What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-02-05 · 152 added, 239 removed, 87 unchanged (82% of the section changed)

2 unchanged sentences

Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters.

The quarter ended December 31, 2020 was the third quarter of fiscal 2021.

Pending Disposition of Liquid-cooled Automotive Business

On November 2, 2020, we entered into a definitive agreement to sell our liquid-cooled automotive business to Dana Incorporated.

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

We do not expect significant net cash proceeds from this transaction based upon the selling price of one dollar and adjustments for cash, debt, and working capital, as defined within the definitive agreement.

We report financial results of the liquid-cooled automotive business within the Automotive segment.

We recorded a non-cash impairment charge of $132.7 million during the third quarter of fiscal 2021 related to the liquid-cooled automotive business’s long-lived assets.

We expect to record an additional loss on sale of approximately $15.0 million to $25.0 million when the sale is completed.

It is possible that the loss on sale could differ materially from this estimate.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for information regarding the accounting impacts of this pending sale.

We are also evaluating strategic alternatives for the other businesses in the Automotive segment and are committed to exiting these businesses in a manner that is in the best interest of our shareholders.

The quarter ended June 30, 2021 was the first quarter of fiscal 2022.

Air-cooled Automotive Business

On April 30, 2021, we sold our air-cooled automotive business to Schmid Metall GmbH.

As a result of this transaction, we recorded a loss of $6.6 million during the first quarter of fiscal 2022.

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

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

Liquid-cooled Automotive Business

On November 2, 2020, we signed a definitive agreement to sell our 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, we withdrew the regulatory filing for approval of the transaction in Germany.

Together with the buyer, we subsequently resubmitted a plan containing a modified sale perimeter for regulatory approval.

As part of the modified perimeter, certain manufacturing operations will no longer convey to the buyer.

We are currently working with the buyer to amend the definitive sale agreement to reflect the transaction modifications.

We currently estimate that we will record a loss on sale of approximately $30.0 million to $50.0 million when the sale is completed.

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 our estimate.

As a result of the modified sale perimeter, we reevaluated the long-lived assets within the businesses that will not be sold and reversed $7.4 million of previously-recorded impairment charges to adjust the asset groups to their estimated fair value.

This impairment reversal was partially offset by $5.3 million of impairment charges related to other assets held for sale in the Automotive segment.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information regarding the accounting impacts of this pending sale.

As the COVID-19 pandemic continues, both the health and overall well-being of our employees and delivering quality products and services to our customers remain our top priorities.

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

Beginning largely in April 2020 and in an effort to mitigate the negative impacts of COVID-19 on our financial results, we implemented 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 reduced operating and administrative expenses, including travel and entertainment expenditures.

We have also focused on limiting capital expenditures and, where possible, have delayed certain projects and the purchase of some program-related equipment and tooling.

Our swift cost-saving actions, coupled with a slow but steady recovery in most of our key end markets, have favorably impacted our financial results.

As production has generally returned to more normal levels, we reduced the extent of furloughs, shortened work weeks and salary reductions.

As a result, the benefit of the cost-saving actions, primarily on selling, general and administrative (“SG&A”) expenses, was less significant during the third quarter of fiscal 2021 compared with the first and second quarters of fiscal 2021.

In an effort to mitigate the negative impacts of COVID-19 on our financial results, we implemented cost-saving actions starting in the first quarter of fiscal 2021 that primarily impacted selling, general and administrative (“SG&A”) expenses and capital expenditures.

While we remain focused on controlling expenses, we withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered.

As a result and as anticipated, compensation-related expenses, particularly SG&A expenses, were higher in the first quarter of fiscal 2022 compared with the prior year.

The full extent of the impacts of COVID-19, which will largely depend on the length and severity of the pandemic, could have a material adverse effect on our business, results of operations, and cash flows.

Third Quarter Highlights

Net sales in the third quarter of fiscal 2021 increased $10.9 million, or 2 percent, from the third quarter of fiscal 2020, primarily due to higher sales volume in the Heavy Duty Equipment (“HDE”) segment and a favorable impact of foreign currency exchange rate changes, partially offset by lower sales volume in our Commercial and Industrial Solutions (“CIS”) segment.

Cost of sales increased $1.7 million compared with the third quarter of fiscal 2020.

First Quarter Highlights

Net sales in the first quarter of fiscal 2022 increased $146.8 million, or 42 percent, from the first quarter of fiscal 2021, primarily due to higher sales volume in each of our segments.

Sales during the first quarter of the prior year were negatively impacted by the COVID-19 pandemic.

Cost of sales increased $119.7 million compared with the first quarter of fiscal 2021.

Gross profit increased $27.1 million and gross margin improved 150 basis points to 14.8 percent.

SG&A expenses decreased $7.4 million, primarily due to lower project costs associated with our review of strategic alternatives for the automotive segment businesses and preparing the liquid-cooled automotive business for sale.

We recorded $134.4 million of impairment charges during the third quarter in our Automotive segment, primarily related to the pending sale of the liquid-cooled automotive business.

The operating loss of $108.7 million during the third quarter of fiscal 2021 represents a decline of $116.9 million from the prior-year operating income of $8.2 million, primarily due to the impairment charges in our Automotive segment and lower earnings in our CIS segment, partially offset by higher earnings in our HDE and Building HVAC Systems (“BHVAC”) segments.

Year-to-date Highlights

Net sales in the first nine months of fiscal 2021 decreased $209.1 million, or 14 percent, from the same period last year, primarily due to lower sales in our HDE, CIS and Automotive segments.

Cost of sales decreased $186.1 million, or 15 percent, from the same period last year, primarily due to lower sales volume.

Gross profit decreased $23.0 million and gross margin improved 70 basis points to 16.2 percent.

SG&A expenses decreased $42.8 million, primarily due to lower project costs associated with our review of strategic alternatives for the automotive segment businesses and preparing the liquid-cooled automotive business for sale.

In addition, SG&A expenses benefitted from cost-reduction initiatives implemented earlier in the fiscal year in response to the negative impacts of COVID-19.

The operating loss of $83.4 million during the first nine months of fiscal 2021 represents a decline of $115.7 million from the prior-year operating income of $32.3 million, primarily due to the $134.4 million of impairment charges recorded during the third quarter of fiscal 2021, partially offset by lower SG&A expenses.

SG&A expenses increased $14.7 million, primarily due to higher compensation-related expenses, as the prior-year benefitted from cost-saving measures implemented in response to COVID-19, which were subsequently withdrawn in the third quarter of fiscal 2021.

Operating income of $8.7 million during the first quarter of fiscal 2022 represents an improvement of $11.9 million from the prior-year operating loss of $3.2 million, primarily due to higher earnings in our Heavy Duty Equipment (“HDE”), Automotive, and Commercial Industrial Solutions (“CIS”) segments, partially offset by the $6.6 million loss recorded on the sale of the air-cooled automotive business.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 2020 and 2019:

Three months ended December 31,

Nine months ended December 31,

The following table presents our consolidated financial results on a comparative basis for the three months ended June 30, 2021 and 2020:

Three months ended June 30,

(in millions)

2 unchanged sentences

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

Comparison of Three Months ended December 31, 2020 and 2019

Third quarter net sales of $484.3 million were $10.9 million, or 2 percent, higher than the third quarter of the prior year, primarily due to higher sales volume in the HDE and BHVAC segments and an $11.2 million favorable impact of foreign currency exchange rate changes, partially offset by lower sales volume in the CIS and Automotive segments.

Sales in the HDE, BHVAC, and Automotive segments increased $20.7 million, $3.8 million, and $3.4 million, respectively.

CIS segment sales decreased $18.5 million.

Third quarter cost of sales increased $1.7 million.

As a percentage of sales, cost of sales decreased 160 basis points to 82.9 percent.

The increase in cost of sales was primarily due to a $9.7 million unfavorable impact of foreign currency exchange rate changes, partially offset by the favorable impacts of procurement and other cost-reduction initiatives and a $3.0 million decrease in depreciation expense in the Automotive segment.

In addition, program and equipment transfer costs to prepare the liquid-cooled automotive business for sale decreased approximately $1.0 million compared with the prior year.

As a result of higher sales and lower cost of sales as a percentage of sales, third quarter gross profit increased $9.2 million and gross margin improved 160 basis points to 17.1 percent.

Third quarter SG&A expenses decreased $7.4 million.

The decrease in SG&A expenses was primarily due to lower costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment’s business operations, which decreased approximately $10.0 million.

This favorable driver was partially offset by a $1.0 million unfavorable impact of foreign currency exchange rate changes and higher environmental charges in the HDE segment.

Restructuring expenses of $0.9 million during the third quarter of fiscal 2021 decreased $1.7 million, primarily due to lower restructuring expenses in the HDE segment.

Impairment charges of $134.4 million in the third quarter of fiscal 2021 primarily related to the write-down of the long-lived assets in the Automotive segment’s liquid-cooled automotive business in connection with the pending sale of that business.

The operating loss of $108.7 million represents a $116.9 million decline from the prior-year operating income of $8.2 million.

The decline was primarily due to the $134.4 million of impairment charges recorded in the Automotive segment and lower earnings in the CIS segment.

These negative drivers were partially offset by higher earnings in our HDE and BHVAC segments.

Interest expense decreased $1.0 million, or 18 percent, during the third quarter of fiscal 2021, primarily due to lower outstanding long-term debt and, to a lesser extent, favorable changes in interest rates.

The provision for income taxes was $81.6 million and $1.7 million in the third quarter of fiscal 2021 and 2020, respectively.

The $79.9 million increase was primarily due to income tax charges totaling $116.5 million recorded in the third quarter of fiscal 2021 to increase the valuation allowances on deferred tax assets in the U.S.

and in certain foreign jurisdictions, partially offset by income tax benefits totaling $37.7 million related to the impairment charges recorded earlier in the third quarter of fiscal 2021.

Comparison of Nine Months ended December 31, 2020 and 2019

Fiscal 2021 year-to-date net sales of $1,293.5 million were $209.1 million, or 14 percent, lower than the same period last year, primarily due to lower sales in our HDE, CIS and Automotive segments.

Sales in these segments decreased $93.8 million, $87.4 million, and $53.9 million, respectively, and were significantly impacted by market-driven volume declines and temporary plant closures earlier in the fiscal year due to the COVID-19 pandemic.

BHVAC segment sales increased $8.3 million.

Fiscal 2021 year-to-date cost of sales of $1,083.9 million decreased $186.1 million, or 15 percent, primarily due to lower sales volume.

As a percentage of sales, cost of sales improved 70 basis points to 83.8 percent.

The unfavorable impact of lower sales volume was more than offset by the benefits of cost-reduction initiatives implemented earlier in the fiscal year in response to lower end market demand and procurement initiatives.

As a result of lower sales and lower cost of sales as a percentage of sales, fiscal 2021 year-to-date gross profit decreased $23.0 million and gross margin improved 70 basis points to 16.2 percent.

Fiscal 2021 year-to-date SG&A expenses decreased $42.8 million.

These favorable drivers were partially offset by $5.9 million of costs recorded at Corporate in connection with Mr.

Burke stepping down from his position as President and CEO and the search for his successor.

Restructuring expenses of $7.0 million during the first nine months of fiscal 2021 increased $0.3 million compared with the same period last year, primarily due to higher restructuring expenses in the CIS segment, partially offset by lower restructuring expenses in the Automotive segment.

The fiscal 2021 year-to-date operating loss of $83.4 million represents a $115.7 million decline from the prior-year operating income of $32.3 million.

The decline was primarily due to the $134.4 million of impairment charges recorded in the Automotive segment and lower earnings in our CIS and HDE segments.

These negative drivers were partially offset by lower SG&A expenses at Corporate and higher earnings in our BHVAC segment.

Interest expense decreased $2.1 million, or 12 percent, during the first nine months of fiscal 2021, primarily due to lower outstanding long-term debt and favorable changes in interest rates.

The provision for income taxes was $95.3 million and $8.3 million during the first nine months of fiscal 2021 and 2020, respectively.

The $87.0 million increase was primarily due to income tax charges totaling $123.1 million recorded during the first nine months of fiscal 2021 to increase the valuation allowances on deferred tax assets in the U.S.

and in certain foreign jurisdictions, partially offset by income tax benefits totaling $37.7 million related to the impairment charges recorded during fiscal 2021.

Other income – net

Earnings (loss) before income taxes

(Provision) benefit for income taxes

Net earnings (loss)

First quarter net sales of $494.6 million were $146.8 million, or 42 percent, higher than the first quarter of the prior year, primarily due to higher sales volume across each of our segments and, to a lesser extent, a $23.5 million favorable impact of foreign currency exchange rates.

Sales in the first quarter of the prior year were negatively impacted by the COVID-19 pandemic.

Sales in the HDE, CIS, Automotive, and Building HVAC Systems (“BHVAC”) segments increased $78.3 million, $36.7 million, $24.1 million and $12.3 million, respectively.

First quarter cost of sales increased $119.7 million, or 40 percent, primarily due to higher sales volume.

As a percentage of sales, cost of sales decreased 150 basis points to 85.2 percent, primarily due to the favorable impact of the higher sales volume and lower depreciation expense in the Automotive segment.

We ceased depreciating the long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during fiscal 2021.

These favorable drivers were partially offset by higher material costs, which negatively impacted cost of sales by approximately $13.0 million.

As a result of higher sales and lower cost of sales as a percentage of sales, first quarter gross profit increased $27.1 million and gross margin improved 150 basis points to 14.8 percent.

First quarter SG&A expenses increased $14.7 million.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, as the prior year was favorably impacted by cost-saving actions, including furloughs, shortened work weeks and temporary salary reductions, that we implemented to mitigate the negative impacts of COVID-19.

In addition, we recorded $3.5 million of environmental charges at Corporate during the first quarter of fiscal 2022 related to a previously-owned manufacturing facility in the U.S.

We also incurred higher costs at Corporate related to our review of strategic alternatives for the Automotive segment businesses and for strategic reorganization costs, including professional fees for the recruiting of new senior management positions and our implementation of our 80/20 strategy.

These costs increased $1.5 million and $0.6 million, respectively.

Restructuring expenses of $0.3 million decreased $4.3 million, primarily due to lower severance expenses and costs associated with plant consolidation and equipment transfer activities.

The net impairment reversal of $1.8 million in the first quarter of fiscal 2022 primarily related to assets held for sale in the Automotive segment.

We recorded a net impairment reversal of $2.1 million in the Automotive segment associated with the pending sale of the liquid-cooled automotive business.

This net impairment reversal was partially offset by a $0.3 million impairment charge in the CIS segment related to a previously-closed facility.

We sold our air-cooled automotive business on April 30, 2021.

As a result of the sale, we recorded a $6.6 million loss on sale at Corporate during the first quarter of fiscal 2022.

Operating income of $8.7 million during the first quarter of fiscal 2022 represents an $11.9 million improvement from the prior-year operating loss of $3.2 million and was primarily due to higher earnings in our HDE, Automotive and CIS segments.

The provision for income taxes was $1.9 million in the first quarter of fiscal 2022, compared with a benefit for income taxes of $0.2 million during the first quarter of the prior year.

The $2.1 million change was primarily due to increased operating earnings in the current year, partially offset by a $4.8 million income tax benefit recorded in the current year resulting from the reversal of a tax valuation allowance in a foreign jurisdiction.

SEGMENT RESULTS OF OPERATIONS

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

We have been managing the automotive business as the Automotive segment as we target the sale or eventual exit of its underlying automotive business operations.

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

We began reporting financial results for our new segment structure beginning for fiscal 2021.

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

The segment realignment had no impact on the CIS and BHVAC segments.

The following is a discussion of our segment results of operations for the three and nine months ended December 31, 2020 and 2019:

Commercial and Industrial Solutions

Three months ended December 31,

Nine months ended December 31,

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

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

We are focused on expanding our presence in the North American and European data center markets.

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

The following is a discussion of our segment results of operations for the three months ended June 30, 2021 and 2020:

Building HVAC Systems

Three months ended June 30,

(in millions)

1 unchanged sentence

Selling, general and administrative expenses

Restructuring expenses

Operating (loss) income

Comparison of Three Months ended December 31, 2020 and 2019

CIS net sales decreased $18.5 million, or 13 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to lower sales volume of data center cooling products, partially offset by a $4.5 million favorable impact of foreign currency exchange rate changes.

Sales to data center cooling customers decreased $18.4 million, primarily due to lower sales to one individual customer.

CIS cost of sales decreased $8.4 million, or 7 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to lower sales volume, partially offset by a $4.2 million unfavorable impact of foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 560 basis points to 90.2 percent, primarily due to the impact of lower sales volume, unfavorable sales mix, and to a lesser extent, temporary operating inefficiencies associated with plant consolidation activities in China.

These negative impacts were partially offset by benefits from procurement and other cost-reduction initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $10.1 million and gross margin declined 560 basis points to 9.8 percent.

SG&A expenses increased $0.1 million, or 140 basis points as a percentage of sales, compared with the third quarter of the prior year.

The increase in SG&A expenses was primarily due to a $0.5 million unfavorable impact of foreign currency exchange rate changes, partially offset by lower compensation-related expenses.

Restructuring expenses during the third quarter of fiscal 2021 totaled $0.5 million, a decrease of $0.2 million compared with the third quarter of fiscal 2020, and primarily consisted of equipment transfer and plant consolidation costs in China.

The CIS operating loss of $1.7 million represents a $10.0 million decline from the prior-year operating income of $8.3 million and was primarily due to lower gross profit.

Comparison of Nine Months ended December 31, 2020 and 2019

CIS year-to-date net sales decreased $87.4 million, or 18 percent, from the same period last year, primarily due to lower sales volume associated with the impacts of the COVID-19 pandemic.

In addition, sales in fiscal 2021 have been negatively impacted by lower sales to a significant data center customer.

Sales to commercial HVAC&R and data center cooling customers decreased $48.1 million and $41.1 million, respectively.

CIS year-to-date cost of sales decreased $64.9 million, or 16 percent, from the same period last year, primarily due to lower sales volume.

As a percentage of sales, cost of sales increased 250 basis points to 87.7 percent, primarily due to the impact of lower sales volume and unfavorable sales mix, partially offset by cost-reduction and procurement initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $22.5 million and gross margin declined 250 basis points to 12.3 percent.

CIS year-to-date SG&A expenses decreased $3.7 million compared with the prior year.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $5.0 million, partially offset by a $0.6 million unfavorable impact of foreign currency exchange rate changes.

Restructuring expenses during the first nine months of fiscal 2021 increased $3.1 million compared with the prior year and primarily consisted of severance expenses and equipment transfer costs related to plant consolidation activities in China and targeted headcount reductions in North America.

Operating income decreased $21.9 million to $3.9 million, primarily due to lower gross profit and higher restructuring expenses, partially offset by lower SG&A expenses.

Building HVAC Systems

Three months ended December 31,

Nine months ended December 31,

Operating income

BHVAC net sales increased $12.3 million, or 26 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser extent, a $3.2 million favorable impact of foreign currency exchange rates.

BHVAC sales in the first quarter of fiscal 2021 were negatively impacted by the COVID-19 pandemic.

Compared with the first quarter of the prior year, BHVAC sales increased $6.8 million and $5.5 million in the U.K.

and the U.S., respectively.

The higher sales in the U.K.

were primarily due to higher sales of air conditioning, data center, and ventilation products.

The higher sales in the U.S.

were primarily driven by higher sales of heating products, partially offset by lower sales of ventilation products.

BHVAC cost of sales increased $10.6 million, or 32 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022 and included a $2.7 million unfavorable impact of foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 340 basis points to 72.9 percent, primarily due to higher material costs, which negatively impacted cost of sales by approximately 360 basis points.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $1.7 million and gross margin declined 340 basis points to 27.1 percent.

SG&A expenses increased $2.0 million, or 20 basis points as a percentage of sales, from the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $1.4 million, and a $0.4 million unfavorable impact of foreign currency exchange rate changes.

Operating income of $6.8 million decreased $0.3 million from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher SG&A expenses, partially offset by higher gross profit.

Commercial and Industrial Solutions

Three months ended June 30,

(in millions)

1 unchanged sentence

Selling, general and administrative expenses

Restructuring expenses

Impairment charge

Operating income

Comparison of Three Months ended December 31, 2020 and 2019

BHVAC net sales increased $3.8 million, or 6 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to higher sales in the U.S.

and the U.K., which both increased approximately $2.0 million.

The higher sales in the U.S.

were primarily due to higher sales of heating products, partially offset by lower sales of ventilation products.

The higher sales in the U.K.

were primarily due to higher sales of air conditioning and data center cooling products.

BHVAC cost of sales increased $1.2 million, or 3 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to higher sales volume.

As a percentage of sales, cost of sales decreased 180 basis points to 62.7 percent and was positively impacted by favorable customer pricing and sales mix.

CIS net sales increased $36.7 million, or 30 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser extent, a $7.0 million favorable impact of foreign currency exchange rates.

CIS sales in the first quarter of fiscal 2021 were negatively impacted by the COVID-19 pandemic.

Compared with the first quarter of the prior year, sales to commercial HVAC&R customers increased $35.1 million.

CIS cost of sales increased $31.4 million, or 29 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume.

In addition, cost of sales was unfavorably impacted by $6.3 million from foreign currency exchange rate changes.

As a percentage of sales, cost of sales decreased 40 basis points to 87.0 percent, primarily due to the favorable impact of higher sales volume and improved operating efficiencies.

These favorable drivers were partially offset by higher material costs and unfavorable sales mix.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $5.3 million and gross margin improved 40 basis points to 13.0 percent.

SG&A expenses increased $0.3 million from the prior year, yet decreased 40 basis points as a percentage of sales.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, including commission expenses.

Operating income of $15.8 million increased $2.3 million during the quarter, primarily due to higher gross profit.

Comparison of Nine Months ended December 31, 2020 and 2019

BHVAC year-to-date net sales increased $8.3 million, or 5 percent, from the same period last year, primarily due to higher sales volume.

Compared with the first nine months of the prior year, sales increased $9.2 million in the U.K.

and decreased $0.9 million in the U.S.

The higher sales in the U.K.

were primarily due to higher sales of data center products.

The lower sales in the U.S.

resulted primarily from the negative impacts of the COVID-19 pandemic and decreased sales of ventilation products, partially offset by higher sales of heating products.

BHVAC year-to-date cost of sales increased $0.9 million from the same period last year.

As a percentage of sales, cost of sales decreased 260 basis points to 65.3 percent and was positively impacted by favorable customer pricing, sales mix and cost-reduction initiatives.

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $7.4 million and gross margin improved 260 basis points to 34.7 percent.

BHVAC year-to-date SG&A expenses decreased $1.0 million, or 130 basis points as a percentage of sales, from the prior year.

The decrease in SG&A expenses was primary due to lower travel expenses.

Operating income of $36.0 million increased $8.4 million compared with the same period last year, primarily due to higher gross profit and lower SG&A expenses.

SG&A expenses increased $1.0 million compared with the first quarter of the prior year, primarily due to a $0.6 unfavorable impact of foreign currency exchange rate changes and higher compensation-related expenses.

Restructuring expenses decreased $2.4 million compared with the first quarter of fiscal 2021.

The restructuring expenses during the first quarter of fiscal 2021 primarily consisted of severance expenses related to plant consolidation activities in China and targeted headcount reductions in North America.

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

As a result, we recorded an impairment charge of $0.3 million to write-down the property to fair value less costs to sell.

We sold the facility and received net cash proceeds of $0.7 million during July 2021.

Operating income increased $6.4 million from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

Heavy Duty Equipment

Three months ended December 31,

Nine months ended December 31,

Three months ended June 30,

(in millions)

2 unchanged sentences

Restructuring expenses

Operating income

Comparison of Three Months ended December 31, 2020 and 2019

HDE net sales increased $20.7 million, or 13 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to higher sales volume to global off-highway customers.

Sales to off-highway and commercial vehicle customers increased $16.7 million and $3.8 million, respectively.

Geographically, sales increased most significantly in Asia.

HDE cost of sales increased $11.5 million, or 8 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to higher sales volume.

As a percentage of sales, cost of sales decreased 380 basis points to 86.0 percent and was favorably impacted by the higher sales volume, cost savings from procurement and other cost-reduction initiatives, and, to a lesser extent, improved operating efficiencies.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $9.2 million and gross margin improved 380 basis points to 14.0 percent.

SG&A expenses increased $0.6 million, yet decreased 60 basis points as a percentage of sales, compared with the third quarter of the prior year.

The increase in SG&A expenses was primarily due to environmental charges related to a previously-owned U.S.

manufacturing facility, which increased $0.4 million.

Restructuring expenses decreased $1.4 million compared with the third quarter of fiscal 2020, primarily due to lower severance expenses related to targeted headcount reductions.

Operating income of $12.8 million increased $10.0 million during the quarter, primarily due to higher gross profit and lower restructuring expenses.

Comparison of Nine Months ended September 30, 2020 and 2019

HDE year-to-date net sales decreased $93.8 million, or 16 percent, from the same period last year, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic, which were most severe in the Americas and Europe during the first half of the fiscal year.

Sales to commercial vehicle and automotive and light vehicle customers decreased $57.2 million and $15.2 million, respectively.

HDE year-to-date cost of sales decreased $83.0 million, or 17 percent, primarily due to lower sales volume.

Operating income (loss)

HDE net sales increased $78.3 million, or 63 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume.

HDE sales in the first quarter of fiscal 2021 were negatively impacted by the COVID-19 pandemic.

Sales to commercial vehicle, off-highway, and automotive and light vehicle customers increased $32.9 million, $26.5 million, and $7.4 million, respectively.

HDE cost of sales increased $67.0 million, or 60 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume.

As a percentage of sales, cost of sales decreased 200 basis points to 88.8 percent.

The significant unfavorable impact of the lower sales volume was more than offset by favorable impacts from improved operating efficiencies and cost savings from procurement and other cost-reduction initiatives.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit decreased $10.8 million and gross margin improved 20 basis points to 12.8 percent.

HDE year-to-date SG&A expenses decreased $6.9 million from the prior year.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $6.0 million, and cost-reduction initiatives, including lower travel expenses.

Restructuring expenses during the first nine months of fiscal 2021 totaled $1.9 million, a decrease of $0.3 million compared with the same period last year, and primarily consisted of severance expenses resulting from targeted headcount reductions in North America.

Operating income of $23.6 million decreased $3.6 million compared with the same period last year, primarily due to lower gross profit, partially offset by lower SG&A expenses.

Three months ended December 31,

Nine months ended December 31,

Beyond the favorable impact of the higher sales volume, cost savings from procurement initiatives favorably impacted cost of sales by approximately $2.0 million.

These favorable drivers were partially offset by higher material and tariff costs, which negatively impacted cost of sales by approximately $8.0 million.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $11.3 million and gross margin improved 200 basis points to 11.2 percent.

SG&A expenses increased $1.6 million compared with the first quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses.

Restructuring expenses during the first quarter of fiscal 2022 totaled $0.2 million, a decrease of $1.7 million compared with the first quarter of fiscal 2021, and primarily consisted of equipment transfer costs.

Operating income of $8.9 million represents an $11.4 million improvement from the prior-year operating loss of $2.5 million and was primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

Three months ended June 30,

(in millions)

2 unchanged sentences

Restructuring expenses

Impairment charges

Gain on sale of assets

Operating (loss) income

Comparison of Three Months ended December 31, 2020 and 2019

Automotive net sales increased $3.4 million, or 3 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021, primarily due to a $6.7 million favorable impact of foreign currency exchange rate changes, partially offset by lower sales volume.

Compared with the prior year, sales increased $3.8 million and $2.0 million in Europe and Asia, respectively, and decreased $2.4 million in the Americas.

Automotive cost of sales decreased $2.8 million, or 3 percent, from the third quarter of fiscal 2020 to the third quarter of fiscal 2021.

As a percentage of sales, cost of sales decreased 510 basis points to 83.9 percent.

Compared with the prior year, cost of sales was favorably impacted by lower depreciation expenses, which decreased approximately $3.0 million, cost savings from procurement and other cost-reduction initiatives, and improved operating efficiencies.

The lower depreciation expenses resulted from the Company ceasing depreciation of the long-lived assets within the liquid-cooled automotive business when it was classified as held for sale in November 2020.

Foreign currency exchange rate changes negatively impacted cost of sales by $5.7 million.

Impairment charges (reversals) – net

Operating income (loss)

Automotive net sales increased $24.1 million, or 39 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser extent, a $6.7 million favorable impact of foreign currency exchange rates.

Sales volumes in the first quarter of fiscal 2021 were negative ly impacted by the COVID-19 pandemic.

Sales in Europe and North America increased $23.9 million and $1.8 million, respectively.

Sales in Asia decreased $1.6 million.

Automotive cost of sales increased $15.7 million, or 27 percent, from the first quarter of fiscal 2021 to the first quarter of fiscal 2022, primarily due to higher sales volume.

As a percentage of sales, cost of sales decreased 760 basis points to 84.7 percent, primarily due to lower depreciation expenses.

Depreciation expenses decreased $4.5 million compared with the first quarter of fiscal 2021.

We ceased depreciating the long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale in fiscal 2021.

We completed the sale of the air-cooled automotive business on April 30, 2021.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $8.4 million and gross margin improved 760 basis points to 15.3 percent.

SG&A expenses decreased $2.7 million compared with the third quarter of the prior year.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $2.0 million.

Restructuring expenses during the third quarter of fiscal 2021 totaled $0.4 million and primarily consisted of severance expenses resulting from targeted headcount reductions in Europe.

Impairment charges during the third quarter of fiscal 2021 totaled $134.4 million and primarily related to assets in the liquid-cooled automotive business.

Upon classifying this business as held for sale during the third quarter, we identified an implied loss in excess of the carrying value of its long-lived assets.

Accordingly, we reduced the liquid-cooled automotive business’s long-lived assets, primarily property, plant and equipment, to zero.

During the third quarter of fiscal 2020, we completed the sale of a previously-closed manufacturing facility in Germany and, as a result, recorded a gain of $0.8 million.

The Automotive operating loss of $124.9 million in the third quarter of fiscal 2021, as compared with operating income of $1.6 million in the third quarter of the prior year, was significantly impacted by the large impairment charges associated with the liquid-cooled automotive business and, to a much lesser extent, higher gross profit and lower SG&A expenses.

Comparison of Nine Months ended December 31, 2020 and 2019

Automotive year-to-date net sales decreased $53.9 million, or 16 percent, from the same period last year, primarily due to lower sales volume largely resulting from the impacts of the COVID-19 pandemic, partially offset by a $9.7 million favorable impact of foreign currency exchange rate changes.

Sales in Europe and North America decreased $46.8 million and $13.0 million, respectively.

Sales in Asia increased $5.9 million.

Automotive year-to-date cost of sales decreased $56.0 million, or 19 percent, from the prior year, primarily due to lower sales volume, partially offset by an $8.2 million unfavorable impact of foreign currency exchange rate changes.

As a percentage of sales, cost of sales decreased 280 basis points to 86.1 percent and was favorably impacted by improved operating efficiencies, cost savings from procurement initiatives, and lower depreciation expenses of approximately $4.0 million, partially offset by the unfavorable impact of lower sales volume.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit increased $2.1 million and gross margin improved 280 basis points to 13.9 percent.

Automotive year-to-date SG&A expenses decreased $8.1 million compared with the prior year.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $8.0 million.

Restructuring expenses during the first nine months of fiscal 2021 totaled $0.6 million, a decrease of $2.3 million compared with the same period in the prior year.

The decrease was primarily driven by lower severance expenses in Europe resulting from fewer targeted headcount reductions.

The Automotive operating loss of $120.7 million during the first nine months of fiscal 2021, as compared with operating income of $2.0 million during the same period last year, was significantly impacted by the large impairment charges associated with the liquid-cooled automotive business during the third quarter of fiscal 2021 and, to a much lesser extent, higher gross profit and lower SG&A expenses and restructuring charges.

SG&A expenses increased $2.6 million compared with the first quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses.

The net impairment reversal of $2.1 million in the first quarter of fiscal 2022 primarily related to assets in our liquid-cooled automotive business.

As a result of modifying the sale perimeter with the buyer, we reevaluated the long-lived assets within the businesses that will no longer be sold to the prospective buyer and reversed $7.4 million of previously-recorded impairment charges to adjust the asset groups to their estimated fair value.

This impairment reversal was partially offset by $5.3 million of impairment charges related to other assets held for sale in the Automotive segment.

Operating income of $4.2 million represents an $8.0 million improvement from the prior-year operating loss of $3.8 million and was primarily due to higher gross profit and the net impairment reversal, partially offset by higher SG&A expenses.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents of $72.9 million as of December 31, 2020, and an available borrowing capacity of $213.6 million under our revolving credit facility.

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents of $49.0 million as of June 30, 2021 and an available borrowing capacity of $199.4 million under our revolving credit facility.

Given our extensive international operations, approximately $46.0 million of our cash and cash equivalents is held by our non-U.S.

3 unchanged sentences

however, these funds may be subject to foreign withholding taxes if repatriated.

In response to the COVID-19 pandemic, we have taken actions to reduce operating and administrative expenses, conserve cash and maximize liquidity.

In addition, as described below, we have focused on reducing our capital expenditures and executed amendments to our primary credit agreements to provide financial covenant flexibility during fiscal 2021 and 2022.

We believe our sources of liquidity, including cash flow from operations, our cash and cash equivalents, and access to both committed and uncommitted credit facilities, will provide sufficient cash flow to meet our obligations during the next twelve months and beyond.

However, we are continuing to monitor the impacts of COVID-19 on our business and the credit and financial markets.

We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended December 31, 2020 was $146.5 million, which represents a $100.6 million increase compared with the same period in the prior year.

This increase in operating cash flow was primarily due to favorable net changes in working capital and lower payments for separation and project costs associated with our review of strategic alternatives for the automotive businesses.

The favorable changes in working capital during the first nine months of fiscal 2021, compared with the same period in the prior year, included lower inventory levels and lower payments for incentive compensation, employee benefits, income taxes and payroll taxes.

In addition, we have deferred payments of U.S.

payroll taxes, as permitted by the Coronavirus Aid, Relief and Economic Security Act.

We plan to resume payment of these payroll taxes during the fourth quarter of fiscal 2021.

Net cash used for operating activities for the three months ended June 30, 2021 was $10.1 million, which represents a $22.4 million decrease compared with net cash provided by operating activities in the same period in the prior year.

This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, partially offset by the favorable impact of higher earnings.

The unfavorable changes in working capital during the first three months of fiscal 2022, compared with the same period in the prior year, included higher inventory levels and higher payments for incentive compensation and employee benefits.

The higher inventory levels in fiscal 2022 have resulted from higher unit costs and increased quantities on hand for raw materials and other purchased component inventory.

Capital Expenditures

In response to the economic impacts of the COVID-19 pandemic, we have been focused on reducing our capital expenditures and, where possible, have delayed certain projects and the purchase of certain program-related equipment and tooling in our vehicular businesses.

Capital expenditures of $23.7 million during the first nine months of fiscal 2021 decreased $34.5 million compared with the same period in the prior year.

Capital expenditures of $11.4 million during the first three months of fiscal 2022 increased $2.3 million compared with the same period in the prior year.

Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below.

1 unchanged sentence

In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on our business, property, or results of operations.

In May 2020, we executed amendments to our primary credit agreements in the U.S.

to provide additional covenant flexibility in light of the risks and uncertainties associated with the COVID-19 pandemic.

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

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

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 leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, 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”).

We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense.

As of December 31, 2020, we were in compliance with our debt covenants;

our leverage ratio and interest coverage ratio were 1.9 and 8.7, respectively.

We expect to remain in compliance with our debt covenants during fiscal 2021, fiscal 2022 and beyond.

Share Repurchase Program

On November 5, 2020, we announced our Board of Directors approved a two-year, $50.0 million share repurchase program, which allows us to repurchase shares of our common stock through solicited and unsolicited transactions in the open market or in privately-negotiated or other transactions, at such times and prices and upon such other terms as we deem appropriate.

To date, we have not repurchased shares under this program.

Our decision whether and to what extent to repurchase shares under this program will depend on a number of factors, including business conditions, other cash priorities, and stock price.

As of June 30, 2021, our leverage ratio and interest coverage ratio were 2.0 and 10.8, respectively.

We expect to remain in compliance with our debt covenants during fiscal 2022 and beyond.

Forward-Looking Statements

13 unchanged sentences

or abroad, as well as continuing uncertainty regarding the short- and long-term implications of “Brexit”;

The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased components including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs.

The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums, fabrication, or freight costs.

These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and significant fluctuations in demand.

2 unchanged sentences

Operational Risks:

The overall health and continually increasing price-down focus of our vehicular customers in light of economic and market-specific factors, the concentration of sales within our CIS segment attributable to one customer, and the potential impact on us from any deterioration in the stability or performance of any of our major customers;

The impact of any problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;

Our ability to maintain current customer programs and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service pressures from customers, particularly in the face of macro-economic instability;

The overall health and continually increasing price-down focus of our vehicular customers in light of economic and market-specific factors, and the potential impact on us from any deterioration in the stability or performance of any of our major customers;

The impact of any problems with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;

Our ability to maintain current customer relationships and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service pressures from customers, particularly in the face of macro-economic instability;

The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic;

The impact of any delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

The impact of any delays or modifications initiated by major customers with respect to program launches, product applications or volume requirements;

Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine;

Our ability to effectively and efficiently reduce our cost structure in response to sales volume declines and to complete restructuring activities and realize the anticipated benefits of those activities;

Costs and other effects of the investigation and remediation of environmental contamination, particularly when related to the actions or inactions of others and/or facilities over which we have no control;

Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tight global labor markets;

Our ability to effectively and efficiently modify our cost structure in response to sales volume increases or decreases and to complete restructuring activities and realize the anticipated benefits of those activities;

Costs and other effects of the investigation and remediation of environmental contamination;

particularly when related to the actions or inactions of others and/or facilities over which we have no control;

Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions, in light of tight global labor markets;

Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;

6 unchanged sentences

Strategic Risks:

Our ability to successfully complete the pending sale of our liquid-cooled automotive business, including the receipt of governmental and third-party approvals and satisfaction of other closing conditions, and our ability to successfully exit our other automotive businesses in a manner that is in the best interest of our shareholders;

Our ability to successfully realize anticipated benefits from our increased “industrial” market presence, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our HDE and Automotive businesses;

Our ability to successfully complete the pending sale of our liquid-cooled automotive business, including the receipt of governmental and third-party approvals and the risk that the sale will not close because of a failure to satisfy one or more of the closing conditions (including governmental and third-party approvals) on a timely basis or at all, and our ability to successfully exit our other automotive businesses in a manner that is in the best interest of our shareholders;

Our ability to successfully realize anticipated benefits from our increased “industrial” market presence, with our BHVAC and CIS businesses, while maintaining appropriate focus on the market opportunities presented by our vehicular businesses;

Our ability to identify and execute growth and diversification opportunities in order to position us for long-term success;

3 unchanged sentences

The impact of potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to our variable-rate debt obligations, and of the continued uncertainty around the utilization of LIBOR or alternative reference rates;

Our ability to comply with the financial covenants, as amended, in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);

The impact of changes in federal, state or local tax regulations that could have the effect of increasing our income tax expense;

Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);

The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results;

7 unchanged sentences

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 2. Management’s Discussion and Analysis