What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-02-05 · 255 added, 309 removed, 346 unchanged (62% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the three months ended June 30, 2021 and 2020

(In millions, except per share amounts)

Three months ended

Nine months ended

Three months ended June 30,

Cost of sales

1 unchanged sentence

Restructuring expenses

Impairment charges

Gain on sale of assets

Operating (loss) income

Impairment charges (reversals) – net

Loss on sale of assets

Operating income (loss)

Interest expense

Other (expense) income – net

(Loss) earnings before income taxes

Provision for income taxes

Net (loss) earnings

Net (earnings) loss attributable to noncontrolling interest

Net (loss) earnings attributable to Modine

Net (loss) earnings per share attributable to Modine

Other income – net

Earnings (loss) before income taxes

(Provision) benefit for income taxes

Net earnings (loss)

Net earnings attributable to noncontrolling interest

Net earnings (loss) attributable to Modine

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

Weighted-average shares outstanding:

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

For the three months ended June 30, 2021 and 2020

(In millions)

Three months ended

Nine months ended

Net (loss) earnings

Three months ended June 30,

Net earnings (loss)

Other comprehensive income (loss):

2 unchanged sentences

Cash flow hedges, net of income taxes of $ 0 and $ 0.3 million

Total other comprehensive income (loss)

Total other comprehensive income

Comprehensive income (loss)

Comprehensive (income) loss attributable to noncontrolling interest

Comprehensive income attributable to noncontrolling interest

Comprehensive income (loss) attributable to Modine

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and March 31, 2020

June 30, 2021 and March 31, 2021

(In millions, except per share amounts)

December 31, 2020

June 30, 2021

March 31, 2021

27 unchanged sentences

Accumulated other comprehensive loss

Treasury stock, at cost, 2.7 million and 2.5 million shares

Treasury stock, at cost, 2.7 million shares

Total Modine shareholders’ equity

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended December 31, 2020 and 2019

For the three months ended June 30, 2021 and 2020

(In millions)

Nine months ended December 31,

Three months ended June 30,

Cash flows from operating activities:

Net (loss) earnings

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

Net earnings (loss)

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

Depreciation and amortization

Impairment charges

Gain on sale of assets

Impairment charges (reversals) – net

Loss on sale of assets

Stock-based compensation expense

4 unchanged sentences

Other assets and liabilities

Net cash provided by operating activities

Net cash (used for) provided by operating activities

Cash flows from investing activities:

Expenditures for property, plant and equipment

Proceeds from disposition of assets

Proceeds from sale of investment in affiliate

Proceeds from (payments for) disposition of assets

Net cash used for investing activities

4 unchanged sentences

Financing fees paid

Purchases of treasury stock under share repurchase program

Dividend paid to noncontrolling interest

Net cash used for financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

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

Net increase in cash, cash equivalents, restricted cash and cash held for sale

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

3 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

For the three months ended June 30, 2021 and 2020

(In millions)

2 unchanged sentences

Treasury stock,

Non- controlling

paid-in capital

1 unchanged sentence

Balance, March 31 , 2021

Net loss attributable to Modine

Other comprehensive income

2 unchanged sentences

Stock-based compensation expense

Net earnings attributable to noncontrolling interest

Dividend paid to noncontrolling interest

Balance, June 30 , 2021

Net earnings attributable to Modine

Other comprehensive income

Stock options and awards

Stock-based compensation expense

Net earnings attributable to noncontrolling interest

Balance, September 30, 2020

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

1 unchanged sentence

Balance, March 31 , 2020

Net earnings attributable to Modine

Other comprehensive income (loss)

Net (loss) earnings

Other comprehensive income

Stock options and awards

1 unchanged sentence

Stock-based compensation expense

Dividend paid to noncontrolling interest

Net earnings attributable to noncontrolling interest

Balance, June 30 , 2020

Net loss attributable to Modine

Other comprehensive loss

Stock-based compensation expense

Net loss attributable to noncontrolling interest

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.

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The accompanying unaudited condensed consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10 -Q and Rule 10 - 01 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements.

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

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

Results for the first three months of fiscal 2022 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, 202 1.

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic.

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

Disposition of Air-cooled Automotive Business

On April 30, 2021, the Company sold its air-cooled automotive business to Schmid Metall GmbH.

As a result of this transaction, the Company recorded a loss of $ 6.6 million during the first quarter of fiscal 2022, which included the write-off of $ 1.7 million of net actuarial losses related to the business’s pension plan.

The Company reported this loss within the loss on sale of assets line on the consolidated statement of operations.

Upon transaction closing, $ 5.9 million of cash within the business transferred to the buyer.

The finalization of and payment for the purchase price adjustment for net working capital and certain other items, as defined by the sale agreement, is pending.

While the Company does not expect a material adjustment, it is possible that the loss on sale may increase when the purchase price adjustment is finalized.

Prior to the disposition, the Company reported the financial results of this business within the Automotive segment.

The air-cooled automotive business’s net sales were $ 63.0 million in fiscal 2021.

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.

The Company has agreed to sell its liquid-cooled automotive business to Dana Incorporated.

In connection with the pending sale, the Company classified the assets and liabilities expected to convey to the buyer as held for sale on the June 30, 2021 consolidated balance sheet.

See Note 2 for additional information.

Chief Executive Officer (“CEO”) Transition

In August 2020, Thomas A.

Burke stepped down from his position as 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 $ 5.9 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.

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

Burke's forfeited stock-based compensation awards.

Sale of 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.

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

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

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

New Accounting Guidance

In June 2016, the Financial Accounting Standards Board issued new guidance related to the accounting for credit losses for certain financial assets, including trade accounts receivable and contract assets.

The new guidance modifies the credit loss model to measure and recognize credit losses based upon expected losses rather than incurred losses.

The Company adopted this guidance as of April 1, 2020.

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

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.

Liquid-cooled Automotive Business

On November 2, 2020, the Company signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated, subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions.

During the first quarter of fiscal 2022, the Company and the buyer withdrew the regulatory filing for approval of the transaction in Germany.

The Company and the buyer subsequently resubmitted a plan containing a modified sale perimeter for regulatory approval.

In accordance with the modified sale perimeter, certain manufacturing operations will no longer convey to the buyer.

In addition, the Company expects to inject additional cash into the business to counterbalance the impact of the perimeter modifications on the economic value of the pending transaction.

The Company and the buyer are currently working to amend the definitive sale agreement to reflect the transaction modifications.

The Company expects to record a loss on sale of approximately $ 30.0 million to $ 50.0 million upon transaction completion.

The loss on sale recorded will be impacted by the final negotiated terms with the buyer and other impacts such as 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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The Company has classified and reported the assets and liabilities within the modified sale perimeter as held for sale on the June 30, 2021 consolidated balance sheet.

The Company believes it is probable that the sale will be completed within one year of the balance sheet date.

The Company ceased depreciating the long-lived assets within the disposal group beginning on November 2, 2020 when it first met the criteria for held for sale classification.

The Company has determined that this disposal group does not qualify as a discontinued operation for reporting under U.S.

As part of its discontinued operations assessment, 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 Heavy Duty Equipment and Automotive 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.

In fiscal 2021 , upon classification as held for sale, the Company compared the disposal group’s carrying value with its fair value, less costs to sell.

Based upon the selling price for the transaction, the Company estimated implied losses in excess of the respective carrying value of the disposal group’s long-lived assets.

The disposal groups’ long-lived assets consist entirely of property, plant and equipment and right-of-use lease assets.

As a result, the Company recorded non-cash impairment charges of $ 138.3 million in fiscal 2021 to reduce the net carrying value of the disposal group’s long-lived assets to zero as of March 31, 2021 .

The Company reassesses the liquid-cooled disposal group’s fair value less costs to sell at each reporting period that it is held for sale until the transaction is completed.

As a result of this evaluation for the first quarter of fiscal 2022, the Company recorded $ 5.3 million of additional non-cash impairment charges related to the Automotive segment’s held for sale assets.

The impairment charges reduced the net carrying value of property, plant and equipment additions during the quarter to zero as of June 30, 2021 .

In connection with the modifications to the sale perimeter, the Company determined that the manufacturing operations that will not be sold to the buyer no longer meet the requirements to be classified as held for sale.

GAAP requires companies to measure asset groups that revert back to held and used classification at the lower of their (i) carrying value, as if held for sale classification had not been met;

or (ii) fair value at the date of the decision not to sell.

As noted above, the long-lived assets within these businesses were previously impaired when they were classified as held for sale.

As a result of its evaluation, the Company reversed $ 7.4 million of impairment charges to adjust the long-lived asset groups to their estimated fair value.

For purposes of its evaluation, the Company estimated the fair value of the businesses primarily using the income approach, which is a valuation technique that focuses on future cash flows anticipated to be generated by a business.

The Company’s determination of fair value involved judgement and the use of significant estimates and assumptions, including assumptions regarding future revenue projections and operating profit margins, risk-adjusted discount rates, business trends and market conditions.

The fair value measurements of these businesses are categorized as Level 3 within the fair value hierarchy.

Refer to Note 4 for the definition of a Level 3 fair value measurement.

Previously-closed CIS Facility

During the first quarter of fiscal 2022 , the Company signed a definitive agreement to sell a previously-closed manufacturing facility in the U.S.

As a result, the Company recorded an impairment charge of $ 0.3 million within the Commercial and Industrial Solutions (“CIS”) segment to write-down the property to fair value less costs to sell.

During July 2021 , the sale was completed and the Company received net cash proceeds of $ 0.7 million .

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Assets and Liabilities Held for Sale

As of June 30, 2021 , the Company presented the assets and liabilities within the modified sale perimeter of the liquid-cooled automotive business and the previously-closed CIS facility as held for sale on its consolidated balance sheet.

As of March 31, 2021 , the Company presented the assets and liabilities of the liquid- and air-cooled automotive businesses as held for sale.

See Note 1 for additional information regarding the sale of the air-cooled automotive business, which was completed on April 30, 2021 .

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

December 31, 2020

June 30, 2021

March 31 , 2021

Cash and cash equivalents

Trade accounts receivables - net

Trade accounts receivable - net

Other current assets

9 unchanged sentences

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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Revenue Recognition

Disaggregation of Revenue

The table below presents revenue for each of the Company’s business segments, Commercial and Industrial Solutions (“CIS”), Building HVAC Systems (“BHVAC”), Heavy Duty Equipment (“HDE”) and Automotive.

The table below presents revenue for each of the Company’s business segments, Building HVAC Systems (“BHVAC”), CIS, Heavy Duty Equipment (“HDE”) and Automotive.

Each segment’s revenue is disaggregated by primary end market, by geographic location and based upon the timing of revenue recognition and includes inter-segment sales.

Effective April 1, 2020, the Company realigned its segment structure.

The segment revenue information presented in the table below for fiscal 2020 has been recast to conform to the fiscal 2021 presentation.

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

Three months ended December 31, 2020

Three months ended December 31, 2019

Primary end market:

Commercial HVAC&R

Data center cooling

Industrial cooling

Commercial vehicle

Automotive and light vehicle

Geographic location:

Timing of revenue recognition:

Products transferred at a point in time

Products transferred over time

Nine months ended December 31, 2020

Nine months ended December 31, 2019

Three months ended June 30 , 2021

Three months ended June 30 , 2020

Primary end market:

10 unchanged sentences

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

December 31, 2020

June 30, 2021

March 31, 2021

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 $ 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.

The $ 2.3 million increase in contract assets during the first three months of fiscal 2022 primarily resulted from an increase in capitalized costs related to customer-owned tooling contracts and, to a lesser extent, an increase in contracts assets for revenue recognized over time.

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

The $ 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.

The $ 1.6 million increase in contract liabilities during the first three months of fiscal 2022 was primarily related to customer contracts for which payment was received in advance of the Company’s satisfaction of performance obligations.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Fair Value Measurements

13 unchanged sentences

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

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

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.

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.

At June 30, 2021 and March 31, 2021 , the fair values of the investments and obligations for the Company’s deferred compensation plans each totaled $ 3.0 million and $ 2.8 million, respectively .

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Pension cost included the following components:

Three months ended

Nine months ended

Interest cost

2 unchanged sentences

Net periodic benefit cost

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.

During the three months ended June 30, 2021, the Company contributed $ 2.8 million to its U.S.

pension plans.

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 fourth quarter of fiscal 2021.

In connection with the American Rescue Plan Act of 2021, employer funding requirements have been reduced.

During the remainder of fiscal 2022, the Company expects to contribute approximately $ 2.0 million to its U.S.

pension plans.

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 $ 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,

The Company recognized stock-based compensation expense of $ 1.2 million and $ 0.7 million f or the three months ended June 30, 2021 and 2020, respectively.

The fair value of stock-based compensation awards granted during the three months ended June 30, 2021 were as follows:

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,

In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants during the first quarter of fiscal 2022.

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 growth in consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA ” ) at the end of the three-year performance period ending March 31, 2024.

In fiscal 2021, the Company granted stock-based awards to officers and other executives during the third quarter of the fiscal year.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The Company used the following assumptions in determining fair value for stock options for the three months ended June 30, 2021 :

Expected life of awards in years

2 unchanged sentences

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:

As of June 30, 2021 , 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

5 unchanged sentences

Restructuring Activities

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.

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.

During the first quarter of fiscal 2022, restructuring and repositioning expenses primarily consisted of equipment transfer costs within the HDE segment and severance-related costs in the Automotive segment.

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

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

Restructuring and repositioning expenses were as follows:

Three months ended

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 December 31,

Beginning balance

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

Nine months ended December 31,

Three months ended June 30,

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

Nine months ended

Interest income

1 unchanged sentence

Net periodic benefit cost (b)

Equity in earnings of non-consolidated affiliate (c)

Total other (expense) income - net

Total other 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.

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

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

See Note 1 for additional information.

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’s effective tax rate for the three months ended June 30, 2021 and 2020 was 40.4 percent and 2.3 percent , respectively.

The effective tax rate for the first quarter of fiscal 2022 is higher than the first quarter of the prior year, primarily due to changes in the mix and amount of foreign and U.S.

earnings, partially offset by an income tax benefit recorded in the first quarter of fiscal 2022 for the release of a valuation allowance in a foreign jurisdiction, as further described below .

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.

2 unchanged sentences

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;

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Based upon the Company’s analysis as of June 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will be realized.

As a result, the need for the valuation allowance recorded thereon was eliminated and the Company recorded an income tax benefit of $ 4.8 million in the first quarter of fiscal 2022 upon release of the valuation allowance.

The Company’s analysis included consideration of the perimeter modifications for the pending sale of the liquid-cooled automotive business and the associated reversal of $ 7.4 million of impairment charges during the first quarter of fiscal 2022;

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.

As of June 30, 2021, valuation allowances against deferred tax assets in the U.S.

and in certain foreign jurisdictions totaled $ 85.8 million and $ 9.5 million , respectively.

These totals exclude the full valuation allowances recorded for net deferred tax assets classified as held for sale.

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.

As further discussed in Note 18, the COVID-19 pandemic has resulted in risks and uncertainties for the Company.

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 .

2 unchanged sentences

The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.

The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions.

The Company excluded the impact of its operations in the U.S.

and certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions.

The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2022 .

E arnings Per Share

Earnings Per Share

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

Three months ended

Nine months ended

Net (loss) earnings attributable to Modine

Net earnings (loss) attributable to Modine

Weighted-average shares outstanding - basic

1 unchanged sentence

Weighted-average shares outstanding - diluted

(Loss) earnings per share:

Net (loss) earnings per share - basic

Net (loss) earnings per share - diluted

For the three 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 .

Earnings (loss) per share:

Net earnings (loss) per share - basic

Net earnings (loss) per share - diluted

For the three months ended June 30, 2021, the calculation of diluted earnings per share excluded 0.3 million and 0.2 million stock options and restricted stock awards, respectively, because they were anti-dilutive.

For the three months ended June 30, 2020, the calculation of diluted earnings per share excluded 1.4 million and 0.4 million stock options and restricted stock awards, respectively, because they were anti-dilutive .

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Cash, Cash Equivalents and Restricted Cash

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

December 31, 2020

June 30, 2021

March 31, 2021

3 unchanged sentences

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.

Restricted cash, which is reported within other current 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.

Inventories consisted of the following:

December 31, 2020

June 30, 2021

March 31, 2021

3 unchanged sentences

Total inventories

Inventories in the table above exclude amounts classified as held for sale.

See Note 2 for additional information.

Property, Plant and Equipment

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

December 31, 2020

June 30, 2021

March 31, 2021

5 unchanged sentences

Net property, plant and equipment

Property, plant and equipment in the table above excludes amounts classified as held for sale.

See Note 2 for additional information.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Goodwill and Intangible Assets

2 unchanged sentences

Effect of exchange rate changes

Goodwill, December 31, 2020

Goodwill, June 30 , 2021

Intangible assets consisted of the following:

December 31, 2020

June 30, 2021

March 31, 2021

2 unchanged sentences

Total intangible assets

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 recorded amortization expense of $ 2.1 million for each of the three months ended June 30, 2021 and 2020.

The Company estimates that it will record $ 6.4 million of amortization expense during the remainder of fiscal 2022 and approximately $ 8.0 million of annual amortization expense in fiscal 2023 through 2027 .

1 unchanged sentence

Changes in accrued warranty costs were as follows:

Three months ended December 31,

Beginning balance

Warranties recorded at time of sale

Adjustments to pre-existing warranties

Reclassified as held for sale

Effect of exchange rate changes

Ending balance

Nine months ended December 31,

Three months ended June 30,

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

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

The amounts exclude operating lease right of use (“ROU”) assets and liabilities, which each totaled $ 4.5 million and $ 6.1 million as of June 30, 2021 and March 31, 2021, respectively, that are classified as held for sale on the Company’s consolidated balance sheets;

see Note 2 for additional information.

Balance Sheet Location

December 31, 2020

June 30, 2021

March 31, 2021

12 unchanged sentences

Long-term debt

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.

Finance lease ROU assets were recorded net of accumulated amortization of $ 2.5 million and $ 2.4 million as of June 30, 2021 and March 31, 2021, respectively.

Components of Lease Expense

The components of lease expense were as follows:

Three months ended

Nine months ended

Three months ended June 30,

Operating lease expense (a)

3 unchanged sentences

Total lease expense

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.

For the three months ended June 30, 2021 and 2020, operating lease expense included short-term lease expense of $ 0.8 million and $ 0.9 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:

December 31, 2020

June 30, 2021

March 31, 2021

5 unchanged sentences

Total long-term debt

Other long-term debt primarily includes finance lease obligations and borrowings by foreign subsidiaries.

Other long-term debt primarily includes finance lease obligations.

Long-term debt, including the current portion of long-term debt, matures as follows:

1 unchanged sentence

2027 & beyond

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 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.

The Company maintains a credit agreement with a syndicate of banks that provides for a multi-currency $ 250.0 million revolving credit facility expiring in June 2024.

In addition, this credit agreement provides for both U.S.

dollar- and euro-denominated term loan facilities and shorter-duration swingline loans.

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

At June 30, 2021, the weighted-average interest rates for revolving credit facility borrowings and the term loans were each 1.6 percent.

Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and swingline facilities as long-term and short-term debt, respectively, on its consolidated balance sheets.

At June 30, 2021, the Company’s revolving credit facility borrowings totaled $ 44.9 million and domestic letters of credit totaled $ 5.7 million, resulting in available borrowings under the revolving credit facility of $ 199.4 million.

The Company also maintains credit agreements for its foreign subsidiaries.

The outstanding short-term borrowings related to these foreign credit agreements totaled $ 10.7 million at June 30, 2021, of which $ 10.1 million was classified as held for sale.

The $ 5.0 million of outstanding short-term foreign borrowings at March 31, 2021 were classified as held for sale.

See Note 2 for additional information.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

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.

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

Under the amended agreements, the leverage ratio covenant limit has been temporarily raised.

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

The leverage ratio covenant limit for the 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 December 31 , 2020.

The leverage ratio covenant requires the Company to limit its consolidated indebtedness, less a portion of its cash balances, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”.) 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.

As of June 30, 2021, the Company was in compliance with its debt covenants;

its leverage ratio and interest coverage ratio were 2.0 and 10.8 , respectively.

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 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.

As of June 30, 2021 and March 31, 2021, 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 $ 152.8 million and $ 146.0 million, respectively.

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

1 unchanged sentence

Risks, Uncertainties, Contingencies and Litigation

In March 2020 , the World Health Organization declared the outbreak of the novel coronavirus, COVID -19 , a pandemic.

The spread of COVID -19 and the resulting work and travel restrictions, including international border closings, have disrupted, and may continue to disrupt, global supply chains and have negatively impacted the global economy.

As a result of this pandemic, the Company 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 reopened in the first or second quarter and have generally returned to more normal production levels.

The COVID-19 pandemic has broadly impacted the global economy and the Company’s key end markets, which were most severely impacted during the first quarter of fiscal 2021.

In connection with local government requirements or customer shutdowns, the Company suspended production at many of its manufacturing facilities in March and April 2020.

All of the temporarily-closed facilities reopened in the first or second quarter of fiscal 2021 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.

1 unchanged sentence

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.

For example, assets particularly sensitive to assumptions that could be adversely impacted by the COVID-19 pandemic include goodwill and deferred tax assets.

While the Company withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered, it remains focused on controlling operating and administrative expenses.

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 consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

While the Company believes it used appropriate estimates and assumptions to prepare the consolidated financial statements, actual amounts could differ materially and future events or circumstances could have a potential negative effect on the assumptions used.

If the Company, its suppliers, or its customers experience further shutdowns or other significant business disruptions associated with the COVID-19 pandemic, its ability to conduct business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

If the Company, its suppliers, or its customers experience 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 $ 18.4 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.

Based upon currently available information, the Company believes the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.

In instances where a range of loss can be reasonably estimated for a probable environmental liability, but no amount within the range is a better estimate than any other amount, the Company accrues the minimum of the range.

The Company’s accruals for environmental matters totaled $ 19.3 million and $ 16.0 million as of June 30, 2021 and March 31, 2021, respectively.

During the first quarter of fiscal 2022, the Company increased its remediation accrual related to a former manufacturing facility in the U.S.

by $ 3.4 million.

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

While it is possible that the ultimate environmental remediation costs may be in excess of amounts accrued, the Company believes, based upon currently available information, that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.

However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.

3 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 December 31, 2020

Nine months ended December 31, 2020

Benefit Plans

Three months ended June 30, 2021

Beginning balance

2 unchanged sentences

Amortization of unrecognized net loss (a)

Realized (gains) losses - net (b)

Unrecognized net pension loss in disposed business (b)

Realized gains - net (c)

Total other comprehensive income

Ending balance

Three months ended December 31, 2019

Nine months ended December 31, 2019

Benefit Plans

Three months ended June 30, 2020

Beginning balance

Other comprehensive income (loss) before reclassifications

Other comprehensive income before reclassifications

Reclassifications:

Amortization of unrecognized net loss (a)

Realized losses - net (b)

Foreign currency translation gains (c)

Total other comprehensive income (loss)

Realized losses - net (c)

Total other comprehensive income

Ending balance

Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans.

Refer to Note 5 for additional information about the Company’s pension plans.

See Note 5 for additional information about the Company’s pension plans.

As a result of the sale of the air-cooled automotive business, the Company wrote-off $ 1.7 million of net actuarial losses related to the disposed business’s pension plan as a component of the loss on sale recorded during the first quarter of fiscal 2022.

See Note 1 for additional information .

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

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

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Segment Information

Effective April 1, 2020, the Company began managing its global automotive business separate from the other businesses within the previously-reported Vehicular Thermal Solutions (“VTS”) segment.

The Company is managing the automotive business as the Automotive segment as it targets the sale or eventual exit of its underlying automotive business operations.

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

The segment realignment had no impact on the CIS and BHVAC segments or on the Company’s consolidated financial position, results of operations, and cash flows.

Segment financial information for fiscal 2020 has been recast to conform to the fiscal 2021 presentation.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker.

These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

Effective July 1, 2021, the BHVAC segment assumed leadership of the Company’s business operation in Guadalajara, Spain, which was previously managed by and reported within the CIS segment.

This organizational change is integral to the Company’s strategic initiative to align its data center businesses under the BHVAC leadership team in order to accelerate organizational efficiencies and operational improvements.

The Company is focused on expanding its presence in the North American and European data center markets.

Beginning for the second quarter of fiscal 2022, the Company will report the financial results of its business in Spain as part of the BHVAC segment.

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

Three months ended December 31,

Inter-segment

Segment total

Corporate and eliminations

Nine months ended December 31,

Three months ended June 30,

External Sales

Inter-segment

External Sales

Inter-segment

1 unchanged sentence

Corporate and eliminations

Three months ended December 31,

Nine months ended December 31,

Three months ended June 30,

Gross profit:

1 unchanged sentence

Corporate and eliminations

Three months ended December 31,

Nine months ended December 31,

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Three months ended June 30,

Operating income:

1 unchanged sentence

Corporate and eliminations

Operating (loss) income

December 31, 2020

Operating income (loss)

June 30, 2021

March 31, 2021

Total assets:

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.

Corporate and eliminations (a)

At June 30, 2021 and March 31, 2021, Corporate assets totaled $ 19.2 million and $ 17.5 million, respectively and were more than offset by eliminations for intercompany balances, including accounts receivable.

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