Modine Business Report FY2006

Business Highlights

Financial overview - Consolidated (Fiscal Years Ended March 31)

in million dollars FY2006 FY2005 Factors
Sales 1,757 1,629

The increase in revenues was driven by $77 million of acquired revenues related to the May 2006 acquisition of Modine Brazil, $36 million related to favorable impact of changing foreign currency exchange rates and $15 million of organic growth. Organic revenues were driven by strength in truck and heavy-duty and industrial markets. Strong sales in the European automotive, North American truck and global heavy duty markets were offset by moderate declines in the North American automotive market, based on continued softness experienced in the market and overall price down pressures reducing sales prices per unit.

Operating Income 40 90 - The decrease in gross profit combined with the increase in SG&A expenses contributed to the $50 million decrease in operating income from $90 million in FY2005 to $40 million in FY2006.

Segment Overview
in million dollars FY2006 FY2005 Factors
Original Equipment - Americas (43% of revenues)
Sales 743 682 - Strong sales volumes in truck and heavy duty and industrial markets over the years
- Pre-buy activity in anticipation of the January 1, 2007 emission regulations primarily within the truck market.
Operating Income 54 82

- Primarily driven by the decline in gross margin related to commodity price increases and customer pricing pressures.

Original Equipment - Asia (12% of Revenues)
Sales 219 207 - Positively impacted by exchanged rate change
Operating Income (1) (1) - Primarily due to the customer pricing pressures and strike activity
Original Equipment - Europe (33% of Revenues)
Sales 589 539 - Primarily driven by growth in the heavy-duty market
Operating Income 62 72 -

New Contracts
Following contracts are awarded in FY2006

- In June 2006, the Company announced it has won a new program from International Truck and Engine Corporation to help keep its new 2007 6.4L Power Stroke Diesel Engine lube oil and diesel fuel systems running cool. This order is expected to generate sales exceeding $35.0 million per year to the Company for the three years of the program. The Company will supply high efficiency lube oil coolers and diesel fuel cooler modules, engineered specifically for diesel engines used in heavy duty F-Series pickup trucks. In addition to the base fuel cooler, the Company developed and will assemble a fuel cooler module with associated brackets. These products will be manufactured at the Company's Lawrenceburg, Tennessee facility beginning in August, 2006. The facility employs 250 workers with nearly 150,000 square feet of manufacturing and support space. International anticipates the annual volume to be more than 330,000 units. (From a press release by the company on 29.Jun 2006)

- In July 2006, the Company announced it has signed a contract to supply exhaust gas recirculation (EGR) coolers representing $45.0 million in sales over three years to Volvo, the world's largest manufacturer of heavy-duty diesel engines. The EGR cooler is part of the exhaust after treatment system that will make the engines meet the new 2007 United States Environmental Protection Agency requirements of 90 percent lower emissions for heavy-duty diesel engines starting in January, 2007..(From a press release by the company on 5.Jul 2006)

- In October 2006, the Company and DENSO Corporation announced the award of new business for the Company to provide radiators, parallel flow condensers, charge air coolers and power-steering oil coolers to support DENSO's Thermal Systems business. This partnership will initially result in excess of $50 million sales per year to the Company starting in 2009. (From a press release by the company on Sep.26)

- In November 2006, the Company announced its Fuel Cell Products Group will deliver specially designed cooling modules, as well as other ancillary components, for the first hydrogen powered buses in Brazil. The Company will be cooling the complete fuel cell system, as well as all the electric drivetrain components for this project, sponsored by the Ministry of Mines and Energy, United Nations Development Program, and EMTU/SP (Sao Paulo Metropolitan Urban Transport Company). (From a press release by the company on Nov.14)

- In January 2007, the Company announced it has won more than $143.0 million in various programs from Hyundai Kia Automotive Group based in Seoul, South Korea to supply parts for new Hyundai and Kia commercial vehicles. The $143.0 million is a combination of new and replacement business that is cumulative over five years and launches from the model years 2006 through 2008. The Modine heat transfer solutions that will be used include: APTC heaters; EGR (exhaust gas recirculation) coolers; oil coolers; HVAC (heating, ventilating and air conditioning) systems; condensers; and charge air coolers. (From a press release by the company on Jan. 5 2007)

- In April 2006, the Company announced that it has reached a tentative agreement to acquire the remaining 50 percent of Radiadores Visconde it does not already own. Radiadores Visconde generated approximately $80 million in revenues in its fiscal year ended December 31, 2005. Radiadores Visconde, established in 1963 and based in Sao Paulo, Brazil, provides thermal management solutions to the automotive, truck, agricultural and construction equipment, and industrial application markets, as well as the automotive aftermarket for export and for distribution throughout Brazil.

- In December 2006, the Company announced its intention to close its Toledo, Ohio facility within the next eight to nine months as current programs supported by this plant end. The facility manufactures automotive components and currently employs 16 individuals. The plant closure will not have a material effect on Modine's financial results. (From a press release by the company on Dec. 12 2006)


R&D Expenditure
in million dollars March 2007 March 2006
R&D expenditure 82.5 79.6
-In FY2006, the Company increased its R&D spending by 3.6 percent from FY2005

R&D Structure
-Modine ended the year with 2,347 worldwide patents, an increase of 143 patents over the prior year.
- The Company's R&D efforts have been focused on new products and technologies to respond to market trends due to environmental legislation as well as to enhance energy efficiency and fuel economy.
- Legislation on NOx and particulate emissions for diesel engines continues to provide market opportunities for the Company through products such as EGR's. Many new heat exchanger and cooling module platforms have been developed in order to help its customers comply with this legislation.
- A newly formed HVAC group has grown out of the R&D area. Knowledge developed from R&D activities will be used to develop improved HVAC product platforms, including products to comply with potential anti-idling legislation for heavy duty vehicles.

In April 2006, the Company announced it has created a product-focused group to support the company's efforts targeting the heating, ventilating, and air conditioning (HVAC) equipment needs of the truck and off-highway markets. The company also announced a plan to relocate its Harrodsburg, Kentucky-based research and development facility into its technology center in Racine, Wisconsin. The new group's R&D activities, along with systems and applications engineering, will be located in Racine. HVAC production will remain in Harrodsburg, Kentucky.

Investment Activities

Capital Expenditures

in thousand dollars March 2007 March 2006 March 2005
Original Equipment-Americas 28,825 19,945 18,654
Original Equipment-Asia 8,681 5,504 2,916
Original Equipment-Europe 22,096 28,063 33,989
Commercial HVAC & R 6,824 3,946 3,959
Other 1,270 3,486 3,709
Corporate and administrative 15,114 18,341 3,100
Eliminations (58) - -
Capital expenditures-continuing operations 82,752 79,285 66,327
Capital expenditures-discontinued operations - 585 2,240
Total capital expenditures 82,752 79,870 68,567

Capital expenditures were $82.8 million for FY2006, which were $2.9 million higher than the prior year. The increase in capital expenditures primarily relates to tooling and equipment purchases in conjunction with new global program launches of new truck programs in North America which incorporates the new emission restrictions subsequent to the January 1, 2007 change.

Overseas Investment
- In November 2006, the Company announced that its Board of Directors approved the funding for a new manufacturing facility in China. Modine will invest more than $16 million in the facility, which is expected to be operational early in calendar 2008 and will serve Modine global customers in the region. The Board also voted to fully fund $20.0 million for Modine's previously announced new facility in Nuevo Laredo, Mexico, that should be completed in April, 2008. Both facilities have secured business that will begin production when the plants open. (From a press release by the company on Nov.18 2006)

- In December 2006, the Company announced that its Board of Directors has approved a $14.0 million investment to build a manufacturing facility in the Chennai area of India. Products manufactured in the facility will serve India's domestic commercial vehicle, off-highway, domestic bus air conditioning (HVAC) markets, and additional markets, as demand for its products grow. The investment will be made over a three-year period beginning the fiscal year of 2005. (From a press release by the company on Dec. 12 2006)

- In January 2007, the Company announced that its Board of Directors has approved a $12.0 million investment to build a second facility in Hungary, supporting growing demand for aluminum heat transfer products from global customers such as Caterpillar, Volvo, Nacco and AGCO in Europe, and extending Modine's global low cost country manufacturing footprint. (From a press release by the company on Jan. 16 2007)