What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-05 · 224 added, 124 removed, 392 unchanged (47% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended June 30, 2020 and 2019

For the three and six months ended September 30, 2020 and 2019

(In millions, except per share amounts)

Three months ended June 30,

Three months ended

September 30,

Six months ended

September 30,

Cost of sales

1 unchanged sentence

Restructuring expenses

Operating (loss) income

Operating income

Interest expense

Other expense – net

(Loss) earnings before income taxes

Benefit (provision) for income taxes

Net (loss) earnings

Net earnings attributable to noncontrolling interest

Ne t (loss) earnings attributable to Modine

Net (loss) earnings per share attributable to Modine shareholders:

Earnings (loss) before income taxes

Provision for income taxes

Net earnings (loss)

Net (earnings) loss attributable to noncontrolling interest

Net earnings (loss) attributable to Modine

Net earnings (loss) per share attributable to Modine shareholders:

Weighted-average shares outstanding:

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended June 30, 2020 and 2019

For the three and six months ended September 30, 2020 and 2019

(In millions)

Three months ended June 30,

Net (loss) earnings

Three months ended

September 30,

Six months ended

September 30,

Net earnings (loss)

Other comprehensive income (loss):

2 unchanged sentences

Cash flow hedges, net of income taxes of $ 0.2 , $ 0.1 , $ 0.5 and $ 0.4 million

Total other comprehensive income

Total other comprehensive income (loss)

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interest

Comprehensive (income) loss attributable to noncontrolling interest

Comprehensive income (loss) attributable to Modine

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2020 and March 31, 2020

September 30, 2020 and March 31, 2020

(In millions, except per share amounts)

June 30, 2020

September 30, 2020

March 31, 2020

32 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended June 30, 2020 and 2019

For the six months ended September 30, 2020 and 2019

(In millions)

Three months ended June 30,

Six months ended September 30,

Cash flows from operating activities:

Net (loss) earnings

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

9 unchanged sentences

Proceeds from disposition of assets

Proceeds from sale of investment in affiliate

Net cash used for investing activities

6 unchanged sentences

Dividend paid to noncontrolling interest

Net cash provided by financing activities

Net cash (used for) provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash – beginning of period

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three months ended June 30, 2020 and 2019

For the three and six months ended September 30, 2020 and 2019

(In millions)

_________________

Accumulated other

9 unchanged sentences

Balance, June 30, 2020

Net earnings attributable to Modine

Other comprehensive income

Stock options and awards

Stock-based compensation expense

Net earnings attributable to noncontrolling interest

Balance, September 30, 2020

Accumulated other

10 unchanged sentences

Balance, June 30, 2019

_________________

Net loss attributable to Modine

Other comprehensive loss

Stock-based compensation expense

Net loss attributable to noncontrolling interest

Balance, September 30, 2019

The notes to condensed consolidated financial statements are an integral part of these statements.

5 unchanged sentences

The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.

Results for the first three months of fiscal 2021 are not necessarily indicative of the results to be expected for the full year.

Results for the first six months of fiscal 2021 are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10-K for the year ended March 31, 2020.

1 unchanged sentence

See Note 17 for additional information regarding the risks and uncertainties to our business resulting from this global pandemic.

Chief Executive Officer (“CEO”) Transition

In August 2020, Thomas A.

Burke stepped down from his position as President and CEO.

The Board of Directors launched a search for a new CEO and named Michael B.

Lucareli, the Company’s Vice President, Finance and Chief Financial Officer, as Interim President and CEO.

As a result of Mr.

Burke's departure and in connection with the search for his successor, the Company recorded costs totaling $ 5.5 million during the second quarter of fiscal 2021.

These costs, which were recorded as selling, general and administrative (“SG&A”) expenses at Corporate, primarily consisted of severance and benefit-related expenses based upon the terms of Mr.

Burke's transition and separation agreement and costs directly associated with the CEO search, partially offset by the impact of Mr.

Burke's forfeited stock-based compensation awards.

Sale of Nikkei Heat Exchanger Company, Ltd.

During the second quarter of fiscal 2020, the Company completed the sale of its 50 percent ownership interest in NEX for a selling price of $ 3.8 million.

Prior to the sale, the Company accounted for its investment in this non-consolidated affiliate using the equity method.

As a result of this sale, the Company recorded a gain of $ 0.1 million, which included the write-off of accumulated foreign currency translation gains of $ 0.6 million, within other income and expense on the consolidated statements of operations.

New Accounting Guidance

3 unchanged sentences

The adoption did not have a material impact on the Company’s consolidated balance sheets, statements of operations or statements of cash flows.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Revenue Recognition

5 unchanged sentences

See Note 19 for additional information regarding the Company’s operating segments.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Three months ended June 30 , 2020

Three months ended June 30 , 2019

Three months ended September 30, 2020

Three months ended September 30, 2019

Primary end market:

3 unchanged sentences

Commercial vehicle

Automotive and light vehicle

Geographic location:

2 unchanged sentences

Products transferred over time

Six months ended September 30, 2020

Six months ended September 30, 2019

Primary end market:

Commercial HVAC&R

Data center cooling

Industrial cooling

Commercial vehicle

Automotive and light vehicle

Geographic location:

Timing of revenue recognition:

Products transferred at a point in time

Products transferred over time

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Contract Balances

Contract assets and contract liabilities from contracts with customers were as follows:

June 30, 2020

September 30, 2020

March 31, 2020

2 unchanged sentences

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed.

The $ 3.4 million decrease in contract assets during the first three months of fiscal 2021 primarily resulted from a decrease in contract assets for revenue recognized over time.

The $ 7.1 million decrease in contract assets during the first six months of fiscal 2021 primarily resulted from a decrease in contract assets for revenue recognized over time.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling.

The $ 1.4 million increase in contract liabilities during the first three months of fiscal 2021 was primarily related to customer contracts for which payment was received in advance of the Company’s satisfaction of performance obligations.

The $ 2.8 million increase in contract liabilities during the first six months of fiscal 2021 was primarily related to customer contracts for which payment was received in advance of the Company’s satisfaction of performance obligations.

Fair Value Measurements

6 unchanged sentences

Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.

8 unchanged sentences

The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.

The fair values of the investments and obligations for the Company’s deferred compensation plans each totaled $ 3.7 million and $ 3.8 million as of June 30 , 2020 and March 31, 2020, respectively.

The fair values of the investments and obligations for the Company’s deferred compensation plans each totaled $ 3.5 and $ 3.8 million as of September 30 , 2020 and March 31, 2020, respectively.

The fair value of the Company’s long-term debt is disclosed in Note 16.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Pension cost included the following components:

Three months ended

September 30,

Six months ended

September 30,

Interest cost

2 unchanged sentences

Net periodic benefit cost

During the three months ended June 30, 2019, the Company contributed $ 0.9 million to its U.S.

During the six months ended September 30, 2019, the Company contributed $ 1.7 million to its U.S.

pension plans.

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The Company expects to contribute approximately $ 20.0 million to its U.S.

pension plans during fiscal 2021.

pension plans during the second half of fiscal 2021.

Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following:

(1) a long-term incentive compensation program for officers and other executives that consists of stock awards, stock options, and performance-based stock awards granted for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.

(1) a long-term incentive plan (“LTIP”) for officers and other executives that consists of stock awards, stock options, and performance-based stock awards granted for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.

The Company calculates compensation expense based upon the fair value of the instruments at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards.

The Company recognized stock-based compensation expense of $ 0.7 million and $ 1.7 million for the three months ended June 30,2020 and 2019, respectively.

The Company typically grants stock-based awards to officers and other executives during the first quarter;

however, for fiscal 2021, it has deferred these grants until later in the fiscal year.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

As of June 30, 2020, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be amortized over the remaining service periods, was as follows:

The Company recognized stock-based compensation expense of $ 1.4 million and $ 2.7 million for the three months ended September 30,2020 and 2019, respectively.

The Company recognized stock-based compensation expense of $ 2.1 million and $ 4.4 million for the six months ended September 30, 2020 and 2019 , respectively.

As of September 30, 2020, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be amortized over the remaining service periods, was as follows:

Weighted-Average

4 unchanged sentences

Performance stock awards

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

In October 2020, the Company granted stock-based awards to officers and other executives under the LTIP.

The Company granted 0.4 million each of restricted stock awards and stock options, with fair values of $ 6.62 and $ 3.32 per award, respectively.

In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants.

The performance metrics for the cash awards are based upon a target three-year average cash flow return on invested capital and a target three-year average revenue growth at the end of the three-year performance period ending March 31, 2023.

These performance metrics are the same as those contained within the fiscal 2020 and 2019 performance-based stock awards.

Restructuring Activities

During the first quarter of fiscal 2021, the Company recorded $ 1.7 million of severance expenses related to plant consolidation activities in China within the CIS segment.

The Company is currently transferring production from the manufacturing facility in Zhongshan, China to another CIS segment manufacturing facility in China, which it expects to complete in the second or third quarter of fiscal 2021.

The Company also implemented targeted headcount reductions during the first quarter of fiscal 2021, the most significant of which were in North America in the HDE and CIS segments.

The headcount reductions were in response to lower market demand and support the Company’s objective of reducing operational and selling, general and administrative (“SG&A”) cost structures.

The Company is currently transferring production from its manufacturing facility in Zhongshan, China to another CIS segment manufacturing facility in China, which it expects to complete in the third quarter of fiscal 2021.

As a result of the plant consolidation activities in China, the Company recorded $ 1.3 million and $ 3.0 million of severance expenses during the three and six months ended September 30, 2020, respectively.

In addition, the Company is in the process of transferring product lines to its CIS manufacturing facility in Mexico.

The Company’s restructuring actions during the first quarter of fiscal 2020 consisted primarily of targeted headcount reductions and plant consolidation activities.

During the first quarter of fiscal 2021, the Company implemented targeted headcount reductions, the most significant of which were in North America in the HDE and CIS segments.

The headcount reductions were in response to lower market demand and support the Company’s objective of reducing operational and SG&A cost structures.

The Company’s restructuring actions during the first six months of fiscal 2020 consisted primarily of targeted headcount reductions and plant consolidation activities.

The fiscal 2020 headcount reductions were primarily in Europe within the Automotive segment and in the Americas within the HDE segment.

Restructuring and repositioning expenses were as follows:

Three months ended June 30,

Three months ended

September 30,

Six months ended

September 30,

Employee severance and related benefits

6 unchanged sentences

Changes in accrued severance were as follows:

Three months ended June 30,

Three months ended September 30,

Beginning balance

1 unchanged sentence

Ending balance

Six months ended September 30,

Beginning balance

Effect of exchange rate changes

Ending balance

Other Income and Expense

1 unchanged sentence

Three months ended

September 30,

Six months ended

September 30,

Interest income

2 unchanged sentences

Equity in earnings of non-consolidated affiliate (c)

Total other income (expense) - net

Total other expense - net

Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on certain foreign currency exchange contracts .

Net periodic benefit cost for the Company’s pension and postretirement plans is exclusive of service cost.

The Company sold its ownership interest in Nikkei Heat Exchanger Company, Ltd.

during the second quarter of fiscal 2020.

The Company’s effective tax rate for the three months ended June 30, 2020 and 2019 was 2.3 percent and 26.1 percent , respectively.

The effective tax rate for the first quarter of fiscal 2021 is lower than the first quarter of the prior year, primarily due to changes in the mix and amount of foreign and U.S.

The Company has recorded valuation allowances against its net deferred tax assets to the extent it has determined it is more likely than not that such assets will not be realized in the future.

As of June 30, 2020, valuation allowances against deferred tax assets in certain foreign jurisdictions and the U.S.

The Company sold its ownership interest in NEX during the second quarter of fiscal 2020.

See Note 1 for additional information.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The Company’s effective tax rate for the three months ended September 30, 2020 and 2019 was 61.0 percent and ( 336.4 ) percent , respectively.

The Company’s effective tax rate for the six months ended September 30, 2020 and 2019 was 96.5 percent and 66.0 percent, respectively.

The effective tax rates for the fiscal 2021 periods were negatively impacted by an income tax charge related to a valuation allowance on deferred tax assets in the U.S., as further described below, and favorably impacted by the global intangible low taxed income (“GILTI”) provision of the Tax Cuts and Jobs Act, as finalized regulations were enacted in the second quarter.

In the fiscal 2020 periods, the effective tax rates were favorably impacted by the release of an unrecognized tax benefit.

During the second quarter of fiscal 2021, the Company recorded an income tax charge of $ 6.6 million to increase its valuation allowance on certain U.S.

deferred tax assets after determining it was more likely than not the deferred tax assets would not be realized based upon finalized foreign tax credit regulations enacted during the quarter.

As of September 30, 2020, valuation allowances against deferred tax assets in certain foreign jurisdictions and the U.S.

totaled $ 30.9 million and $ 22.0 million , respectively.

3 unchanged sentences

and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances, which could have a material adverse effect on the Company’s results of operations and financial condition.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate.

3 unchanged sentences

The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2021.

Earnings Per Share

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

E arnings Per Share

The components of basic and diluted earnings per share were as follows:

Three months ended

Net (loss) earnings attributable to Modine

September 30,

Six months ended

September 30,

Net earnings (loss) attributable to Modine

Weighted-average shares outstanding - basic

1 unchanged sentence

Weighted-average shares outstanding - diluted

(Loss) earnings per share:

Net (loss) earnings per share - basic

Net (loss) earnings per share - diluted

For the three months ended June 30, 2020 and 2019, the calculation of diluted earnings per share excluded 1.4 million and 0.8 million stock options, respectively, because they were anti-dilutive.

For the three months ended June 30, 2020 and 2019, the calculation of diluted earnings per share excluded 0.4 million and 0.2 million restricted stock awards, respectively, because they were anti-dilutive.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Earnings (loss) per share:

Net earnings (loss) per share - basic

Net earnings (loss) per share - diluted

For the three and six months ended September 30, 2020, the calculation of diluted earnings per share excluded 1.0 million and 1.1 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for both the three and six months ended September 30, 2020 excluded 0.4 million restricted stock awards because they were anti-dilutive.

For the three and six months ended September 30, 2019, the calculation of diluted earnings per share excluded 0.9 million and 0.8 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for both the three and six months ended September 30, 2019 excluded 0.5 million restricted stock awards because they were anti-dilutive.

For the three months ended September 30, 2019, the total number of potentially-dilutive securities was 0.3 million.

However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the following:

June 30, 2020

September 30, 2020

March 31, 2020

2 unchanged sentences

Total cash, cash equivalents and restricted cash

Restricted cash, which is reported within other current assets and other noncurrent assets in the consolidated balance sheets, consists primarily of deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreement.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Inventories consisted of the following:

June 30, 2020

September 30, 2020

March 31, 2020

5 unchanged sentences

Property, plant and equipment, including depreciable lives, consisted of the following:

June 30, 2020

September 30, 2020

March 31, 2020

5 unchanged sentences

Net property, plant and equipment

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Goodwill and Intangible Assets

2 unchanged sentences

Effect of exchange rate changes

Goodwill, June 30, 2020

Goodwill, September 30, 2020

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Intangible assets consisted of the following:

June 30, 2020

September 30, 2020

March 31, 2020

2 unchanged sentences

Total intangible assets

The Company recorded amortization expense of $ 2.1 million and $ 2.2 million for the three months ended June 30, 2020 and 2019, respectively.

The Company recorded amortization expense of $ 2.1 million and $ 2.2 million for the three months ended September 30, 2020 and 2019, respectively.

The Company recorded amortization expense of $ 4.2 million and $ 4.4 million for the six months ended September 30, 2020 and 2019 , respectively.

The Company estimates that it will record $ 4.2 million of amortization expense during the remainder of fiscal 2021 and approximately $ 8.0 million of annual amortization expense in fiscal 2022 through 2026.

1 unchanged sentence

Changes in accrued warranty costs were as follows:

Three months ended June 30,

Three months ended September 30,

Beginning balance

3 unchanged sentences

Ending balance

Six months ended September 30,

Beginning balance

Warranties recorded at time of sale

Adjustments to pre-existing warranties

Effect of exchange rate changes

Ending balance

MODINE MANUFACTURING COMPANY

2 unchanged sentences

Lease Assets and Liabilities

The following table provides a summary of leases recorded on the consolidated balance sheet.

The following table provides a summary of leases recorded on the consolidated balance sheets.

Balance Sheet Location

June 30, 2020

September 30, 2020

March 31, 2020

12 unchanged sentences

Long-term debt

Finance lease ROU assets were recorded net of accumulated amortization of $ 1.9 million and $ 1.8 million as of June 30, 2020 and March 31, 2020, respectively.

Finance lease right of use (“ROU”) assets were recorded net of accumulated amortization of $ 2.1 million and $ 1.8 million as of September 30, 2020 and March 31, 2020, respectively.

Components of Lease Expense

The components of lease expense were as follows:

Three months ended June 30,

Three months ended September 30,

Six months ended September 30,

Operating lease expense (a)

3 unchanged sentences

Total lease expense

For both the three months ended June 30, 2020 and 2019, operating lease expense included short-term lease expense of $ 0.9 million.

F or the three and six months ended September 30, 2020, operating lease expense included short-term lease expense of $ 0.9 million and $ 1.8 million, respectively.

For the three and six months ended September 30, 2019, operating lease expense included short-term lease expense of $ 1.0 million and $ 1.9 million, respectively.

Variable lease expense was not significant.

4 unchanged sentences

Fiscal year of maturity

June 30, 2020

September 30, 2020

March 31, 2020

10 unchanged sentences

Borrowings under both the revolving credit and term loan facilities bear interest at a variable rate, based upon the applicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as described below.

At June 30, 2020, the weighted-average interest rates for revolving credit facility borrowings and the term loans were both 2.8 percent.

At June 30, 2020, the Company’s revolving credit facility borrowings totaled $ 125.9 million and domestic letters of credit totaled $ 5.7 million, resulting in available borrowings under the revolving credit facility of $ 118.4 million.

The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings of $ 25.2 million and $ 14.8 million at June 30, 2020 and March 31, 2020, respectively.

At September 30, 2020, the weighted-average interest rates for revolving credit facility borrowings and the term loans were both 2.8 percent.

At September 30, 2020, the Company’s revolving credit facility borrowings totaled $ 52.9 million and domestic letters of credit totaled $ 5.7 million, resulting in available borrowings under the revolving credit facility of $ 191.4 million.

The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings of $ 17.1 million and $ 14.8 million at September 30, 2020 and March 31, 2020, respectively.

Provisions in the Company’s credit agreement, Senior Note agreements, and various foreign credit agreements require the Company to maintain compliance with various covenants and include certain cross-default clauses.

8 unchanged sentences

The leverage ratio covenant requires the Company to limit the ratio of its consolidated indebtedness, less a portion of its cash balance, both as defined by the credit agreements, to its consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).

The leverage ratio covenant limit in fiscal 2021 is 4.00 to 1, 4.75 to 1, 5.25 to 1, and 5.75 to 1 for the first, second, third, and fourth quarters, respectively.

The leverage ratio covenant limit for the second quarter of fiscal 2021 was 4.75 to 1.

The leverage ratio covenant limit for the remainder of fiscal 2021 is 5.25 to 1 and 5.75 to 1 for the third and fourth quarters, respectively.

In fiscal 2022, the leverage ratio covenant limit is 4.75 to 1, 3.75 to 1, and 3.50 to 1 for the first, second and third quarters, respectively, and subsequently returns to 3.25 to 1 for the fourth quarter of fiscal 2022.

The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.

The Company was in compliance with its debt covenants as of June 30, 2020.

The Company was in compliance with its debt covenants as of September 30, 2020.

The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable maturities.

As of June 30, 2020 and March 31, 2020, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $ 134.7 million and $ 131.3 million, respectively.

As of September 30, 2020 and March 31, 2020, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $ 136.6 million and $ 131.3 million, respectively.

The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy.

5 unchanged sentences

Local government requirements or customer shutdowns caused the Company to suspend production at many of its manufacturing facilities in March and April 2020.

Although all of the temporarily-closed facilities reopened, many are currently operating at reduced production levels based upon customer demand.

All of the temporarily-closed facilities have reopened and have been trending back towards normal production levels.

The Company is continuing to focus on protecting the health and wellbeing of its employees and the communities in which it operates, while also ensuring the continuity of its business operations and timely delivery of quality products and services to its customers.

1 unchanged sentence

In addition, the Company is focused on reducing operating and administrative expenses.

Based on its current expectations, the Company believes that its sources of liquidity will generate sufficient cash flow to meet its obligations during the next twelve months from the date these financial statements are issued.

Based upon its current expectations, the Company believes that its sources of liquidity will generate sufficient cash flow to meet its obligations during the next twelve months from the date these financial statements are issued.

The Company’s consolidated financial statements reflect estimates and assumptions made by management, including assumptions regarding the future impacts of the COVID- 19 pandemic, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods presented.

8 unchanged sentences

These accruals generally relate to facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.

The accruals for these environmental matters totaled $ 18.1 million and $ 18.2 million as of June 30, 2020 and March 31, 2020, respectively.

The accruals for these environmental matters totaled $ 18.3 million and $ 18.2 million as of September 30, 2020 and March 31, 2020, respectively.

As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.

10 unchanged sentences

Changes in accumulated other comprehensive loss were as follows:

Three months ended June 30, 2020

Three months ended September 30, 2020

Six months ended September 30, 2020

Benefit Plans

Beginning balance

Other comprehensive income (loss) before reclassifications

Other comprehensive income before reclassifications

Reclassifications:

1 unchanged sentence

Realized losses - net (b)

Total other comprehensive income (loss)

Total other comprehensive income

Ending balance

Three months ended June 30, 2019

Three months ended September 30, 2019

Six months ended September 30, 2019

Benefit Plans

Beginning balance

Other comprehensive income (loss) before reclassifications

Other comprehensive loss before reclassifications

Reclassifications:

Amortization of unrecognized net loss (a)

Realized gains - net (b)

Realized losses - net (b)

Foreign currency translation gains (c)

Total other comprehensive income (loss)

3 unchanged sentences

Amounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings.

As a result of the sale of its investment in NEX during the second quarter of fiscal 2020, the Company wrote off $ 0.6 million of accumulated foreign currency translation gains.

MODINE MANUFACTURING COMPANY

10 unchanged sentences

The following is a summary of net sales, gross profit, operating income, and total assets by segment:

Three months ended June 30,

External Sales

Three months ended September 30,

Inter-segment

External Sales

Inter-segment

1 unchanged sentence

Corporate and eliminations

Three months ended June 30,

Gross profit:

Segment total

Corporate and eliminations

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

Three months ended June 30,

Six months ended September 30,

Inter-segment

Segment total

Corporate and eliminations

Three months ended September 30,

Six months ended September 30,

Gross profit:

Segment total

Corporate and eliminations

Three months ended September 30,

Six months ended September 30,

Operating income:

1 unchanged sentence

Corporate and eliminations

Operating (loss) income

June 30, 2020

Operating income

September 30, 2020

March 31, 2020

2 unchanged sentences

Subsequent Event

On August 4, 2020, the Company announced that Thomas A.

Burke stepped down from his position as President and Chief Executive Officer ( “CEO” ) and as a member of Modine ’s Board of Directors, effective immediately.

The Board of Directors has launched a search for Mr.

Burke ’s successor and has named Michael B.

Lucareli, the Company’s Vice President, Finance and Chief Financial Officer, as Interim President and CEO.

As a result of Mr.

Burke ’s departure and based upon the terms of his employment agreement, the Company expects to record severance expense during the second quarter of fiscal 2021 of approximately $ 5.0 million, to be paid on a bi-weekly basis over the next three years .

On November 2, 2020, the Company announced that it signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated.

The Company expects this transaction to close during the first half of calendar 2021, subject to regulatory approvals and other customary closing conditions.

The Company does not expect significant net cash proceeds from this transaction based upon the selling price and adjustments for cash, debt, and working capital, as defined within the definitive agreement.

The Company reports financial results of the liquid-cooled automotive business within its Automotive segment.

Net sales attributable to the liquid-cooled automotive business were approximately $ 130.0 million during the first six months of fiscal 2021 and approximately $ 310.0 million in fiscal 2020.

Net assets of this business were approximately $140.0 million as of September 30, 2020.

There is no goodwill or intangible assets recorded within the liquid-cooled automotive business.

In connection with the pending sale, the Company expects to classify the liquid-cooled automotive business (the “disposal group”) as held for sale beginning in the third quarter of fiscal 2021 and plans to report the assets and liabilities of this business as held for sale beginning with its December 31, 2020 consolidated balance sheet.

As a result of the disposal group being classified as held for sale, the Company expects to record a non-cash impairment charge of approximately $ 120.0 million to $ 130.0 million during the third quarter of fiscal 2021 related to the disposal group’s long-lived assets, which consist of property, plant and equipment.

When the transaction is completed, the Company expects to record an additional loss on sale related to other net assets and cumulative foreign currency translation adjustments attributable to the disposal group, net working capital adjustments, and costs to sell.

As the Company has not yet finalized its analysis, the impairment charge recorded in the third quarter could differ materially from the Company’s preliminary estimate and, at this time, the Company cannot estimate the loss on sale to be recorded upon completion of this transaction.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements