What changed in this filing

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Item 1. Financial Statements

2021-02-05 compared with 2020-11-06 · 236 added, 197 removed, 419 unchanged (51% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the three and nine months ended December 31, 2020 and 2019

(In millions, except per share amounts)

Three months ended

September 30,

Six months ended

September 30,

Nine months ended

Cost of sales

1 unchanged sentence

Restructuring expenses

Operating income

Impairment charges

Gain on sale of assets

Operating (loss) income

Interest expense

Other expense – net

Earnings (loss) before income taxes

Other (expense) income – net

(Loss) earnings before income taxes

Provision for income taxes

Net earnings (loss)

Net (loss) earnings

Net (earnings) loss attributable to noncontrolling interest

Net earnings (loss) attributable to Modine

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

Net (loss) earnings attributable to Modine

Net (loss) earnings per share attributable to Modine

Weighted-average shares outstanding:

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

For the three and nine months ended December 31, 2020 and 2019

(In millions)

Three months ended

September 30,

Six months ended

September 30,

Net earnings (loss)

Nine months ended

Net (loss) earnings

Other comprehensive income (loss):

9 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, 2020 and March 31, 2020

December 31, 2020 and March 31, 2020

(In millions, except per share amounts)

September 30, 2020

December 31, 2020

March 31, 2020

1 unchanged sentence

Trade accounts receivable – net

Assets held for sale

Other current assets

9 unchanged sentences

Accrued compensation and employee benefits

Liabilities held for sale

Other current liabilities

18 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended September 30, 2020 and 2019

For the nine months ended December 31, 2020 and 2019

(In millions)

Six months ended September 30,

Nine months ended December 31,

Cash flows from operating activities:

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

Net (loss) earnings

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

Depreciation and amortization

Impairment charges

Gain on sale of assets

Stock-based compensation expense

17 unchanged sentences

Dividend paid to noncontrolling interest

Net cash (used for) provided by financing activities

Net cash used for financing activities

Effect of exchange rate changes on cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash – beginning of period

Cash, cash equivalents and restricted cash – end of period

Net increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale

Cash, cash equivalents, restricted cash and cash held for sale – beginning of period

Cash, cash equivalents, restricted cash and cash held for sale – end of period

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

For the three and nine months ended December 31, 2020 and 2019

(In millions)

_________________

Accumulated other

Treasury stock,

Non- controlling

paid-in capital

comprehensive loss

13 unchanged sentences

Balance, September 30, 2020

Net loss attributable to Modine

Other comprehensive income

Stock-based compensation expense

Net earnings attributable to noncontrolling interest

Balance, December 31, 2020

Accumulated other

Treasury stock,

Non-controlling

paid-in capital

comprehensive loss

13 unchanged sentences

Balance, September 30, 2019

Net earnings attributable to Modine

Other comprehensive income

Stock-based compensation expense

Net loss attributable to noncontrolling interest

Balance, December 31, 2019

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

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

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.

1 unchanged sentence

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.

Results for the first nine 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.

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.

See Note 18 for additional information regarding the risks and uncertainties to the Company resulting from this pandemic.

Pending Disposition of Liquid-cooled Automotive Business

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

In connection with the pending sale, the Company classified the liquid-cooled automotive business as held for sale and, accordingly, is reporting the assets and liabilities of this business as held for sale on the December 31, 2020 consolidated balance sheet.

See Note 2 for additional information.

Chief Executive Officer (“CEO”) Transition

1 unchanged sentence

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.

The Board of Directors subsequently conducted a search for his successor and, effective December 1, 2020, appointed Neil D.

Brinker as 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.

Burke's departure and in connection with the search for his successor, the Company recorded costs totaling $ 5.9 million during the nine months ended December 31, 2020 .

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.

1 unchanged sentence

Burke's forfeited stock-based compensation awards.

Sale of facility in Germany

During the third quarter of fiscal 2020, the Company completed the sale of a previously-closed manufacturing facility in Germany for a selling price of $ 6.0 million.

As a result of this transaction, the Company recorded a gain of $ 0.8 million within the Automotive segment.

The Company reported this gain within the gain on sale of assets line on the consolidated statements of operations.

Sale of Nikkei Heat Exchanger Company, Ltd.

7 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)

Assets Held for Sale

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

The Company expects this transaction will close during the first quarter of fiscal 2022, subject to regulatory approvals and other customary closing conditions.

The Company does not expect significant net cash proceeds from this transaction based upon the one dollar 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.

In connection with the pending sale, the Company classified the liquid-cooled automotive business (the “disposal group”) as held for sale beginning on November 2, 2020 and ceased depreciating long-lived assets in the disposal group.

The Company evaluated the disposal group and determined that it did not qualify as a discontinued operation for reporting purposes under U.S.

As part of its evaluation, the Company considered anticipated future sales to automotive and light vehicle customers as well as sales to other vehicular customers with similar product offerings and using similar heat-transfer technology within the Automotive and Heavy Duty Equipment segments.

In addition, the Company will continue to operate in the same major geographical areas as it does today.

Upon classification as held for sale, the Company compared the disposal group’s carrying value with its fair value, less costs to sell.

Through this review and based upon the selling price, the Company identified an implied loss in excess of the carrying value of the disposal group’s long-lived assets, which consist entirely of property, plant and equipment and right of use lease assets.

As a result, the Company recorded a non-cash impairment charge of $ 132.7 million during the third quarter of fiscal 2021 to reduce the net carrying value of the disposal group’s long-lived assets to zero .

Also during the third quarter of fiscal 2021, the Company recorded an impairment charge of $ 1.7 million within the Automotive segment related to equipment that will not convey to the buyer as part of the sale transaction and is not expected to be used within the Company’s other businesses.

These charges are reported within the impairment charges line on the consolidated statements of operations.

The Company separately classified the assets and liabilities of the liquid-cooled automotive business as held for sale on the December 31, 2020 consolidated balance sheet.

The assets and liabilities held for sale are classified as current as the transaction is expected to close during the first quarter of fiscal 2022.

The major classes of assets and liabilities held for sale were as follows:

December 31, 2020

Cash and cash equivalents

Trade accounts receivables - net

Other current assets

Property, plant and equipment - net

Other noncurrent assets

Impairment of carrying value

Total assets held for sale

Short-term debt

Accounts payable

Accrued compensation and employee benefits

Other current liabilities

Other noncurrent liabilities

Total liabilities held for sale

The Company will reassess the disposal group’s fair value less costs to sell at each reporting period until the transaction is completed.

The Company expects to record an additional loss on sale of approximately $ 15.0 million to $ 25.0 million upon transaction completion.

The loss on sale recorded will be impacted by changes in working capital, costs to sell, and net actuarial losses in accumulated other comprehensive loss related to the disposal group’s pension plans.

It is possible that the loss on sale recorded could differ materially from the Company’s estimate.

Revenue Recognition

5 unchanged sentences

See Note 20 for additional information regarding the Company’s operating segments.

Three months ended September 30, 2020

Three months ended September 30, 2019

Three months ended December 31, 2020

Three months ended December 31, 2019

Primary end market:

8 unchanged sentences

Products transferred over time

Six months ended September 30, 2020

Six months ended September 30, 2019

Nine months ended December 31, 2020

Nine months ended December 31, 2019

Primary end market:

8 unchanged sentences

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:

September 30, 2020

December 31, 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 $ 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.

The $ 16.6 million decrease in contract assets during the first nine months of fiscal 2021 primarily resulted from a decrease in contract assets for revenue recognized over time.

In addition, the March 31, 2020 balance included $ 7.2 million of contract assets of the liquid-cooled automotive business, which have since been classified as held for sale.

See Note 2 for additional information regarding assets and liabilities held for sale as of December 31, 2020.

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.

The $ 0.4 million increase in contract liabilities during the first nine 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 March 31, 2020 balance included $ 1.3 million of contract liabilities of the liquid-cooled automotive business, which have since been classified as held for sale.

Fair Value Measurements

11 unchanged sentences

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.

In addition, the Company assesses the fair value of a disposal group for each reporting period it is held for sale.

See Note 2 for additional information regarding assets held for sale.

The Company holds investments in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans.

3 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 $ 3.5 and $ 3.8 million as of September 30 , 2020 and March 31, 2020, respectively.

At both December 31, 2020 and March 31, 2020, the fair values of the investments and obligations for the Company’s deferred compensation plans each totaled $ 3.8 million .

The fair value of the Company’s long-term debt is disclosed in Note 17.

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,

Nine months ended

Interest cost

2 unchanged sentences

Net periodic benefit cost

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

During the nine months ended December 31, 2020 and 2019, the Company contributed $ 8.8 million and $ 2.6 million, respectively, to its U.S.

pension plans.

The Company has no t yet made contributions to its U.S.

The Company has deferred certain 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 $ 10.0 million to its U.S.

pension plans during the second half of fiscal 2021.

pension plans during the fourth quarter of fiscal 2021.

Stock-Based Compensation

2 unchanged sentences

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:

The Company recognized stock-based compensation expense of $ 2.1 million and $ 0.8 million for the three months ended December 31,2020 and 2019, respectively.

The Company recognized stock-based compensation expense of $ 4.2 million and $ 5.2 million for the nine months ended Dec ember 31, 2020 and 2019 , respectively.

The fair value of stock-based compensation awards granted during the nine months ended December 31, 2020 and 2019 were as follows:

Nine months ended December 31,

Stock options

Restricted stock awards

Performance stock awards (a)

Unrestricted stock awards

In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants in fiscal 2021.

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 the metrics for the fiscal 2020 and 2019 performance-based stock awards.

The Company used the following assumptions in determining fair value for stock options:

Nine months ended December 31,

Expected life of awards in years

Risk-free interest rate

Expected volatility of the Company's stock

Expected dividend yield on the Company's stock

As of December 31, 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.

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

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.

During fiscal 2021, the Company transferred production from its manufacturing facility in Zhongshan, China to another CIS segment manufacturing facility in China.

As a result of this plant consolidation, the Company recorded $ 3.1 million of severance expenses during the nine months ended December 31, 2020.

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 Company also implemented targeted headcount reductions in 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 supported the Company’s objective of reducing operational and SG&A cost structures.

The Company’s restructuring actions during the first nine 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.

1 unchanged sentence

Three months ended

September 30,

Six months ended

September 30,

Nine months ended

Employee severance and related benefits

1 unchanged sentence

Other restructuring and repositioning expenses primarily consist of equipment transfers and plant consolidation costs.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

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,

Three months ended December 31,

Beginning balance

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

Six months ended September 30,

Nine months ended December 31,

Beginning balance

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

In January 2021, the Company eliminated the Vice President, CIS and Chief Operating Officer senior executive position.

As a result, the Company expects to record approximately $ 1.0 million of severance-related expenses during the fourth quarter of fiscal 2021.

Other Income and Expense

1 unchanged sentence

Three months ended

September 30,

Six months ended

September 30,

Nine months ended

Interest income

2 unchanged sentences

Equity in earnings of non-consolidated affiliate (c)

Total other expense - net

Total other (expense) income - 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 .

2 unchanged sentences

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.

The Company’s effective tax rate for the three months ended December 31, 2020 and 2019 was ( 71.7 ) percent and 63.0 percent , respectively.

The Company’s effective tax rate for the nine months ended December 31, 2020 and 2019 was ( 95.7 ) percent and 65.4 percent , respectively.

The effective tax rates for the fiscal 2021 periods were largely driven by both significant impairment charges and income tax charges related to valuation allowances.

See Note 2 for information regarding the $ 134.4 million of impairment charges recorded during the third quarter of fiscal 2021.

The income tax benefits associated with these impairment charges totaled $ 24.4 million and $ 13.3 million in the U.S.

and in certain foreign jurisdictions, respectively, and increased the deferred tax assets in the applicable jurisdictions.

The deferred tax assets, in turn, were evaluated for realizability as of December 31, 2020, as further described below.

In the fiscal 2020 periods, the effective tax rates were negatively impacted by income tax charges recorded during the third quarter of fiscal 2020.

A $ 3.0 million income tax charge was recorded related to a valuation allowance on deferred tax assets in the U.S.

and a net income tax charge totaling $ 2.7 million was recorded in connection with legal entity restructuring completed in preparation of the potential sale of the liquid-cooled automotive business.

Partially offsetting the negative impacts of the income tax charges, the effective tax rates for the fiscal 2020 periods were favorably impacted by the recognition of a tax incentive in Italy during the third quarter and by the release of an unrecognized tax benefit during the second quarter.

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

Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed.

This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.

In addition, the Company considers the duration of statutory carryforward periods and historical financial results.

Based upon its analysis as of December 31, 2020, the Company determined it was more likely than not that its deferred tax assets in the U.S.

and in certain foreign jurisdictions will not be realized in the future.

As a result, the Company recorded income tax charges totaling $ 116.5 million in the third quarter of fiscal 2021 to increase the valuation allowance on deferred tax assets in the U.S.

($ 103.3 million) and in certain foreign jurisdictions ($ 13.2 million).

Combined with the $ 6.6 million income tax charge recorded during the second quarter of fiscal 2021, the Company has now established a full valuation allowance on its U.S.

deferred tax assets.

Based upon the Company’s projections of future taxable income at the time, the Company previously believed it was more likely than not that these deferred tax assets would be realized in the future.

The Company’s analysis for the third quarter of fiscal 2021 included consideration of the impairment charges recorded during the quarter in connection with the pending sale of the liquid-cooled automotive business;

see Note 2 for additional information.

These impairment charges contributed to the Company entering into a three-year cumulative loss position in the U.S.

and in certain foreign jurisdictions as of December 31, 2020.

The Company also considered year-to-date taxable income, which has been negatively impacted by the COVID-19 pandemic and lower sales to data center cooling customers, and current future projections of taxable income in the relevant jurisdictions.

After considering both the positive and negative evidence, the Company determined it is more likely than not that these deferred tax assets will not be realized.

As of December 31, 2020, valuation allowances against deferred tax assets in the U.S.

and in certain foreign jurisdictions totaled $ 121.7 million and $ 55.5 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 18, 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.

Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

E arnings Per Share

1 unchanged sentence

Three months ended

September 30,

Six months ended

September 30,

Net earnings (loss) attributable to Modine

Nine months ended

Net (loss) earnings attributable to Modine

Weighted-average shares outstanding - basic

1 unchanged sentence

Weighted-average shares outstanding - diluted

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.

(Loss) earnings per share:

Net (loss) earnings per share - basic

Net (loss) earnings per share - diluted

For the three and nine months ended December 31, 2020, the calculation of diluted earnings per share excluded 1.4 million and 1.5 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for the three and nine months ended December 31, 2020 excluded 0.5 million and 0.6 million restricted stock awards, respectively, because they were anti-dilutive.

For the three months and nine months ended December 31, 2020, the total number of potentially-dilutive securities was 0.2 million and 0.1 million , respectively.

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 .

For the three and nine months ended December 31, 2019, the calculation of diluted earnings per share excluded 1.2 million and 0.8 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for both the three and nine months ended December 31, 2019 excluded 0.5 million restricted stock awards because they were anti-dilutive .

Cash, Cash Equivalents and Restricted Cash

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

September 30, 2020

December 31, 2020

March 31, 2020

1 unchanged sentence

Restricted cash

Total cash, cash equivalents and restricted cash

Cash and restricted cash held for sale

Total cash, cash equivalents, restricted cash and cash held for sale

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Inventories consisted of the following:

September 30, 2020

December 31, 2020

March 31, 2020

5 unchanged sentences

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

September 30, 2020

December 31, 2020

March 31, 2020

9 unchanged sentences

Effect of exchange rate changes

Goodwill, September 30, 2020

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Goodwill, December 31, 2020

Intangible assets consisted of the following:

September 30, 2020

December 31, 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 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 recorded amortization expense of $ 2.2 million and $ 2.3 million for the three months ended December 31, 2020 and 2019, respectively.

The Company recorded amortization expense of $ 6.4 million and $ 6.7 million for the nine months ended December 31, 2020 and 2019, respectively.

The Company estimates that it will record $ 2.1 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 September 30,

Three months ended December 31,

Beginning balance

1 unchanged sentence

Adjustments to pre-existing warranties

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

Six months ended September 30,

Nine months ended December 31,

Beginning balance

1 unchanged sentence

Adjustments to pre-existing warranties

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Lease Assets and Liabilities

1 unchanged sentence

Balance Sheet Location

September 30, 2020

December 31, 2020

March 31, 2020

12 unchanged sentences

Long-term debt

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.

Finance lease right of use (“ROU”) assets were recorded net of accumulated amortization of $ 2.3 million and $ 1.8 million as of December 31 , 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,

Three months ended

Nine months ended

Operating lease expense (a)

3 unchanged sentences

Total lease expense

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.

F or the three and nine months ended December 31 , 2020, operating lease expense included short-term lease expense of $ 0.9 million and $ 2.7 million, respectively.

For the three and nine months ended December 31 , 2019, operating lease expense included short-term lease expense of $ 1.0 million and $ 2.9 million, respectively.

Variable lease expense was not significant.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Long-term debt consisted of the following:

Fiscal year of maturity

September 30, 2020

December 31, 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 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.

At December 31 , 2020, the weighted-average interest rates for revolving credit facility borrowings and the term loans were both 2.5 percent.

At December 31, 2020, the Company’s revolving credit facility borrowings totaled $ 30.7 million and domestic letters of credit totaled $ 5.7 million, resulting in available borrowings under the revolving credit facility of $ 213.6 million.

The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings of $ 0.6 million and $ 14.8 million at December 31 , 2020 and March 31, 2020, respectively.

See Note 2 for information regarding short-term borrowings classified as held for sale at December 31, 2020.

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.

2 unchanged sentences

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

In May 2020, the Company executed amendments to its primary credit agreements in the U.S.

1 unchanged sentence

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.

The leverage ratio covenant limit for the third quarter of fiscal 2021 was 5.25 to 1 .

The leverage ratio covenant limit is 5.75 to 1 for the fourth quarter of fiscal 2021.

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 was in compliance with its debt covenants as of December 31 , 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.

As of December 31 , 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 $ 140.4 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.

3 unchanged sentences

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.

As a result of this pandemic, the Company 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.

All of the temporarily-closed facilities reopened in the first or second quarter and have generally returned to more normal production levels.

However, since reopening, production at certain of our plants has been negatively affected at times by employee absences due to COVID-19.

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.

Beginning largely in April 2020 and to mitigate the negative impacts of COVID -19 , the Company took actions including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of the organization.

As production has generally returned to more normal levels, the Company reduced the extent of furloughs, shortened work weeks and salary reductions during the third quarter of fiscal 2021, yet remains focused on controlling 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.

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.

2 unchanged sentences

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Environmental

1 unchanged sentence

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.

The accruals for these environmental matters totaled $ 18.4 million and $ 18.2 million as of December 31, 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.

5 unchanged sentences

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

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

Three months ended December 31, 2020

Nine months ended December 31, 2020

Benefit Plans

4 unchanged sentences

Amortization of unrecognized net loss (a)

Realized losses - net (b)

Realized (gains) losses - net (b)

Total other comprehensive income

Ending balance

Three months ended September 30, 2019

Six months ended September 30, 2019

Three months ended December 31, 2019

Nine months ended December 31, 2019

Benefit Plans

1 unchanged sentence

Beginning balance

Other comprehensive loss before reclassifications

Other comprehensive income (loss) before reclassifications

Reclassifications:

8 unchanged sentences

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Segment Information

7 unchanged sentences

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

Three months ended September 30,

Three months ended December 31,

Inter-segment

2 unchanged sentences

Corporate and eliminations

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Six months ended September 30,

Nine months ended December 31,

Inter-segment

2 unchanged sentences

Corporate and eliminations

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

Gross profit:

1 unchanged sentence

Corporate and eliminations

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

Operating income:

1 unchanged sentence

Corporate and eliminations

Operating income

September 30, 2020

Operating (loss) income

December 31, 2020

March 31, 2020

Total assets:

Corporate and eliminations

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.

Automotive (a)

Corporate and eliminations (b)

During the third quarter of fiscal 2021, the Company recorded impairment charges totaling $ 134.4 million within the Automotive segment, primarily related to the property, plant and equipment of the liquid-cooled automotive business, the sale of which is pending.

See Note 2 for additional information.

During the nine months ended December 31, 2020, the Company recorded income tax charges totaling $ 109.9 million to increase the valuation allowance on deferred tax assets in the U.S, which are recorded at Corporate.

See Note 9 for additional information.

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