs and effectively manage our business through these challenging times. This includes implementing our restructuring plan in Europe, continuing to manage our manufacturing operations in a very efficient manner and minimizing all discretionary spending. Actions takes to date include shortening work weeks in certain manufacturing facilities leading to lower labor cost and energy cost; reducing or eliminating temporary staff and cutting travel and discretionary expenditure. In short, we are running the business in a very frugal yet responsible manner and will continue to do so. Our earnings during the quarter included $18.1 million impairment and restructuring charges primarily related to the write-down of assets in Europe and North America. Excluding impairment and restructuring charges, we reported operating income of $11.3 million down 7.5% over the second quarter of last year. Also excluding charges, we reported earnings per share of $0.13, up $0.10 from last year. Given the significant decline in our end markets, I am very pleased with our results for the quarter. Mick will provide some more details on our financial results in a few minutes but first I would like to comment briefly on our segment results. Turning to page five, the North American market remains mixed with relative stability in the off-highway markets and a…

Good morning, everyone. During the quarter we clearly experienced further weakening in our end markets which coupled with the wind down of certain automotive programs, led to lower year-over-year revenues. In fact, all five business segments experienced flat to down revenues. Looking at slide seven, second quarter sales decreased $57 million or 14% and like many companies the stronger dollar is impacting the results of our foreign locations. Excluding the FX impact, sales would have declined $33 million or 8%. Gross margin declined slightly by 20 basis points to 15.5%. On a positive note, we were able to limit our downside conversion to only 17% on the volume. Several items impacted our gross margin during the quarter. Negative impacts were the lower volumes and higher warranty expenses. And these were offset by a lower material cost, improved pricing and mix. Our teams still remain focused on cost control. SG&A decreased by $9 million or 18% year-over-year. As a reminder our prior year results include a $6 million loss due to the foreign exchange translation on intercompany loans. Also I would like to point out that we recorded $18 million in impairment and restructuring charges during the quarter. This had a $0.39 impact on EPS. Excluding impairment and restructuring charges, EPS was $0.13 during the quarter compared to $0.03 last year. Turning to slide eight. We have a summary table that highlights the main restructuring cost incurred so far this year. As you know we are in the process of shifting our European focus away from automotive module programs and towards heavy duty programs especially commercial vehicles. In the Q2 column you will see a $16.7 million non-cash impairment and $1.3 million of cash restructuring. During the quarter we made decisions to accelerate the sales or closure of certain facilities in…

Thank, Mick. Please turn to page 16. Last quarter we outlined three significant headwinds that are impacting our business. First, lower sales volumes due to economic conditions in our major markets including commercial vehicles in Europe and Brazil, excavators in China and the data center cooling market in the UK. This quarter we also saw the initial impact of lower commercial vehicle sales in North America. At this point we can't predict when those conditions will improve. Secondly, the planned wind down of automotive programs in Europe and China, which continues as anticipated. And third, the continuing impact of the stronger U.S. dollar on our revenues earnings which remains a challenge. We told you last quarter that we expected these conditions to continue to impact our top line in the second quarter, and indeed they have. We have also expected to see market stabilization and an improvement in the second half of the year. Unfortunately though, market forecasts continue to be lower. As a result, and as Mick noted, we are lowering our full year guidance. As I said earlier, we recognize that we cannot control the impact of the global economic challenges are having on our end markets. However, there are things we can control and you can be assured we are doing just that. We are taking actions to control costs and are aggressively working towards implementing our European restructuring program including turning idle or underutilized assets into cash where possible. And finally, our teams continue to focus on operational improvements and the many new program launches in all regions, so that we can meet our long-term targets. And with that we would like to take your questions?

(Operator Instructions) And your first question comes from the line of Ann Duignan from JPMorgan. Please go ahead.

Just a couple of questions, really. You know you talked about, in Brazil, the aftermarket being weak. Could you expand on that? We know about pre-buy on the truck side but weakness in the aftermarket is a little bit surprising just given economic activity down there?

Yeah. No, it has been a little slower. I think there has been maybe some competition that’s come on a little bit but we are not seeing any significant changes. Nothing, if you look at the model closely and nothing that makes us worried about the long-term viability of that business. So we focus on all makes so it’s a matter of being able to get parts to points of use as fast as possible. That’s a key element in that market. And so we are concentrating on improving it and we don’t see an ongoing weakness. We think it’s a one quarter aberration actually.

Okay. And then Europe, you know we got the order data for Germany this morning and it was extraordinarily weak. You know are you comfortable with the guidance you have given today on the back of what we are hearing out of places like Germany at this very moment in time.

Well, Ann, we know it’s weak and it’s a great question, one that we are watching very closely. We kind of have a double issue with us as we are launching Euro 6 compliant systems now for trucks going into our customers and our actual truck base is pretty small for Euro 5. So as we sales slowdown, you know the mix between Euro 5 and Euro 6 is a question we are watching very closely. So we are going to have to keep an eye on that and clearly we are hoping to see a smooth transition like Europe normally does between emission stages. And they will possibly, whatever they do to help incentive that, that would be a positive for us. But it’s a very good question and one we are looking at very seriously.

Yeah, because I was surprised you said that there was some delay in launching Euro 6 products, but it is a requirement. And I am curious, is that signaling to us that OEMs are anticipating a big pre-buy and then a significant slowdown or what do you think is going there, Tom?

Again, at the panel over the truck show it was a significant discussion point amongst all the producers. I know of the association, the trucking association in Germany was focused very much on making sure that those that were bringing new products to market early were not penalized because of pre-buy types of emotions or whatever there might be going on the market. So I think I have not seen anything to suggest that there is going to be a pre-buy. I think there is a natural humanistic that there could be. Again, we will have to wait and see how this plays out.

Yeah. And switching gears a little bit to the more positive side. Heavy duty truck orders, somewhat of a positive surprise last week. What are you hearing from your OEM customers around that order numbers? Any increase in build rates for Q4? Are these orders for next year? Just you are closer to the market than we are so would be interested to get your insight.

Yeah, obviously we got about a -- you know we are looking at these things about a quarter at a time. Right now we don’t see anything going forward into our next fiscal year. Right now the orders seem stable through the end of the year, okay, which is one of the worries that we had. So I look at that as a positive, just to your point. We thought there might be some production drop -- drop production coming up, but with that data that came in earlier as you mentioned, very encouraging and we think we will see stability through the holiday periods, at least that’s our hope. So any further guidance forward, I have not picked anything up.

Okay. And then I think you mentioned that you were seeing some green shoots in Asia. If you could just give us a little bit more color on that?

Yeah. 45% down from year-over-year is a pretty deep hole but giving stability was important for us to see. And we are starting to see that the things have flattened out and we are starting to see some indications of some orders dropping in. Again, nothing to say that the ramp up is going to be as fast the ramp down but we are hopeful that this indicates that possibly with the changes going on in China specifically, potentially added stimulus with the new leadership in place that we can see some -- see us gaining some ground over there with the markets coming back. But right now we are just happy to see stability and things that we can plan. As Mick pointed out, we have got a lot of work going in that region. Get ourselves our breakeven lowered so that we can take advantage of any volume coming up.

Okay. And then finally, a quick follow-up on your SG&A. I mean you have done a great job of pulling cost out. Can you sustain the business at these absolute dollar levels of SG&A or at some point you are going to have to start to let that dwindle up?

Well, I am going to let Mick give you the specifics on that. I am going to say that we have done a very good job of holding our restructured plans since the recession of 2008-2009. We have taken over 20% of our cost structure out of the company and we have held on to that. We are very very diligent making sure the resources we had are there to return but, Mick, you might well add a perspective from your side on how that’s shaping out.

Yeah, I think it’s a great question and it’s a one we talk about nearly daily here. Clearly, the short answer to your question is, at the current run rate of volume for our company we can sustain this level of SG&A spending that we have been on. The balancing act is on the positive side we continue to get a lot of customer interest for us to work on new programs and products. And it’s trying to walk that balance between letting some SG&A back into the company for a long-term potential while clearly managing the expectations in the short-term.

So at least over the course of the next couple of quarters we should be forecasting roughly flattish SG&A. Is that the way to think about this?

Yeah. I would say the run rate we had in Q1, Q2 was a little bit lower for a couple of items that I walked through. But I would say that 43 million to 44 million-ish run rate is about where we will sustain -- we can sustain it. And then we won't start investing more in SG&A until we see some light at the end of the tunnel with our end market volumes.

Okay. And one of the warranty issue in North America, what was that? And then I will get back in line.

As an OE supplier we are very disciplined in managing our warranty obligations and we are seeing aggressive warranty recovery effort from some OEs. And if you get inside of our systems, they are very complicated, Ann, between subsystem and component responsibility and the like. In some cases we do find a commercial resolution that both parties deem to be a fair adjustment. But this was a specific accrual adjustment on a specific matter that we made adjustment. We review our exposure every quarter, in this case we had a specific item that came up that we took a charge. I can't give you any details on that at the moment but we feel as far as any material risk to that level, we feel very confident we are in the right position.

Okay. And you are not worried about any other OEMs coming back

No, we are not worried about any OEMs and it’s just something that we do is very much part of our standard work, is making sure that terms and conditions are well understood with our customers and that we understand what we are responsible for and pay attention closely to how our components are performing inside our customers’ vehicles and subsystems.

Yeah. Ann, as Tom said, there is no broad -- we have no concern about a broad-based warranty issue. This was specific. Just, as Tom said, the OEs are clearly getting very aggressive any time anything goes wrong with a system. They are clearly leaning on all suppliers more than we have ever seen. So we will defend our products and our position as aggressively as possibly.

Okay. That’s good color. I am surprised that they could get any more aggressive than they already were and so good luck with that. I will get back in line in the interest of everybody else who is on the call. Thanks.

Your next question comes from the line of David Leiker from Baird. Please go ahead David.

This is [Joe] on the line for David. If I can just focus on calendar 2013 in Europe. We have been hearing kind of really the expectations that first half maybe down double-digits volumes and then second half up double-digits for roughly a flat volume environment. Is that directionally the way you see the market now consistent with maybe what you are planning for?

No, I think that we can't really go further into next calendar year. Right now we would say that double-digit down in the first half of the year corresponds to what we are seeing in our releases. Any further than that right now, I can't give you any color.

And then with the Origami launch, I mean is there some matter in -- I guess it’s not surprising with that one in those times of economic duress the OEMs will try to delay their new technology launches, their new platforms. Is that kind of what you are seeing or maybe the end of your fiscal year you don’t really see the original volume you are expecting on Origami but in 9 to 12 months that volume is going to come through.

Well, I have no doubt. I think in 9 to 12 months the volumes would have come through. I think you have major launches on major new truck platforms that’s going on which is dynamic. Then you have a market that has -- the compliance requirement is until January 2014. You have got a mix of whose got Euro 5, Euro 6, so there could be some hesitation on people jumping into Euro 6 right away, compliant trucks. So there is all sort of dynamics. And that was -- I know David was picking that up very well when he was in Hannover at the truck show. Lots of discussion as to how that dynamics could play out between the conversion, the economy and the split in the market on who has got compliant trucks and who doesn’t.

Yeah, Joe, just with regards to our guidance. Nothing has changed with the business as a program so we have been awarded from our July call, the real changes in the market as you guys well know, people are still expecting a 280,000 plus Class 8 market which has clearly dropped to the 260. And then also you nailed it, the European truck market expectations and productions have declined. So those were the two primary drivers for us with our volumes. As Tom said, those programs are still there. They will still launch and it’s just the timing of when they well get to mature volumes.

Okay. That’s makes a lot of sense. Just switching to some margin questions. As I look at it I think the margin performance was pretty strong given everything you saw on the top lines. So with that context I unfortunately have to ask a negative question. Just looking at North America, with the relative performance there versus the declines you saw in Europe and South America, are there any odd items going on that the margin would have been as well as it was. I may be thinking about customer mix and volume declines you may have seen at one of our larger medium-duty customers during the quarter.

Yeah. It’s Mick. And you might have hopped on during part of our introductory comments that in North America there was a onetime warranty adjustment. A $1.7 million in North America, if you adjust for that I think you would find both the downside conversion was pretty good and also the gross margin held up.

Okay. So you are right on this one. And then there was a $5 million item in Europe I believe, so are those the two kind of one-off but recurring items that are still on the numbers?

Yeah. So on the positive side we actually had a huge increase in gross profit in Europe and we want to make sure that you guys understand that was good news for Modine and that was a cash pricing settlement. And that won’t -- part of that won’t continue, part will go forward going forward but about $5 million was one time in the quarter. And then on the negative in North America unfortunately we had the warranty adjustment of $1.7 million that artificially pulled down North America.

(Operator Instructions) We appear to have no questions in the queue and therefore I would like to turn it back over to Kathy Powers for closing remarks. Please go ahead, Kathy.

Thank you. This concludes today's call. Thank you for joining us this morning and thanks for your interest in Modine. Good bye.

Thank you all for participation in today's conference. This concludes the presentation. You many now disconnect. Good day.