What changed in this filing

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Item 1. Business

2021-05-27 compared with 2020-05-29 · 221 added, 191 removed, 138 unchanged (75% of the section changed)

Modine Manufacturing Company specializes in providing innovative thermal management solutions to diversified global markets and customers.

We are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.

In addition, we are a global leader in thermal management technology and solutions for sale into a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets.

Our primary product groups include i) powertrain cooling and engine cooling;

We are a global leader in thermal management technology and solutions for sale into a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets.

In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.

Our primary product groups include i) heating, ventilation and air conditioning;

ii) coils, coolers, and coatings;

and iii) heating, ventilation and air conditioning.

and iii) powertrain cooling and engine cooling.

Our primary customers across the globe include:

Automobile, truck, bus, and specialty vehicle OEMs;

Agricultural, industrial and construction equipment OEMs;

Commercial and industrial equipment OEMs;

Heating, ventilation and cooling OEMs;

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Wholesalers of heating equipment;

We focus our development efforts on solutions that meet the ever-increasing heat transfer needs of OEMs and other customers within the automobile, commercial vehicle, construction, agricultural, industrial and HVAC&R industries.

Agricultural, industrial and construction equipment OEMs;

Commercial and industrial equipment OEMs;

Automobile, truck, bus, and specialty vehicle OEMs.

We focus our development efforts on solutions that meet the ever-increasing heat transfer needs of our customers.

Our products and systems are aimed at solving complex heat transfer challenges requiring effective thermal management.

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Business Strategy and Results

Modine pursues market leadership by being a customer-focused, global company delivering exceptional quality, innovation and value.

We hold a competitive position in the marketplace as thermal management experts.

During fiscal 2020, we continued to employ our Strengthen, Diversify and Grow (“SDG”) strategy in order to transform Modine into a more diversified industrial thermal-management company.

We launched our SDG strategy over four years ago to establish a more global, product-based organizational structure and a strategic framework for our company.

This strategic framework continues to provide benefits and has helped us to quickly implement cost-saving measures in response to lower end-market demand.

We faced various challenges in fiscal 2020, including weakness in key vehicular end markets that began in the middle of our fiscal year.

In addition, the outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization in March 2020, negatively impacted our business, beginning in the fourth quarter in our Asian and European markets.

Both the vehicular market weakness and the impacts of the COVID-19 pandemic placed significant strain on our previously-announced evaluation of strategic alternatives for the automotive business within our Vehicular Thermal Solutions (“VTS”) segment.

As a result, we have paused this process until economic conditions improve.

We remain committed, however, to exiting the automotive business in a manner that is in the best interest of our shareholders.

Globally, the COVID-19 pandemic has created significant volatility in the economy and end market demand, and has led to facility closures and supply chain disruption.

Our business, along with many other businesses globally, is susceptible to impacts from COVID-19.

We suspended production at certain manufacturing facilities in China, India, Italy, Spain, Germany, the Netherlands, Austria, Hungary, the U.S., Mexico and Brazil due to local government requirements or customer shutdowns and are operating other facilities in the U.S.

and abroad at reduced capacity levels.

Although the temporarily-closed facilities have since reopened, many are operating at a significantly reduced volume because of low customer demand.

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

In addition, we are reducing operating and administrative expenses, including travel and entertainment expenditures, and lowering the annual compensation paid to the Board of Directors.

We are also focused on reducing capital expenditures by delaying certain projects and the purchase of some program-related equipment and tooling.

We are committed to the health and safety of our employees and have implemented steps to mitigate risk in our manufacturing operations and administrative offices.

We are also committed to meeting our customers’ needs and will work to overcome any supply chain disruptions that may arise to deliver quality products and services to our customers in a timely manner.

Our top five customers are in the automotive, commercial vehicle, and off-highway markets and our ten largest customers accounted for 45 percent of our fiscal 2020 sales.

We thrive on innovation and use our thermal management expertise to design products that better the world.

From improving indoor air quality to increasing energy efficiency of data centers to lowering harmful vehicular emissions, our businesses design quality systems and products to enable our customers to operate in the ever-changing global marketplace.

Fiscal 2021 presented challenges, largely driven by the COVID-19 pandemic.

Since the onset of the pandemic, our top priorities have been, and continue to be, the health and overall well-being of our employees and delivering quality products and services to our customers.

COVID-19 has broadly impacted the global economy and our key end markets.

Our businesses were most severely impacted during the first quarter of fiscal 2021.

In response, we swiftly implemented cost-saving actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization.

We withdrew most of these cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered.

Despite the challenges, we ended the year in a position of strength.

By the end of fiscal 2021, we had reached agreements to sell both the liquid- and air-cooled automotive businesses in separate transactions.

These sale agreements represent significant progress towards our strategic exit of our Automotive segment businesses.

The sale of the air-cooled automotive business closed in April 2021.

The sale of the liquid-cooled automotive business is subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions.

We are currently working with the buyer through the regulatory approval process.

At this time, we are not able to estimate the ultimate impact of the regulatory approval process or the closing date for this transaction.

We also completed the transition to our new President and Chief Executive Officer (“CEO”), Neil D.

Brinker’s leadership, our teams are energized in implementing an 80/20 strategy to examine our business using data analytics in order to focus our resources on products and markets with the highest growth and best returns.

During fiscal 2021, our consolidated net sales were $1.81 billion, an 8 percent decrease from $1.98 billion in fiscal 2020.

This decrease was primarily due to lower sales in our Commercial and Industrial Solutions (“CIS”), Heavy-Duty Equipment (“HDE”), and Automotive segments, largely driven by impacts of the COVID-19 pandemic.

Our Building HVAC Systems (“BHVAC”) segment sales increased 9 percent compared with the prior year.

Our operating loss of $98 million in fiscal 2021 was primarily due to $167 million of impairment charges recorded in the Automotive segment, partially offset by lower selling, general and administrative (“SG&A”) expenses, which benefitted from lower project costs associated with our strategic exit of the automotive businesses and cost-reduction initiatives in response to COVID-19.

Our top five customers are in the commercial vehicle, off-highway and automotive and light vehicle markets and our ten largest customers accounted for 43 percent of our fiscal 2021 sales.

In fiscal 2021, 63 percent of our total sales were generated from customers outside of the U.S., with 56 percent of total sales generated by foreign operations and 7 percent generated by exports from the U.S.

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In fiscal 2019, 58 percent of our total sales were generated from customers outside of the U.S., with 52 percent of total sales generated by foreign operations and 6 percent generated by exports from the U.S.

During fiscal 2020, our consolidated net sales were $1.98 billion, an 11 percent decrease from $2.21 billion in fiscal 2019.

This decrease was primarily due to lower sales in our VTS and Commercial and Industrial Solutions (“CIS”) segments, partially offset by higher sales in our Building HVAC Systems (“BHVAC”) segment.

Our operating income of $38 million in fiscal 2020 decreased $72 million compared with the prior year, primarily due to lower earnings in the VTS and CIS segments and separation and project costs associated with our review of strategic alternatives for the automotive business, partially offset by higher earnings in the BHVAC segment.

In response to the lower market demand and in an effort to optimize our cost structure and improve the efficiency of our operations, we have engaged in various restructuring activities.

As a result, we recorded restructuring expenses of $12 million and $10 million during fiscal 2020 and 2019, respectively, primarily related to severance expenses resulting from targeted headcount reductions.

We sell products to multiple end markets.

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Some of these market changes have caused us to experience competition from suppliers in other parts of the world that enjoy economic advantages such as lower labor costs, lower healthcare costs, and lower tax rates.

As a result, we have expanded and continue to expand our geographic footprint, in part to provide more flexibility to serve our customers around the globe.

As a result, we continue to optimize our geographic footprint to provide more flexibility to serve our customers around the globe.

Many of our customers also continue to ask us, as well as their other primary suppliers, to provide research and development (“R&D”), design, and validation support for new potential projects.

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Financial information for our operating segments is included in Note 22 of the Notes to Consolidated Financial Statements.

Effective April 1, 2020, we began managing our automotive business separate from the VTS segment.

We are managing the automotive business as a separate segment as we target the sale or eventual exit of the businesses in this segment.

In light of the ongoing COVID-19 pandemic, we have paused this process, but we intend to resume once we determine that market conditions will support our effort to maximize the value of the automotive business.

Beginning for fiscal 2021, we will report the financial results of the automotive business as the Automotive segment.

The remaining portion of the previous VTS segment will be named the Heavy-Duty Equipment segment and will include the heavy-duty commercial vehicle and off-highway businesses.

Our Vehicular Business

Vehicular Thermal Solutions Segment

The continued globalization of our vehicular customer base requires us to manage our strategic approach, product offerings and the competitive environment on a global basis.

This trend offers significant opportunities for us with our market positioning, including our presence in key vehicular markets (U.S., Mexico, Brazil, Europe, India, China, and South Korea) and as a global organization with the expertise to solve technical challenges.

We are recognized for having strong technical support in all regions, an extensive product portfolio, and the ability to provide global standard designs for our customers.

Many vehicular OEMs continue to expect cost reductions from suppliers while requiring a consistent level of quality.

In addition, these OEMs seek new technology solutions at low prices for their thermal management needs.

In general, this creates challenges for us and the entire supply base, but also provides an opportunity for suppliers, like Modine, who develop innovative solutions at a competitive cost.

Each of our main vehicular competitors, AKG Group, BorgWarner, Dana Corporation, Denso Corporation, Mahle, Tata Toyo, TitanX, T.

Ltd., UFI Filters, Valeo SA, Hanon Systems, and Zhejiang Yinlun Machinery Co.

Ltd., have a multi-regional or worldwide presence.

Increasingly, we face heightened competition as these competitors expand their product offerings and manufacturing footprints through expansion into lower-cost countries or lower-cost sourcing initiatives.

In addition, competitors from some lower-cost regions are beginning to expand into new geographical markets.

The following summarizes the primary markets served by our VTS segment:

Market Overview – The global automotive markets declined during fiscal 2020.

While we expect longer-term growth of the automotive market will be supported by the tightening of emissions standards, in-vehicle technology enhancements and growth in emerging markets, we expect the global automotive markets will experience declines in fiscal 2021.

The COVID-19 pandemic is adversely impacting these markets;

the duration and severity of the impacts of COVID-19 are currently uncertain.

We have seen increased development activity in the automotive market on electric and hybrid powertrains with global automotive OEMs, their powertrain suppliers, and a number of start-up companies specializing in electric vehicles.

We are actively involved in developing and manufacturing solutions for these alternative powertrains.

At the same time, we remain focused on programs for traditional internal combustion engines, which we believe will remain the primary automotive powertrain for years to come.

Products – Powertrain cooling (engine cooling assemblies, radiators, condensers and charge air coolers);

auxiliary cooling (power steering coolers and transmission oil coolers);

component assemblies;

radiators for special applications;

on-engine cooling (exhaust gas recirculation (“EGR”) coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers);

and chillers and cooling plates for battery thermal management.

Customers – Automobile, light truck, motorcycle, and power sports vehicle and engine manufacturers.

Primary Competitors – Mahle;

Dana Corporation;

Denso Corporation;

Hanon Systems;

and Zhejiang Yinlun Machinery Co., Ltd.

Commercial Vehicle

Market Overview – During fiscal 2020, the North American commercial vehicle markets experienced declines, the most severe of which was within the heavy-duty truck market.

In South America, the commercial vehicle market was relatively flat in fiscal 2020.

In Europe and India, the commercial vehicle market experienced slight declines in fiscal 2020.

We expect the global commercial vehicle markets will decline in fiscal 2021.

The COVID-19 pandemic has lowered customer demand in these markets;

the duration and severity of the impacts of COVID-19 are currently uncertain.

Beyond the COVID-19 pandemic, trends influencing the commercial and specialty vehicle markets include a desire by global commercial vehicle manufacturers to standardize U.S., Canadian, and Eurozone emissions regulations and the adoption of higher standards, which are more comparable to Euro 6, in China and India.

Global standardization would lead to further development opportunities for Modine.

Additionally, truck and bus manufacturers are evaluating alternative powertrains and fuels, including electrification, waste heat recovery, and other technologies aimed at improving vehicle efficiency, all of which could present opportunities for us.

These trends are driving the advancement of product development worldwide and are creating demand for incremental improvements to thermal transfer products.

We are active in these developments with numerous customers, and believe we are well positioned to support these changes.

Products – Powertrain cooling (engine cooling modules, radiators, charge air coolers, condensers, oil coolers, fan shrouds, and surge tanks);

on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers);

and auxiliary cooling (transmission and retarder oil coolers and power steering coolers);

and battery thermal management systems.

Customers – Commercial, medium- and heavy-duty truck and engine manufacturers;

and bus and specialty vehicle manufacturers.

Primary Competitors – Mahle;

and Tata Toyo.

Market Overview – The global off-highway markets experienced declines during fiscal 2020.

In North America, production of U.S.

agricultural, construction, and mining machinery decreased in fiscal 2020 compared with the prior year.

In South America, the off-highway markets experienced modest growth in fiscal 2020.

In Europe, construction and agricultural equipment markets experienced slight declines in fiscal 2020.

In Asia, the excavator markets experienced moderate declines during fiscal 2020.

We expect the global off-highway markets will decline in fiscal 2021.

The COVID-19 pandemic has lowered customer demand in the off-highway markets;

the duration and severity of the impacts of COVID-19 are currently uncertain.

Products – Powertrain cooling (engine cooling modules, radiators, condensers, charge air coolers, fuel coolers and oil coolers);

auxiliary cooling (power steering coolers and transmission oil coolers);

and on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers).

Customers – Construction, agricultural, and mining equipment and engine manufacturers, and industrial manufacturers of material handling equipment, generator sets and compressors.

Primary Competitors – Adams Thermal Systems Inc.;

Denso Corporation;

Zhejiang Yinlun Machinery Co., Ltd.;

ThermaSys Corp.;

Mahle Industrial Thermal Systems;

KALE OTO RADYATÖR;

Effective April 1, 2020, we began managing our automotive business separate from the previously-reported Vehicular Thermal Solutions (“VTS”) segment.

The other businesses of the VTS segment, including the commercial vehicle and off-highway businesses, are being managed as the HDE segment.

Our Industrial Businesses

Commercial and Industrial Solutions Segment

Market Overview – The primary markets served by our CIS segment experienced slight declines during fiscal 2020.

We expect these markets will decline further in fiscal 2021.

The COVID-19 pandemic is negatively impacting these markets;

the duration and severity of the impacts of COVID-19 are currently uncertain.

Beyond the COVID-19 pandemic, trends influencing the primary CIS markets include refrigerant substitution and energy efficiency requirements, both of which are expected to benefit the commercial HVAC&R markets.

We also expect that future increases in urbanization, changing food consumption trends and increases in global trade will drive investments in refrigeration infrastructure.

Demand for efficient HVAC&R systems is driven by more stringent energy efficiency regulations and the need for higher-efficiency buildings.

Regulatory bodies are imposing stricter guidelines aimed to reduce carbon footprint, which we expect will drive growth in the data center market, as data centers will need to adopt the latest precision cooling solutions.

Lastly, we expect the anticipated reduction in Chinese government investments will negatively impact the industrial cooling market in China.

Products – Coils (heat-exchanger and microchannel);

coolers (unit coolers, remote condensers, fluid coolers, transformer oil coolers and brine coolers);

and coatings to protect against corrosion.

Customers – Commercial and industrial equipment manufacturers;

distributors, contractors, and consumers in a variety of commercial and industrial applications, including commercial and mobile air conditioning, refrigeration, and precision and industrial cooling.

Primary Competitors – Kelvion Holding GmbH;

Alfa-Laval AB;

Lennox International, Inc.;

Super Radiator Coils;

DunAn Precision Manufacturing, Inc.;

and Guntner GmbH & Co.

Building HVAC Systems Segment

Market Overview –The North American heating and ventilation market experienced moderate to relatively strong growth in fiscal 2020 due to overall favorable economic conditions and an increased demand from school systems.

Our businesses in the United Kingdom (“U.K.”) serve ventilating, air conditioning (“HVAC”) and data center markets in the U.K., mainland Europe, the Middle East, Far East and Africa.

In fiscal 2020, we saw strong growth within the colocation segment of data centers, offset slightly by a decline in comfort air conditioning markets largely attributable to the uncertainty of the withdrawal of the U.K.

from the European Union (“Brexit.”)

With the exception of the data center market, where we are seeing heightened demand in light of increasing reliance on virtual capabilities resulting from stay-at-home edicts, the COVID-19 pandemic is negatively impacting the primary markets served by the BHVAC segment.

The duration and severity of the impacts of COVID-19 on these markets are currently uncertain.

Once markets return to a more normal state, we expect commercial investment, construction market activity, and energy efficiency legislation to drive increased demand in the ventilation and air conditioning markets.

We believe increased clarity regarding Brexit will begin benefitting the U.K.

In addition, we expect an ever-increasing reliance on digital technologies, specifically colocation and cloud usage, to drive growth in the data center markets in the U.K.

We also expect that European legislation, designed to increase equipment efficiency and reduce the use of high global warming potential refrigerants, will result in customer buying pattern shifts over the next few years, as HVAC equipment providers shift products towards more efficient and environmentally-friendly alternatives.

Products – Unit heaters (gas-fired, hydronic, electric and oil-fired);

Market Overview

In North America, the heating market experienced modest growth in fiscal 2021.

The ventilation markets, driven by new construction and renovations, were negatively impacted by COVID-19, especially within the hospitality sectors.

In fiscal 2022, we expect continued modest growth in the North American heating markets.

We also expect strong growth in the North American ventilation markets, largely driven by an increased focus on and available federal and local funding for ventilation improvements by school and healthcare systems as a result of the COVID-19 pandemic.

Our businesses in the United Kingdom (“U.K.”) serve ventilation, air conditioning and data center markets in the U.K., mainland Europe, the Middle East, Far East and Africa.

In fiscal 2021, the data center market experienced strong growth, including heightened demand from increasing reliance on virtual capabilities resulting from stay-at-home edicts.

We expect increasing reliance on digital technologies, specifically colocation and cloud usage, to drive continued strong growth in the data center markets in the U.K.

and Europe in fiscal 2022.

The ventilation and air conditioning markets served by our U.K.

business saw some softness in fiscal 2021 due to COVID-19, similar to the North American markets.

We expect these markets will exhibit moderate growth in fiscal 2022.

Looking forward, we expect that European legislation, designed to increase equipment efficiency and reduce the use of high global warming potential refrigerants, will result in customer buying pattern shifts over the next few years, as HVAC equipment providers shift products towards more efficient and environmentally-friendly alternatives.

While future impacts associated with the COVID-19 pandemic are currently uncertain, we expect commercial investment, construction market activity, and energy efficiency legislation will drive increased demand in the ventilation and air conditioning markets in the years to come.

Unit heaters (gas-fired, hydronic, electric and oil-fired);

duct furnaces (indoor and outdoor);

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Aftersales includes spare parts, maintenance service and control solutions for existing plant equipment and new building management controls and systems.

Customers – Mechanical contractors;

Mechanical contractors;

HVAC wholesalers;

and end users in a variety of commercial and industrial applications, including banking and finance, data center management, including colocation and cloud providers, education, hospitality, telecommunications, entertainment arenas, hotels, restaurants, hospitals, warehousing, manufacturing, and food and beverage processing.

Primary Competitors – Lennox International Inc (ADP).;

and end users in a variety of commercial and industrial applications, including data center management, including colocation and cloud providers, banking and finance, education, hospitality, telecommunications, entertainment arenas, hotels, restaurants, hospitals, warehousing, manufacturing, and food and beverage processing.

Primary Competitors

Lennox International Inc (ADP);

Reznor (Nortek Global HVAC);

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System Air (ChangeAir);

Ingersoll Rand Inc.

Trane Technologies;

Bard Manufacturing;

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and Aaon, Inc.

Commercial and Industrial Solutions Segment

Market Overview

With the exception of the data center market, the primary markets served by our CIS segment were negatively impacted by the COVID-19 pandemic during fiscal 2021.

The HVAC&R and industrial cooling markets were most severely impacted early in our fiscal year and have been recovering since.

We expect most markets will continue to recover in fiscal 2022, with stronger recovery expected in the second half of the fiscal year.

Beyond the COVID-19 pandemic, trends influencing the primary CIS markets include refrigerant substitution, data usage and storage demand, and energy efficiency requirements, all of which are expected to benefit the commercial HVAC&R and data center markets.

We also expect that global population growth will drive changes in food consumption and food chain cooling demand trends and general increases in global trade will drive investments in refrigeration infrastructure.

Demand for more efficient HVAC&R systems in buildings and processes is driven by more stringent energy efficiency regulations.

In addition, regulatory bodies are imposing stricter guidelines aimed at reducing carbon footprint and demand is growing for data center cooling and on-site power backup capabilities, both of which we expect will drive growth in the data center market.

Coils (microchannel, heat recovery and round tube plate fin);

coolers (unit coolers, remote condensers, fluid coolers, transformer oil coolers and brine coolers);

and coatings to protect against corrosion.

Commercial and industrial equipment manufacturers;

distributors, contractors, and end users in a variety of commercial and industrial applications, including commercial and residential HVAC, mobile air conditioning, refrigeration, data center management, and precision and industrial cooling.

Primary Competitors

Kelvion Holding GmbH;

Alfa-Laval AB;

Lennox International, Inc.;

Super Radiator Coils;

DunAn Precision Manufacturing, Inc.;

and Guntner GmbH & Co.

Our Vehicular Businesses

Heavy Duty Equipment and Automotive Segments

Geographically, we have a strong presence in the vehicular markets within the U.S., Mexico, Brazil, Europe, India, China, and South Korea.

We leverage our global organizational structure and expertise to solve our customers’ technical challenges.

Our customers value our technical support presence in all regions, our extensive product portfolio, and our ability to provide them with global standard designs.

Vehicular OEMs often expect cost reductions from suppliers while requiring a consistent level of quality.

In addition, OEMs often seek new technology solutions at low prices for their thermal management needs.

In general, this creates challenges for us and the entire supply base, but also provides an opportunity for suppliers, like Modine, who develop innovative solutions at a competitive cost.

Each of our main vehicular competitors, AKG Group, BorgWarner, Dana Corporation, Denso Corporation, Mahle, Tata Toyo, TitanX, T.

Ltd., UFI Filters, Valeo SA, Hanon Systems, and Zhejiang Yinlun Machinery Co.

Ltd., have a multi-regional or worldwide presence.

In addition, competitors from some lower-cost regions are beginning to expand into new geographical markets.

The following summarizes the primary vehicular markets we serve:

Commercial Vehicle

Market Overview

During fiscal 2021, the North American and European commercial vehicle markets, particularly for heavy- and medium-duty trucks, were negatively impacted by the COVID-19 pandemic.

The most severe impacts occurred early in fiscal 2021 and these commercial vehicle markets have been recovering since.

While future impacts associated with the COVID-19 pandemic are uncertain, we expect these markets will continue to recover and exhibit strong growth during fiscal 2022.

We expect the Asian commercial vehicle markets will experience growth during the first part of fiscal 2022;

however, we anticipate there may be some cyclical market weakness during the second half of fiscal 2022.

Beyond the COVID-19 pandemic, trends influencing the commercial and specialty vehicle markets include the continued need by commercial vehicle manufacturers to meet increasingly stringent emissions and fuel consumption requirements in all regions of the world.

For example, Modine has realized incremental business in Asia as China 6 and Bharat Stage 6 regulations have been implemented in China and India, respectively.

Additionally, truck and bus manufacturers are developing and bringing to market alternative powertrains, including battery electric, waste heat recovery, fuel cells, and other hydrogen-based technologies aimed at improving vehicle efficiency and reducing carbon footprint.

These trends are driving the advancement of product development worldwide and are creating demand for incremental improvements to thermal transfer products and systems.

We are active in these developments with numerous customers – both traditional OEM’s and start-up companies – on vehicles that cover the full range of commercial vehicle applications from last-mile to Class 8 trucks.

We are well positioned to support these changes.

Powertrain cooling (engine cooling modules, radiators, charge air coolers, condensers, oil coolers, fan shrouds, and surge tanks);

on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers);

auxiliary cooling (transmission and retarder oil coolers and power steering coolers);

and complete battery thermal management systems and electronics cooling packages.

Commercial, medium- and heavy-duty truck and engine manufacturers;

and bus and specialty vehicle manufacturers.

Primary Competitors

and Tata Toyo.

Market Overview

Overall, global off-highway markets were relatively flat in fiscal 2021.

The North and South American off-highway markets, including agricultural, construction, and mining markets, were negatively impacted by the COVID-19 pandemic.

The most severe COVID-19 impacts occurred early in fiscal 2021 and were followed by strong recovery in the second half of fiscal 2021.

While future impacts associated with the COVID-19 pandemic are uncertain, we expect strong growth in the Americas and in European off-highway markets during fiscal 2022, particularly in the first half of the fiscal year.

We expect the Asian off-highway markets will experience slight declines in fiscal 2022, primarily due to cyclicality of the markets and lower government spending in China.

We expect wide-scale adoption of alternative powertrains will happen more gradually in the off-highway markets compared with commercial vehicle markets.

However, there are several off-highway customers and applications that are currently active in developing and bringing this technology to market.

We are actively engaged with them and see additional opportunities in the future.

Powertrain cooling (engine cooling modules, radiators, condensers, charge air coolers, fuel coolers and oil coolers);

auxiliary cooling (power steering coolers and transmission oil coolers);

on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers);

and complete battery thermal management systems and electronics cooling packages.

Construction, agricultural, and mining equipment and engine manufacturers, and industrial manufacturers of material handling equipment, generator sets and compressors.

Primary Competitors

Adams Thermal Systems Inc.;

Denso Corporation;

Zhejiang Yinlun Machinery Co., Ltd.;

ThermaSys Corp.;

Haesong Engineering Co., Ltd.;

Mahle Industrial Thermal Systems;

Automotive and Light Vehicle

Market Overview

The North American and European automotive and light vehicle markets declined during fiscal 2021, primarily driven by the negative impacts of the COVID-19 pandemic.

The most severe impacts occurred early in fiscal 2021 and these markets have been recovering since.

While future impacts associated with the COVID-19 pandemic are uncertain, we expect these markets will continue to recover and exhibit growth during fiscal 2022.

The automotive market in China experienced modest growth during fiscal 2021;

we expect slight declines in the Chinese automotive market in fiscal 2022, primarily due to market cyclicality.

Overall, we expect longer-term growth of the global automotive market will be supported by tightening of emissions standards, in-vehicle technology enhancements and growth in emerging markets.

Powertrain cooling (engine cooling assemblies, radiators, condensers and charge air coolers);

auxiliary cooling (power steering coolers and transmission oil coolers);

component assemblies;

radiators for special applications;

on-engine cooling (exhaust gas recirculation (“EGR”) coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers);

and chillers and cooling plates for battery thermal management.

Automobile, light truck, motorcycle, and power sports vehicle and engine manufacturers.

Primary Competitors

Dana Corporation;

Denso Corporation;

Hanon Systems;

and Zhejiang Yinlun Machinery Co., Ltd

Geographical Areas

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United States

United Arab Emirates

United Kingdom

United Arab Emirates

subsidiaries and affiliates manufacture and sell a number of vehicular and commercial, industrial and building HVAC&R products similar to those produced in the U.S.

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to foreign countries, as a percentage of consolidated net sales, were 7 percent, 7 percent and 6 percent in fiscal 2021, 2020, and 2019, respectively.

We believe our international presence positions us to share profitably in the anticipated long-term growth of the global vehicular and commercial, industrial and building HVAC&R markets.

We believe our international presence positions us to benefit from the anticipated long-term growth of the global commercial, industrial and building HVAC&R and vehicular markets.

We are committed to increasing our involvement and investment in international markets in the years ahead.

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Our ten largest customers, some of which are conglomerates or otherwise affiliated, accounted for 43 percent of our consolidated net sales in fiscal 2021.

In fiscal 2020, Daimler AG accounted for 10 percent or more of our sales.

In fiscal 2019 and 2018, Daimler AG and Volkswagen AG each accounted for 10 percent or more of our sales.

Our top customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and commercial air conditioning markets.

In fiscal 2021 and 2020, Daimler AG accounted for 10 percent or more of our sales.

In fiscal 2019, Daimler AG and Volkswagen AG each accounted for 10 percent or more of our sales.

Our top customers operate primarily in the commercial vehicle, off-highway, automotive and light vehicle, commercial air conditioning and refrigeration markets.

Our top customers, listed alphabetically, include:

Carrier, Caterpillar;

Daimler AG (including Daimler Trucks, Detroit Diesel, Mercedes-Benz, and Western Star Trucks);

Deere & Company;

(including Chrysler, CNH, Fiat, Iveco, and VM Motori);

Ingersoll Rand Inc.

Navistar (including MWM International);

Stallantis (including Chrysler, CNH, Fiat, Iveco, PSA-Peugeot-Citroen, and VM Motori);

Trane Technologies;

Volkswagen AG (including Audi, MAN, Porsche, and Scania);

and AB Volvo (including Mack Trucks and Renault Trucks).

In addition, our CIS segment includes significant sales generated from a single global technology customer (more than 10 percent of CIS segment sales in fiscal 2020) with which we are party to confidentiality agreements.

AB Volvo (including Mack Trucks and Renault Trucks);

and ZF Friedrichshafen AG.

Generally, we supply products to our customers on the basis of individual purchase orders received from them.

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Our operating segments maintain their own inventories and production schedules.

We believe that our current production capacity is capable of handling the sales volume expected in fiscal 2021 and beyond.

We believe that our current production capacity is capable of handling our expected sales volume in fiscal 2022 and beyond.

Raw Materials

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The supply of copper and brass material is concentrated between two global suppliers, with other suppliers qualified and supplying lesser amounts to mitigate risk.

We typically do not experience raw material shortages and believe that our suppliers’ production of these metals will be adequate throughout the next fiscal year.

While our suppliers may become constrained due to global demand, we typically do not experience raw material shortages and believe that our suppliers’ production of these metals will be adequate throughout the next fiscal year.

We typically adjust metals pricing with our raw material suppliers on a monthly basis and our major fabricated component suppliers on a quarterly basis.

When possible, we have included provisions within our long-term customer contracts which allow us to adjust customer prices, on a prospective basis, based upon increases and decreases in the cost of key raw materials.

When possible, we have included provisions within our long-term customer contracts which provide for adjustments to customer prices, on a prospective basis, based upon increases and decreases in the cost of key raw materials.

When applicable, however, these contract provisions are typically limited to the underlying cost of the material based upon the London Metal Exchange, and do not include related premiums or fabrication costs.

In addition, there can often be a three-month to one-year lag until the time that we adjust the price with our customer.

In addition, there can often be a three-month to one-year lag until the time that the price adjustments take effect.

We own or license numerous patents related to our products and operations.

These patents and licenses have been obtained over a period of years and expire at various times.

Because we have many product lines, we believe that our business as a whole is not materially dependent upon any particular patent or license, or any particular group of patents or licenses.

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We remain committed to our vision of creating value through technology and innovation.

We focus our engineering and R&D efforts on solutions that meet challenging heat transfer needs of OEMs and other customers within the automotive, powersports, commercial vehicle, construction, agricultural, and commercial, industrial, and building HVAC&R markets.

We focus our engineering and R&D efforts on solutions that meet challenging heat transfer needs of OEMs and other customers within the commercial, industrial, and building HVAC&R and commercial vehicle, construction, agricultural, powersports and automotive and light vehicle markets.

Our products and systems are often aimed at solving difficult and complex heat transfer challenges requiring advanced thermal management.

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To achieve efficiencies and lower development costs, our R&D groups work closely with our customers on special projects and system designs.

Projects include EGR technology, oil coolers, charge air coolers, refrigerant heat exchangers, and battery thermal management systems for the automotive, commercial vehicle, agriculture, construction, and residential and commercial energy storage markets, which enable our customers to meet more stringent emission and energy efficiency standards.

Most of our current R&D activities are focused on internal development in the areas of powertrain cooling, engine cooling, building HVAC, and commercial and industrial thermal management products.

Projects include refrigerant heat exchangers, EGR technology, oil coolers, charge air coolers, and battery thermal management systems for the residential and commercial energy storage, commercial vehicle, agriculture, construction, and automotive and light vehicle markets, which enable our customers to meet more stringent emission and energy efficiency standards.

Most of our current R&D activities are focused on internal development in the areas of building HVAC, commercial and industrial thermal management products and powertrain and engine cooling.

We also collaborate with several industry, university, and government-sponsored research organizations that conduct research and provide data on practical applications in the markets we serve.

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Quality Improvement

Globally, we drive quality improvement by maintaining the Global Modine Management System, applying the Modine Operating System, and executing the Modine Quality Strategy.

Globally, we drive quality improvement by maintaining the Global Modine Management System and executing the Modine Quality Strategy.

Through our integrated and process-oriented Global Modine Management System, the majority of our manufacturing facilities and administrative offices are registered to ISO 9001:20015 or IATF 16949:2016 standards, helping to ensure that our customers receive high quality products and services.

Modine puts emphasis on monitoring process performance and adherence to meet rising customer expectations for performance, quality and service.

Our Global Modine Management System operates within the context of our Modine Operating System, which focuses on well-defined improvement principles and leadership behaviors to engage our teams in facilitating rapid improvements.

We drive sustainable and systematic continuous improvement throughout our company by utilizing the principles, processes and behaviors that are core to these systems.

To ensure future quality, we continue to execute the Modine Quality Strategy, which focuses on people, process, performance, tools and methods and the Global Modine Management System.

Environmental, Health and Safety Matters

Our Global Modine Management System focuses on well-defined improvement principles and leadership behaviors to engage our teams in facilitating rapid improvements.

We drive sustainable and systematic continuous improvement throughout our company by utilizing the principles, processes and behaviors that are related to the Global Modine Management System.

To ensure future quality, we continue to execute the Modine Quality Strategy, which focuses on people, process, performance, quality engineering and the Global Modine Management System.

Environmental Matters

We are committed to preventing pollution, eliminating waste and reducing environmental risks and employ waste management programs to advance our environmental stewardship and minimize our environmental footprint.

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We are focused on reducing both our energy and water usage and have empowered each of our global facilities to create and carry out action plans that will contribute to our company-wide reduction goals.

Examples of steps being taken to meet these goals include the installation of more efficient LED lighting systems, the replacement of inefficient boilers and air compressors, improved building HVAC management systems, increased industrial water recycling, and the installation of water-saving faucets.

Examples of steps we are taking to meet these goals include the installation of more efficient LED lighting systems, the replacement of inefficient boilers and air compressors, improved building HVAC management systems, increased industrial water recycling, and the installation of water-saving faucets.

We are committed to continuously driving energy efficiency across our product portfolio, reflecting our sense of environmental responsibility.

Our VTS segment products include EGR, oil and charge-air coolers, radiators, air conditioning condensers, battery and oil cooling systems, and charge-air coolers for cars, trucks, motorcycles, and specialty vehicles.

For our data center customers, we are focused on designing and providing cooling solutions that reduce both electrical and water usage.

We are also shifting our product portfolios in our industrial businesses toward lower-emission propellants and refrigerants that greatly reduce the environmental impact and enhance energy efficiency for our customers’ heating and cooling systems.

In addition, we are focusing on reducing energy use by recycling waste heat produced from air conditioning systems.

Lastly, products in our vehicular businesses include oil, charge-air, and exhaust gas recirculation (ERG) coolers, radiators, air conditioning condensers, and battery thermal management systems for cars, trucks, buses, specialty vehicles, and off-highway equipment.

These products allow both internal combustion and electric vehicle systems to run at optimal temperatures, which promotes better fuel efficiency, lower emissions, and improved vehicle lifespans.

We continue to focus on component design and development to improve fuel efficiency and reduce overall energy consumption, while still providing the vehicle performance that our customers expect.

In our CIS and BHVAC segments, we are shifting our product portfolios toward lower-emission propellants and refrigerants that greatly reduce the environmental impact and enhance energy efficiency for our customers’ heating and cooling systems.

In addition, in our BHVAC segment, we are also focusing on reducing energy use by recycling waste heat produced from air conditioning systems.

Obligations for remedial activities may arise at our facilities due to past practices, or as a result of a property purchase or sale.

These obligations most often relate to sites where past operations followed practices that were considered acceptable under then-existing regulations, but now require investigative and/or remedial work to ensure appropriate environmental protection or where we are a successor to the obligations of prior owners and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.

Environmental liabilities for investigative work and remediation at sites in the U.S.

Liabilities for environmental investigative work and remediation at sites in the U.S.

and abroad totaled $16 million at March 31, 2021.

We have consistently out-performed the private-industry Recordable Incident Rate (“RIR” as defined by OSHA) average for the manufacturing sector, which was 3.4 in 2018.

During fiscal 2020, we recorded an RIR of 1.14, which was lower than our prior year rate of 1.29.

Our behavior-based safety program proactively seeks to correct at-risk behaviors while positively reinforcing safe behaviors.

The health and safety of our employees is paramount to us.

In response to the COVID-19 pandemic, we have taken steps at all of our global locations to limit the risk of exposure.

These actions have included increasing the spacing between work stations, rotating or splitting shifts to reduce the number of employees in the plant, providing additional personal protective equipment as necessary, removing chairs from cafeterias to ensure social distancing, providing training on personal hygiene best practices, implementing additional cleansing and sanitizing processes in critical areas, and establishing programs allowing employees to work from home where possible, which are helping to protect both those employees who are working remotely and those who remain in our facilities.

We employed approximately 11,300 persons worldwide as of March 31, 2020.

Seasonal Nature of Business

Our overall operating performance is generally not subject to a significant degree of seasonality, as sales to OEM customers are dependent upon market demand for new vehicles.

However, our second fiscal quarter production schedules are typically impacted by customer summer shut downs and our third fiscal quarter is affected by holiday schedules.

Additionally, our CIS and BHVAC segments experience some seasonality, as demand for HVAC&R products can be affected by heating and cooling seasons, weather patterns, construction, and other factors.

We generally expect sales volume within our CIS segment to be higher during our first and second fiscal quarters due to the construction seasons in the northern hemisphere.

Our overall operating performance is generally not subject to a significant degree of seasonality.

Both our BHVAC and CIS segments experience some seasonality, as demand for HVAC&R products can be affected by heating and cooling seasons, weather patterns, construction, and other factors.

Sales volume within the BHVAC segment is generally stronger in our second and third fiscal quarters, corresponding with demand for heating products.

We generally expect sales volume within our CIS segment to be higher during our first and second fiscal quarters due to the construction seasons in the northern hemisphere.

Sales to vehicular OEM customers are dependent upon market demand for new vehicles.

However, our second fiscal quarter production schedules are typically impacted by customer summer shutdowns and our third fiscal quarter is affected by holiday schedules.

Working Capital

We manufacture products for the majority of customers in our VTS and CIS segments on an as-ordered basis, which makes large inventories of finished products unnecessary.

In Brazil, within our VTS segment, we maintain aftermarket product inventory in order to timely meet customer needs in the Brazilian automotive and commercial vehicle aftermarkets.

In our BHVAC segment, we maintain varying levels of finished goods inventory due to seasonal demand and certain sales programs.

We manufacture products for the majority of customers in our CIS, HDE, and Automotive segments on an as-ordered basis, which makes large inventories of finished products unnecessary.

In Brazil, within our HDE segment, we maintain aftermarket product inventory in order to timely meet customer needs in the Brazilian automotive and commercial vehicle aftermarkets.

In our BHVAC segment, we maintain varying levels of finished goods inventory due to seasonal demand and the timing of sales programs.

We have not experienced a significant number of returned products within any of our operating segments.

Human Capital Resource Management

As of March 31, 2021, we employed approximately 10,900 persons worldwide.

We recognize that our continued success is a direct result of the quality of our people.

As such, we strive to be an employer of choice in every community in which we operate.

We do this by fostering a fair, respectful, and safe work environment for our people in alignment with our core values.

We have identified priorities that we believe are essential to attract, develop and retain highly-qualified talent.

These include, among others, i) providing career development programs;

ii) promoting health and safety;

iii) fostering diversity and inclusion in the workplace;

and iv) providing competitive compensation and benefits.

Workforce Development

Our operations require expertise across a wide range of disciplines, from engineering and manufacturing to accounting and finance and information technology.

Both our human resources team at our corporate headquarters and our local facility managers work to hire talented individuals who align with our values.

All of our new employees go through a comprehensive onboarding program with their managers to ensure proper training is provided to succeed in their respective roles.

We encourage our employees to grow their skills through both internal and external training programs.

We are committed to growing our employees’ capabilities.

Through our annual Performance and Development Process (“PDP”), we provide all salaried employees with a consistent, structured development and performance review experience.

The PDP provides employees with a development pathway that focuses on both annual performance goals and longer-term career development.

In addition, we perform strategic talent reviews and succession planning on a regular cadence.

Health and Safety

The health and safety of our employees is paramount to us.

In response to the COVID-19 pandemic, we have taken steps at all of our global locations to limit the risk of exposure.

These actions have included increasing the spacing between work stations, rotating or splitting shifts to reduce the number of employees in our plants, providing additional personal protective equipment as necessary, removing chairs from cafeterias to improve social distancing, providing communication on personal hygiene best practices, implementing additional cleansing and sanitizing processes in critical areas, and establishing programs allowing employees to work from home where possible, which are helping to protect both those employees who are working remotely and those who remain in our facilities.

We employ a behavior-based safety program which proactively seeks to correct at-risk behaviors while positively reinforcing safe behaviors.

We have consistently out-performed the private-industry Recordable Incident Rate (“RIR” as defined by the Occupational Safety and Health Administration) average for the manufacturing sector, which was 3.3 in 2019.

During fiscal 2021, we recorded an RIR of 1.24, well below the manufacturing sector average.

Diversity and Inclusion

We are committed to a diverse workforce, founded on respect and value for people of different backgrounds, experiences, and perspectives.

Incorporating diverse talent and fostering an inclusive workforce is a key focus of our talent management strategy.

We track and focus on indicators of diversity and inclusion across our global operations.

These indicators include the number of women in supervisory roles and minority new hires in the U.S.

Competitive Compensation and Benefits

We offer our employees competitive compensation and comprehensive benefit packages.

We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.

We believe that our compensation and employee benefits are competitive and allow us to attract and retain talent throughout our organization.

Available Information

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Audit Committee Charter;

Officer Nomination and Compensation Committee Charter;

Human Capital and Compensation Committee Charter;

Corporate Governance and Nominating Committee Charter;

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What changed 10-K

Item 1. Business