Item 1. Financial Statements
Item 1. Financial Statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 2020 and 2019
(In millions, except per share amounts)
(Unaudited)
Three months ended
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Net sales
$
461.4
$
500.2
$
809.2
$
1,029.2
Cost of sales
380.6
424.5
682.3
870.1
Gross profit
80.8
75.7
126.9
159.1
Selling, general and administrative expenses
50.8
67.4
95.5
130.9
Restructuring expenses
1.5
2.3
6.1
4.1
Operating income
28.5
6.0
25.3
24.1
Interest expense
( 5.2
)
( 5.8
)
( 10.6
)
( 11.7
)
Other expense – net
( 0.5
)
( 1.3
)
( 0.5
)
( 2.4
)
Earnings (loss) before income taxes
22.8
( 1.1
)
14.2
10.0
Provision for income taxes
( 13.9
)
( 3.7
)
( 13.7
)
( 6.6
)
Net earnings (loss)
8.9
( 4.8
)
0.5
3.4
Net (earnings) loss attributable to noncontrolling interest
( 0.3
)
0.1
( 0.5
)
( 0.1
)
Net earnings (loss) attributable to Modine
$
8.6
$
( 4.7
)
$
-
$
3.3
Net earnings (loss) per share attributable to Modine shareholders:
Basic
$
0.17
$
( 0.09
)
$
-
$
0.07
Diluted
$
0.17
$
( 0.09
)
$
-
$
0.06
Weighted-average shares outstanding:
Basic
51.3
50.8
51.1
50.8
Diluted
51.3
50.8
51.1
51.1
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended September 30, 2020 and 2019
(In millions)
(Unaudited)
Three months ended
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Net earnings (loss)
$
8.9
$
( 4.8
)
$
0.5
$
3.4
Other comprehensive income (loss):
Foreign currency translation
17.4
( 19.5
)
22.8
( 17.7
)
Defined benefit plans, net of income taxes of $ 0.4 , $ 0.3 , $ 0.8 and $ 0.6 million
1.3
1.1
2.5
2.2
Cash flow hedges, net of income taxes of $ 0.2 , $ 0.1 , $ 0.5 and $ 0.4 million
0.4
( 0.2
)
1.4
( 1.0
)
Total other comprehensive income (loss)
19.1
( 18.6
)
26.7
( 16.5
)
Comprehensive income (loss)
28.0
( 23.4
)
27.2
( 13.1
)
Comprehensive (income) loss attributable to noncontrolling interest
( 0.4
)
0.3
( 0.7
)
0.2
Comprehensive income (loss) attributable to Modine
$
27.6
$
( 23.1
)
$
26.5
$
( 12.9
)
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
September 30, 2020 and March 31, 2020
(In millions, except per share amounts)
(Unaudited)
September 30, 2020
March 31, 2020
ASSETS
Cash and cash equivalents
$
62.5
$
70.9
Trade accounts receivable – net
297.2
292.5
Inventories
201.7
207.4
Other current assets
55.0
62.5
Total current assets
616.4
633.3
Property, plant and equipment – net
439.1
448.0
Intangible assets – net
104.6
106.3
Goodwill
169.4
166.1
Deferred income taxes
102.8
104.8
Other noncurrent assets
78.6
77.6
Total assets
$
1,510.9
$
1,536.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt
$
17.1
$
14.8
Long-term debt – current portion
13.5
15.6
Accounts payable
224.5
227.4
Accrued compensation and employee benefits
75.1
65.0
Other current liabilities
61.3
49.2
Total current liabilities
391.5
372.0
Long-term debt
373.8
452.0
Deferred income taxes
7.1
8.1
Pensions
130.2
130.9
Other noncurrent liabilities
86.1
79.5
Total liabilities
988.7
1,042.5
Commitments and contingencies (see Note 17)
Shareholders’ equity:
Preferred stock, $ 0.025 par value, authorized 16.0 million shares, issued - none
-
-
Common stock, $ 0.625 par value, authorized 80.0 million shares, issued 53.8 million and 53.4 million shares
33.6
33.3
Additional paid-in capital
247.0
245.1
Retained earnings
469.9
469.9
Accumulated other comprehensive loss
( 196.8
)
( 223.3
)
Treasury stock, at cost, 2.7 million and 2.5 million shares
( 37.9
)
( 37.1
)
Total Modine shareholders’ equity
515.8
487.9
Noncontrolling interest
6.4
5.7
Total equity
522.2
493.6
Total liabilities and equity
$
1,510.9
$
1,536.1
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 2020 and 2019
(In millions)
(Unaudited)
Six months ended September 30,
2020
2019
Cash flows from operating activities:
Net earnings
$
0.5
$
3.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
37.9
38.3
Stock-based compensation expense
2.1
4.4
Deferred income taxes
1.0
( 0.5
)
Other – net
2.5
2.0
Changes in operating assets and liabilities:
Trade accounts receivable
4.4
19.9
Inventories
11.0
( 26.2
)
Accounts payable
( 5.7
)
( 5.6
)
Other assets and liabilities
33.6
( 18.2
)
Net cash provided by operating activities
87.3
17.5
Cash flows from investing activities:
Expenditures for property, plant and equipment
( 14.6
)
( 41.4
)
Proceeds from disposition of assets
0.6
-
Proceeds from sale of investment in affiliate
-
3.8
Other – net
0.7
1.0
Net cash used for investing activities
( 13.3
)
( 36.6
)
Cash flows from financing activities:
Borrowings of debt
8.2
425.0
Repayments of debt
( 103.0
)
( 413.1
)
Borrowings on bank overdraft facilities – net
12.5
12.4
Financing fees paid
( 0.8
)
( 1.1
)
Purchases of treasury stock under share repurchase program
-
( 2.4
)
Dividend paid to noncontrolling interest
-
( 1.3
)
Other – net
( 0.8
)
( 3.0
)
Net cash (used for) provided by financing activities
( 83.9
)
16.5
Effect of exchange rate changes on cash
1.3
( 0.9
)
Net decrease in cash, cash equivalents and restricted cash
( 8.6
)
( 3.5
)
Cash, cash equivalents and restricted cash – beginning of period
71.3
42.2
Cash, cash equivalents and restricted cash – end of period
$
62.7
$
38.7
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three and six months ended September 30, 2020 and 2019
(In millions)
(Unaudited)
Common stock
Additional
paid-in
Retained
Accumulated other
Treasury
stock, at
Non- controlling
Shares
Amount
capital
earnings
comprehensive loss
cost
interest
Total
Balance, March 31, 2020
53.4
$
33.3
$
245.1
$
469.9
$
( 223.3
)
$
( 37.1
)
$
5.7
$
493.6
Net loss attributable to Modine
-
-
-
( 8.6
)
-
-
-
( 8.6
)
Other comprehensive income
-
-
-
-
7.5
-
0.1
7.6
Stock options and awards
0.3
0.2
( 0.2
)
-
-
-
-
-
Purchase of treasury stock
-
-
-
-
-
( 0.8
)
-
( 0.8
)
Stock-based compensation expense
-
-
0.7
-
-
-
-
0.7
Net earnings attributable to noncontrolling interest
-
-
-
-
-
-
0.2
0.2
Balance, June 30, 2020
53.7
$
33.5
$
245.6
$
461.3
$
( 215.8
)
$
( 37.9
)
$
6.0
$
492.7
Net earnings attributable to Modine
-
-
-
8.6
-
-
-
8.6
Other comprehensive income
-
-
-
-
19.0
-
0.1
19.1
Stock options and awards
0.1
0.1
-
-
-
-
-
0.1
Stock-based compensation expense
-
-
1.4
-
-
-
-
1.4
Net earnings attributable to noncontrolling interest
-
-
-
-
-
-
0.3
0.3
Balance, September 30, 2020
53.8
$
33.6
$
247.0
$
469.9
$
( 196.8
)
$
( 37.9
)
$
6.4
$
522.2
Common stock
Additional
paid-in
Retained
Accumulated other
Treasury
stock, at
Non-controlling
Shares
Amount
capital
earnings
comprehensive loss
cost
interest
Total
Balance, March 31, 2019
52.8
$
33.0
$
238.6
$
472.1
$
( 178.4
)
$
( 31.4
)
$
7.2
$
541.1
Net earnings attributable to Modine
-
-
-
8.0
-
-
-
8.0
Other comprehensive income (loss)
-
-
-
-
2.2
-
( 0.1
)
2.1
Stock options and awards
0.5
0.2
( 0.1
)
-
-
-
-
0.1
Purchase of treasury stock
-
-
-
-
-
( 5.6
)
-
( 5.6
)
Stock-based compensation expense
-
-
1.7
-
-
-
-
1.7
Dividend paid to noncontrolling interest
-
-
-
-
-
-
( 1.3
)
( 1.3
)
Net earnings attributable to noncontrolling interest
-
-
-
-
-
-
0.2
0.2
Balance, June 30, 2019
53.3
$
33.2
$
240.2
$
480.1
$
( 176.2
)
$
( 37.0
)
$
6.0
$
546.3
Net loss attributable to Modine
-
-
-
( 4.7
)
-
-
-
( 4.7
)
Other comprehensive loss
-
-
-
-
( 18.4
)
-
( 0.2
)
( 18.6
)
Stock-based compensation expense
-
-
2.7
-
-
-
-
2.7
Net loss attributable to noncontrolling interest
-
-
-
-
-
-
( 0.1
)
( 0.1
)
Balance, September 30, 2019
53.3
$
33.2
$
242.9
$
475.4
$
( 194.6
)
$
( 37.0
)
$
5.7
$
525.6
The notes to condensed consolidated financial statements are an integral part of these statements.
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Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 1: General
The accompanying condensed consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements. 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 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.
COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic. 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. (“NEX”)
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
In June 2016, the Financial Accounting Standards Board issued new guidance related to the accounting for credit losses for certain financial assets, including trade accounts receivable and contract assets. The new guidance modifies the credit loss model to measure and recognize credit losses based upon expected losses rather than incurred losses. The Company adopted this guidance as of April 1, 2020. The adoption did not have a material impact on the Company’s consolidated balance sheets, statements of operations or statements of cash flows.
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Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 2: Revenue Recognition
Disaggregation of Revenue
The table below presents revenue for each of the Company’s business segments, Commercial and Industrial Solutions (“CIS”), Building HVAC Systems (“BHVAC”), Heavy Duty Equipment (“HDE”) and Automotive. Each segment’s revenue is disaggregated by primary end market, by geographic location and based upon the timing of revenue recognition, and includes inter-segment sales.
Effective April 1, 2020, the Company realigned its segment structure. The segment revenue information presented in the table below for fiscal 2020 has been recast to conform to the fiscal 2021 presentation. See Note 19 for additional information regarding the Company’s operating segments.
Three months ended September 30, 2020
Three months ended September 30, 2019
CIS
BHVAC
HDE
Automotive
Segment
Total
CIS
BHVAC
HDE
Automotive
Segment
Total
Primary end market:
Commercial HVAC&R
$
105.3
$
48.1
$
-
$
-
$
153.4
$
115.9
$
46.1
$
-
$
-
$
162.0
Data center cooling
14.4
13.6
-
-
28.0
26.7
9.5
-
-
36.2
Industrial cooling
12.7
-
-
-
12.7
11.7
-
-
-
11.7
Commercial vehicle
-
-
61.5
3.8
65.3
-
-
76.1
5.7
81.8
Off-highway
-
-
58.1
0.8
58.9
-
-
56.7
2.9
59.6
Automotive and light vehicle
-
-
28.0
97.6
125.6
-
-
30.4
104.7
135.1
Other
1.7
0.2
18.0
7.7
27.6
2.4
0.4
24.0
2.4
29.2
Net sales
$
134.1
$
61.9
$
165.6
$
109.9
$
471.5
$
156.7
$
56.0
$
187.2
$
115.7
$
515.6
Geographic location:
Americas
$
67.6
$
38.5
$
98.6
$
16.9
$
221.6
$
86.0
$
38.1
$
127.5
$
17.6
$
269.2
Europe
53.0
23.4
32.1
75.4
183.9
57.5
17.9
31.7
82.6
189.7
Asia
13.5
-
34.9
17.6
66.0
13.2
-
28.0
15.5
56.7
Net sales
$
134.1
$
61.9
$
165.6
$
109.9
$
471.5
$
156.7
$
56.0
$
187.2
$
115.7
$
515.6
Timing of revenue recognition:
Products transferred at a point in time
$
122.9
$
61.9
$
157.4
$
109.9
$
452.1
$
132.4
$
56.0
$
178.6
$
115.7
$
482.7
Products transferred over time
11.2
-
8.2
-
19.4
24.3
-
8.6
-
32.9
Net sales
$
134.1
$
61.9
$
165.6
$
109.9
$
471.5
$
156.7
$
56.0
$
187.2
$
115.7
$
515.6
Six months ended September 30, 2020
Six months ended September 30, 2019
CIS
BHVAC
HDE
Automotive
Segment
Total
CIS
BHVAC
HDE
Automotive
Segment
Total
Primary end market:
Commercial HVAC&R
$
199.2
$
80.6
$
-
$
-
$
279.8
$
246.8
$
84.1
$
-
$
-
$
330.9
Data center cooling
28.2
28.6
-
-
56.8
50.9
20.1
-
-
71.0
Industrial cooling
24.6
-
-
-
24.6
23.1
-
-
-
23.1
Commercial vehicle
-
-
107.8
5.9
113.7
-
-
168.8
11.7
180.5
Off-highway
-
-
111.5
1.5
113.0
-
-
126.9
6.6
133.5
Automotive and light vehicle
-
-
41.0
152.0
193.0
-
-
57.2
207.1
264.3
Other
4.6
0.3
28.8
12.6
46.3
4.7
0.8
50.7
3.9
60.1
Net sales
$
256.6
$
109.5
$
289.1
$
172.0
$
827.2
$
325.5
$
105.0
$
403.6
$
229.3
$
1,063.4
Geographic location:
Americas
$
127.5
$
64.5
$
166.5
$
24.4
$
382.9
$
183.1
$
67.2
$
263.5
$
35.0
$
548.8
Europe
103.9
45.0
56.2
115.0
320.1
116.1
37.8
78.1
165.6
397.6
Asia
25.2
-
66.4
32.6
124.2
26.3
-
62.0
28.7
117.0
Net sales
$
256.6
$
109.5
$
289.1
$
172.0
$
827.2
$
325.5
$
105.0
$
403.6
$
229.3
$
1,063.4
Timing of revenue recognition:
Products transferred at a point in time
$
232.2
$
109.5
$
278.7
$
172.0
$
792.4
$
276.3
$
105.0
$
387.6
$
229.3
$
998.2
Products transferred over time
24.4
-
10.4
-
34.8
49.2
-
16.0
-
65.2
Net sales
$
256.6
$
109.5
$
289.1
$
172.0
$
827.2
$
325.5
$
105.0
$
403.6
$
229.3
$
1,063.4
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Contract Balances
Contract assets and contract liabilities from contracts with customers were as follows:
September 30, 2020
March 31, 2020
Contract assets
$
14.6
$
21.7
Contract liabilities
8.4
5.6
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 $ 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 $ 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.
Note 3: Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Fair value measurements are classified under the following hierarchy:
●
Level 1 – Quoted prices for identical instruments in active markets.
●
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
●
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.
When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1. In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2. If quoted or observable market prices are not available, the Company determines fair value based upon valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates. These measurements are classified as Level 3.
The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. The Company holds investments in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans. The Company records the fair value of these investments within other noncurrent assets on its consolidated balance sheets. The Company classifies money market investments held by the trusts within Level 2 of the valuation hierarchy. The Company classifies all other investments held by the trusts within Level 1 of the valuation hierarchy, as it uses quoted market prices to determine the investments’ fair value. 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 $ 3.5 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.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 4: Pensions
Pension cost included the following components:
Three months ended
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Service cost
$
0.1
$
0.1
$
0.2
$
0.2
Interest cost
1.9
2.2
3.9
4.5
Expected return on plan assets
( 2.8
)
( 2.9
)
( 5.7
)
( 5.9
)
Amortization of unrecognized net loss
1.8
1.5
3.5
3.0
Net periodic benefit cost
$
1.0
$
0.9
$
1.9
$
1.8
During the six months ended September 30, 2019, the Company contributed $ 1.7 million to its U.S. pension plans. The Company has no t yet made contributions to its U.S. pension plans during fiscal 2021, as permitted by the Coronavirus Aid, Relief and Economic Security Act. The Company expects to contribute approximately $ 20.0 million to its U.S. pension plans during the second half of fiscal 2021.
Note 5: Stock-Based Compensation
The Company’s stock-based incentive programs consist of the following: (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 $ 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:
Unrecognized
Compensation
Expense
Weighted-Average
Remaining Service
Period in Years
Stock options
$
1.2
2.0
Restricted stock awards
3.9
2.7
Performance stock awards
0.4
1.5
Total
$
5.5
2.5
9
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
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.
Note 6: Restructuring Activities
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.
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
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Employee severance and related benefits
$
1.3
$
1.8
$
5.7
$
3.3
Other restructuring and repositioning expenses
0.2
0.5
0.4
0.8
Total
$
1.5
$
2.3
$
6.1
$
4.1
Other restructuring and repositioning expenses primarily consist of equipment transfers and plant consolidation costs.
10
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements. Changes in accrued severance were as follows:
Three months ended September 30,
2020
2019
Beginning balance
$
6.9
$
7.8
Additions
1.3
1.8
Payments
( 2.6
)
( 2.0
)
Effect of exchange rate changes
0.2
( 0.2
)
Ending balance
$
5.8
$
7.4
Six months ended September 30,
2020
2019
Beginning balance
$
5.0
$
10.0
Additions
5.7
3.3
Payments
( 5.2
)
( 5.7
)
Effect of exchange rate changes
0.3
( 0.2
)
Ending balance
$
5.8
$
7.4
Note 7: Other Income and Expense
Other income and expense consisted of the following:
Three months ended
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Interest income
$
-
$
0.1
$
0.3
$
0.2
Foreign currency transactions (a)
0.2
( 0.8
)
0.7
( 1.4
)
Net periodic benefit cost (b)
( 0.7
)
( 0.7
)
( 1.5
)
( 1.4
)
Equity in earnings of non-consolidated affiliate (c)
-
0.1
-
0.2
Total other expense - net
$
( 0.5
)
$
( 1.3
)
$
( 0.5
)
$
( 2.4
)
(a)
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 .
(b)
Net periodic benefit cost for the Company’s pension and postretirement plans is exclusive of service cost.
(c)
The Company sold its ownership interest in NEX during the second quarter of fiscal 2020. See Note 1 for additional information.
11
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 8 : Income Taxes
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. The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance. As further discussed in Note 17, the COVID- 19 pandemic has resulted in risks and uncertainties to our business. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in the U.S. 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.
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. Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur. The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions. The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2021.
12
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 9 : E arnings Per Share
The components of basic and diluted earnings per share were as follows:
Three months ended
September 30,
Six months ended
September 30,
2020
2019
2020
2019
Net earnings (loss) attributable to Modine
$
8.6
$
( 4.7
)
$
-
$
3.3
Weighted-average shares outstanding - basic
51.3
50.8
51.1
50.8
Effect of dilutive securities
-
-
-
0.3
Weighted-average shares outstanding - diluted
51.3
50.8
51.1
51.1
Earnings (loss) per share:
Net earnings (loss) per share - basic
$
0.17
$
( 0.09
)
$
-
$
0.07
Net earnings (loss) per share - diluted
$
0.17
$
( 0.09
)
$
-
$
0.06
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.
Note 10: Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following:
September 30, 2020
March 31, 2020
Cash and cash equivalents
$
62.5
$
70.9
Restricted cash
0.2
0.4
Total cash, cash equivalents and restricted cash
$
62.7
$
71.3
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 agreements.
13
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 11: Inventories
Inventories consisted of the following:
September 30, 2020
March 31, 2020
Raw materials
$
120.2
$
123.6
Work in process
36.5
34.6
Finished goods
45.0
49.2
Total inventories
$
201.7
$
207.4
Note 12: Property, Plant and Equipment
Property, plant and equipment, including depreciable lives, consisted of the following:
September 30, 2020
March 31, 2020
Land
$
20.9
$
19.7
Buildings and improvements ( 10 - 40 years)
286.0
276.7
Machinery and equipment ( 3 - 15 years)
921.6
870.3
Office equipment ( 3 - 10 years)
99.2
95.2
Construction in progress
27.1
40.5
1,354.8
1,302.4
Less: accumulated depreciation
( 915.7
)
( 854.4
)
Net property, plant and equipment
$
439.1
$
448.0
Note 13: Goodwill and Intangible Assets
Changes in the carrying amount of goodwill were as follows:
CIS
BHVAC
Total
Goodwill, March 31, 2020
$
152.6
$
13.5
$
166.1
Effect of exchange rate changes
2.8
0.5
3.3
Goodwill, September 30, 2020
$
155.4
$
14.0
$
169.4
14
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Intangible assets consisted of the following:
September 30, 2020
March 31, 2020
Gross
Carrying
Value
Accumulated
Amortization
Net
Intangible
Assets
Gross
Carrying
Value
Accumulated
Amortization
Net
Intangible
Assets
Customer relationships
$
62.6
$
( 14.9
)
$
47.7
$
60.8
$
( 12.6
)
$
48.2
Trade names
59.3
( 17.9
)
41.4
58.3
( 16.2
)
42.1
Acquired technology
24.4
( 8.9
)
15.5
23.6
( 7.6
)
16.0
Total intangible assets
$
146.3
$
( 41.7
)
$
104.6
$
142.7
$
( 36.4
)
$
106.3
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.
Note 14: Product Warranties
Changes in accrued warranty costs were as follows:
Three months ended September 30,
2020
2019
Beginning balance
$
8.3
$
9.1
Warranties recorded at time of sale
1.4
1.2
Adjustments to pre-existing warranties
0.1
( 0.3
)
Settlements
( 0.9
)
( 1.7
)
Effect of exchange rate changes
0.1
( 0.2
)
Ending balance
$
9.0
$
8.1
Six months ended September 30,
2020
2019
Beginning balance
$
7.9
$
9.2
Warranties recorded at time of sale
2.5
2.6
Adjustments to pre-existing warranties
0.1
( 0.9
)
Settlements
( 1.7
)
( 2.6
)
Effect of exchange rate changes
0.2
( 0.2
)
Ending balance
$
9.0
$
8.1
15
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 15: Leases
Lease Assets and Liabilities
The following table provides a summary of leases recorded on the consolidated balance sheets.
-
Balance Sheet Location
September 30, 2020
March 31, 2020
Lease Assets
Operating lease ROU assets
Other noncurrent assets
$
63.3
$
61.4
Finance lease ROU assets (a)
Property, plant and equipment - net
8.5
8.5
Lease Liabilities
Operating lease liabilities
Other current liabilities
$
12.6
$
10.9
Operating lease liabilities
Other noncurrent liabilities
51.2
50.3
Finance lease liabilities
Long-term debt - current portion
0.4
0.4
Finance lease liabilities
Long-term debt
3.3
3.3
(a)
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 September 30,
Six months ended September 30,
2020
2019
2020
2019
Operating lease expense (a)
$
5.2
$
5.2
$
10.1
$
10.4
Finance lease expense:
Depreciation of ROU assets
0.1
0.1
0.2
0.2
Interest on lease liabilities
0.1
0.1
0.1
0.1
Total lease expense
$
5.4
$
5.4
$
10.4
$
10.7
(a)
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.
16
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 16: Indebtedness
Long-term debt consisted of the following:
Fiscal year of maturity
September 30, 2020
March 31, 2020
Term loans
2025
$
185.5
$
189.4
Revolving credit facility
2025
52.9
127.2
5.9 % Senior Notes
2029
100.0
100.0
5.8 % Senior Notes
2027
50.0
50.0
Other (a)
3.7
6.0
392.1
472.6
Less: current portion
( 13.5 )
( 15.6 )
Less: unamortized debt issuance costs
( 4.8 )
( 5.0 )
Total long-term debt
$
373.8
$
452.0
(a)
Other long-term debt primarily includes finance lease obligations and borrowings by foreign subsidiaries.
Long-term debt, including the current portion of long-term debt, matures as follows:
Fiscal Year
Remainder of 2021
$
6.8
2022
21.9
2023
21.9
2024
21.9
2025
201.3
2026 & beyond
118.3
Total
$
392.1
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 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. Under its primary debt agreements in the U.S., the Company has provided liens on substantially all domestic assets. Also, as specified in the credit agreement, the term loans may require prepayments in the event of certain asset sales. In addition, at the time of each incremental borrowing under the revolving credit facility, the Company is required to represent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on its business, property, or results of operations.
17
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
In May 2020, the Company executed amendments to its primary credit agreements in the U.S. Under the amended agreements, the leverage ratio covenant limit has been temporarily raised. 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 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 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 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. Refer to Note 3 for the definition of a Level 2 fair value measurement.
Note 17: Risks, Uncertainties, Contingencies and Litigation
COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic. The spread of COVID-19 and the resulting work and travel restrictions, including international border closings, have disrupted, and may continue to disrupt, global supply chains and have negatively impacted the global economy. As a result of this pandemic, the Company has experienced significant impacts on its operations. Local government requirements or customer shutdowns caused the Company to suspend production at many of its manufacturing facilities in March and April 2020. 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. T o mitigate the negative impacts of COVID-19, the Company has taken actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of the organization. In addition, the Company is focused on reducing operating and administrative expenses. 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. For example, assets particularly sensitive to assumptions that could be adversely impacted by the COVID- 19 pandemic include goodwill and deferred tax assets. While the Company believes it used appropriate estimates and assumptions to prepare the consolidated financial statements, actual amounts could differ materially and future events or circumstances could have a potential negative effect on the assumptions used. If the Company, its suppliers, or its customers experience further shutdowns or other significant business disruptions associated with the COVID- 19 pandemic, its ability to conduct business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.
18
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Environmental
The Company has recorded environmental investigation and remediation accruals related to soil and groundwater contamination at manufacturing facilities in the U.S., one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, along with accruals for lesser environmental matters at certain other facilities in the U.S. 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 $ 18.3 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. Based upon currently available information, the Company believes the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position. However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.
Other Litigation
In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted against Modine. The Company believes that any additional loss in excess of amounts already accrued would not have a material effect on the Company’s consolidated balance sheet, results of operations, and cash flows. In addition, management expects that the liabilities which may ultimately result from such lawsuits or proceedings, if any, would not have a material adverse effect on the Company’s financial position.
19
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 18: Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss were as follows:
Three months ended September 30, 2020
Six months ended September 30, 2020
Foreign
Currency
Translation
Defined
Benefit Plans
Cash Flow
Hedges
Total
Foreign
Currency
Translation
Defined
Benefit Plans
Cash Flow
Hedges
Total
Beginning balance
$
( 56.1
)
$
( 159.7
)
$
-
$
( 215.8
)
$
( 61.4
)
$
( 160.9
)
$
( 1.0
)
$
( 223.3
)
Other comprehensive income before reclassifications
17.3
-
0.3
17.6
22.6
-
1.1
23.7
Reclassifications:
Amortization of unrecognized net loss (a)
-
1.7
-
1.7
-
3.3
-
3.3
Realized losses - net (b)
-
-
0.3
0.3
-
-
0.8
0.8
Income taxes
-
( 0.4
)
( 0.2
)
( 0.6
)
-
( 0.8
)
( 0.5
)
( 1.3
)
Total other comprehensive income
17.3
1.3
0.4
19.0
22.6
2.5
1.4
26.5
Ending balance
$
( 38.8
)
$
( 158.4
)
$
0.4
$
( 196.8
)
$
( 38.8
)
$
( 158.4
)
$
0.4
$
( 196.8
)
Three months ended September 30, 2019
Six months ended September 30, 2019
Foreign
Currency
Translation
Defined
Benefit Plans
Cash Flow
Hedges
Total
Foreign
Currency
Translation
Defined
Benefit Plans
Cash Flow
Hedges
Total
Beginning balance
$
( 40.7
)
$
( 135.2
)
$
( 0.3
)
$
( 176.2
)
$
( 42.6
)
$
( 136.3
)
$
0.5
$
( 178.4
)
Other comprehensive loss before reclassifications
( 18.7
)
-
( 0.6
)
( 19.3
)
( 16.8
)
-
( 1.6
)
( 18.4
)
Reclassifications:
Amortization of unrecognized net loss (a)
-
1.4
-
1.4
-
2.8
-
2.8
Realized losses - net (b)
-
-
0.3
0.3
-
-
0.2
0.2
Foreign currency translation gains (c)
( 0.6
)
-
-
( 0.6
)
( 0.6
)
-
-
( 0.6
)
Income taxes
-
( 0.3
)
0.1
( 0.2
)
-
( 0.6
)
0.4
( 0.2
)
Total other comprehensive income (loss)
( 19.3
)
1.1
( 0.2
)
( 18.4
)
( 17.4
)
2.2
( 1.0
)
( 16.2
)
Ending balance
$
( 60.0
)
$
( 134.1
)
$
( 0.5
)
$
( 194.6
)
$
( 60.0
)
$
( 134.1
)
$
( 0.5
)
$
( 194.6
)
(a)
Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans. Refer to Note 4 for additional information about the Company’s pension plans.
(b)
Amounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings.
(c)
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.
20
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 19: Segment Information
Effective April 1, 2020, the Company began managing its global automotive business separate from the other businesses within the previously-reported Vehicular Thermal Solutions (“VTS”) segment. The Company is managing the automotive business as the Automotive segment as it targets the sale or eventual exit of its underlying automotive business operations. The other businesses of the VTS segment, including the commercial vehicle and off-highway businesses, are being managed as the Heavy Duty Equipment segment. The segment realignment had no impact on the CIS and BHVAC segments or on the Company’s consolidated financial position, results of operations, and cash flows. Segment financial information for fiscal 2020 has been recast to conform to the fiscal 2021 presentation.
Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker. These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.
The following is a summary of net sales, gross profit, operating income, and total assets by segment:
Three months ended September 30,
2020
2019
External
Sales
Inter-segment
Sales
Total
External
Sales
Inter-segment
Sales
Total
Net sales:
CIS
$
133.2
$
0.9
$
134.1
$
155.7
$
1.0
$
156.7
BHVAC
61.9
-
61.9
55.7
0.3
56.0
HDE
157.6
8.0
165.6
173.9
13.3
187.2
Automotive
108.7
1.2
109.9
114.9
0.8
115.7
Segment total
461.4
10.1
471.5
500.2
15.4
515.6
Corporate and eliminations
-
( 10.1
)
( 10.1
)
-
( 15.4
)
( 15.4
)
Net sales
$
461.4
$
-
$
461.4
$
500.2
$
-
$
500.2
21
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Six months ended September 30,
2020
2019
External
Sales
Inter-segment
Sales
Total
External
Sales
Inter-segment
Sales
Total
Net sales:
CIS
$
254.5
$
2.1
$
256.6
$
323.6
$
1.9
$
325.5
BHVAC
109.3
0.2
109.5
104.2
0.8
105.0
HDE
275.9
13.2
289.1
373.6
30.0
403.6
Automotive
169.5
2.5
172.0
227.8
1.5
229.3
Segment total
809.2
18.0
827.2
1,029.2
34.2
1,063.4
Corporate and eliminations
-
( 18.0
)
( 18.0
)
-
( 34.2
)
( 34.2
)
Net sales
$
809.2
$
-
$
809.2
$
1,029.2
$
-
$
1,029.2
Three months ended September 30,
Six months ended September 30,
2020
2019
2020
2019
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales
Gross profit:
CIS
$
19.3
14.4
%
$
22.9
14.6
%
$
34.8
13.5
%
$
47.2
14.5
%
BHVAC
21.7
35.1
%
17.7
31.7
%
36.2
33.1
%
31.4
29.9
%
HDE
23.6
14.2
%
22.4
12.0
%
34.9
12.1
%
54.9
13.6
%
Automotive
16.6
15.2
%
13.0
11.2
%
21.4
12.5
%
25.5
11.1
%
Segment total
81.2
17.2
%
76.0
14.7
%
127.3
15.4
%
159.0
15.0
%
Corporate and eliminations
( 0.4
)
-
( 0.3
)
-
( 0.4
)
-
0.1
-
Gross profit
$
80.8
17.5
%
$
75.7
15.1
%
$
126.9
15.7
%
$
159.1
15.5
%
Three months ended September 30,
Six months ended September 30,
2020
2019
2020
2019
Operating income:
CIS
$
5.6
$
8.5
$
5.6
$
17.5
BHVAC
13.1
8.8
20.2
14.1
HDE
13.3
7.1
10.8
24.4
Automotive
8.0
0.4
4.2
0.4
Segment total
40.0
24.8
40.8
56.4
Corporate and eliminations
( 11.5
)
( 18.8
)
( 15.5
)
( 32.3
)
Operating income
$
28.5
$
6.0
$
25.3
$
24.1
September 30, 2020
March 31, 2020
Total assets:
CIS
$
598.2
$
617.7
BHVAC
105.4
102.3
HDE
418.8
417.4
Automotive
281.7
272.5
Corporate and eliminations
106.8
126.2
Total assets
$
1,510.9
$
1,536.1
Note 20: Subsequent Event
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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.