Item 1. Financial Statements
Item 1. Financial Statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2023 and 2022
(In millions, except per share amounts)
(Unaudited)
Three months ended June 30,
2023
2022
Net sales
$
622.4
$
541.0
Cost of sales
494.5
457.6
Gross profit
127.9
83.4
Selling, general and administrative expenses
61.4
56.3
Restructuring expenses
-
1.5
Operating income
66.5
25.6
Interest expense
( 5.9
)
( 4.1
)
Other expense – net
( 0.6
)
( 2.3
)
Earnings before income taxes
60.0
19.2
Provision for income taxes
( 14.7
)
( 4.9
)
Net earnings
45.3
14.3
Net earnings attributable to noncontrolling interest
( 0.5
)
-
Net earnings attributable to Modine
$
44.8
$
14.3
Net earnings per share attributable to Modine shareholders:
Basic
$
0.86
$
0.27
Diluted
$
0.85
$
0.27
Weighted-average shares outstanding:
Basic
52.3
52.2
Diluted
53.0
52.4
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended June 30, 2023 and 2022
(In millions)
(Unaudited)
Three months ended June 30,
2023
2022
Net earnings
$
45.3
$
14.3
Other comprehensive income (loss), net of income taxes:
Foreign currency translation
( 0.8
)
( 23.9
)
Defined benefit plans, net of income taxes of $ 0.2 and $ 0 million
0.8
1.3
Cash flow hedges, net of income taxes of ($ 0.2 ) and $ 0 million
( 0.7
)
( 1.6
)
Total other comprehensive income (loss)
( 0.7
)
( 24.2
)
Comprehensive income (loss)
44.6
( 9.9
)
Comprehensive (income) loss attributable to noncontrolling interest
( 0.3
)
0.4
Comprehensive income (loss) attributable to Modine
$
44.3
$
( 9.5
)
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED
BALANCE SHEETS
June 30, 2023 and March 31, 2023
(In millions, except per share amounts)
(Unaudited)
June 30, 2023
March 31, 2023
ASSETS
Cash and cash equivalents
$
92.5
$
67.1
Trade accounts receivable – net
399.8
398.0
Inventories
333.5
324.9
Other current assets
68.3
56.4
Total current assets
894.1
846.4
Property, plant and equipment – net
310.3
314.5
Intangible assets – net
79.1
81.1
Goodwill
165.6
165.6
Deferred income taxes
81.2
83.7
Other noncurrent assets
77.6
74.6
Total assets
$
1,607.9
$
1,565.9
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt
$
8.0
$
3.7
Long-term debt – current portion
19.7
19.7
Accounts payable
317.5
332.8
Accrued compensation and employee benefits
81.7
89.8
Other current liabilities
79.8
61.1
Total current liabilities
506.7
507.1
Long-term debt
330.0
329.3
Deferred income taxes
5.3
4.8
Pensions
39.7
40.2
Other noncurrent liabilities
81.7
84.9
Total liabilities
963.4
966.3
Commitments and contingencies (see Note 17)
Shareholders’ equity:
Preferred stock, $ 0.025
par value, authorized 16.0 million shares, issued - none
-
-
Common stock, $ 0.625
par value, authorized 80.0 million shares, issued 55.6 million and 55.4 million shares
34.7
34.6
Additional paid-in capital
272.7
270.8
Retained earnings
542.3
497.5
Accumulated other comprehensive loss
( 161.6
)
( 161.1
)
Treasury stock, at cost, 3.4
million and 3.3 million shares
( 50.2
)
( 49.0
)
Total Modine shareholders’ equity
637.9
592.8
Noncontrolling interest
6.6
6.8
Total equity
644.5
599.6
Total liabilities and equity
$
1,607.9
$
1,565.9
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the three months ended June 30, 2023 and 2022
(In millions)
(Unaudited)
Three months ended June 30,
2023
2022
Cash flows from operating activities:
Net earnings
$
45.3
$
14.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
13.7
13.9
Stock-based compensation expense
1.5
1.1
Deferred income taxes
3.1
( 0.9
)
Other – net
1.4
0.8
Changes in operating assets and liabilities:
Trade accounts receivable
( 2.7
)
0.7
Inventories
( 7.9
)
( 38.5
)
Accounts payable
( 9.5
)
6.8
Other assets and liabilities
( 3.2
)
16.3
Net cash provided by operating activities
41.7
14.5
Cash flows from investing activities:
Expenditures for property, plant and equipment
( 15.1
)
( 10.4
)
Other – net
( 3.3
)
-
Net cash used for investing activities
( 18.4
)
( 10.4
)
Cash flows from financing activities:
Borrowings of debt
116.1
86.7
Repayments of debt
( 107.8
)
( 74.3
)
Borrowings (repayments) on bank overdraft facilities – net
( 3.8
)
1.8
Purchases of treasury stock under share repurchase program
-
( 1.1
)
Dividend paid to noncontrolling interest
( 0.5
)
( 0.6
)
Other – net
( 0.3
)
( 0.5
)
Net cash provided by financing activities
3.7
12.0
Effect of exchange rate changes on cash
( 0.2
)
( 2.6
)
Net increase in cash, cash equivalents and restricted cash
26.8
13.5
Cash, cash equivalents and restricted cash – beginning of period
67.2
45.4
Cash, cash equivalents and restricted cash – end of period
$
94.0
$
58.9
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three months ended June 30, 2023 and 2022
(In millions)
(Unaudited)
Accumulated
Additional
other
Treasury
Non-
Common stock
paid-in
Retained
comprehensive
stock, at
controlling
Shares
Amount
capital
earnings
loss
cost
interest
Total
Balance, March 31 ,
2023
55.4
$
34.6
$
270.8
$
497.5
$
( 161.1
)
$
( 49.0
)
$
6.8
$
599.6
Net earnings
-
-
-
44.8
-
-
0.5
45.3
Other comprehensive loss
-
-
-
-
( 0.5
)
-
( 0.2
)
( 0.7
)
Stock options and awards
0.2
0.1
0.4
-
-
-
-
0.5
Purchase of treasury stock
-
-
-
-
-
( 1.2
)
-
( 1.2
)
Stock-based compensation expense
-
-
1.5
-
-
-
-
1.5
Dividend paid to noncontrolling interest
-
-
-
-
-
-
( 0.5
)
( 0.5
)
Balance, June 30 ,
2023
55.6
$
34.7
$
272.7
$
542.3
$
( 161.6
)
$
( 50.2
)
$
6.6
$
644.5
Accumulated
Additional
other
Treasury
Non-
Common stock
paid-in
Retained
comprehensive
stock, at
controlling
Shares
Amount
capital
earnings
loss
cost
interest
Total
Balance, March 31 ,
2022
54.8
$
34.2
$
261.6
$
344.4
$
( 149.5
)
$
( 40.0
)
$
7.4
$
458.1
Net earnings
-
-
-
14.3
-
-
-
14.3
Other comprehensive loss
-
-
-
-
( 23.8
)
-
( 0.4
)
( 24.2
)
Stock options and awards
0.1
0.1
-
-
-
-
-
0.1
Purchase of treasury stock
-
-
-
-
-
( 1.7
)
-
( 1.7
)
Stock-based compensation expense
-
-
1.1
-
-
-
-
1.1
Dividend paid to noncontrolling interest
-
-
-
-
-
-
( 0.6
)
( 0.6
)
Balance, June 30 ,
2022
54.9
$
34.3
$
262.7
$
358.7
$
( 173.3
)
$
( 41.7
)
$
6.4
$
447.1
The notes to condensed consolidated financial statements are an integral part of these statements.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 1: General
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 three months of fiscal 2024 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, 2023.
New
Accounting Guidance: Supplier Finance Programs
In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding disclosure of supplier finance programs including the key terms, outstanding obligations, and where such obligations are
presented within the financial statements. In addition, beginning for fiscal 2025, a roll forward of obligations under such programs will be required annually. The new guidance does not impact the recognition, measurement or financial statement
presentation of supplier finance program obligations. The Company adopted this guidance as of April 1, 2023.
The Company facilitates a voluntary supplier finance program through a financial institution that allows certain suppliers in the U.S. and Europe to request early
payment for invoices, at a discount, from the financial institution. The Company or the financial institution may terminate the supplier finance program upon 90 days’ notice. The Company’s obligations to its suppliers, including amounts due and payment terms, are consistent, irrespective of whether a supplier participates in the program. The Company is not party to
the arrangements between the participating suppliers and the financial institution. Under this program, the Company confirms the validity of supplier invoices to the financial institution and remits payments to it based on the original payment
terms, which typically range from 60 to 120
days. The outstanding obligations under this program, included within accounts payable in the consolidated balance sheets, totaled
$ 18.5 million and $ 21.2
million at June 30, 2023 and March 31, 2023, respectively.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 2: Revenue Recognition
Disaggregation of Revenue
The table below presents revenue for each of the Company’s operating segments. Each segment’s revenue is disaggregated by product group, by
geographic location and based upon the timing of revenue recognition.
Beginning in fiscal 2024
and in connection with the Company’s strategic transformation and continued application of 80/20 principles across its businesses, the Company has refined its reporting of disaggregated revenue within the Climate Solutions segment to be more
consistent with how the segment has aligned its teams around three market-based verticals: i) heat transfer products; ii) HVAC & refrigeration; and iii) data center cooling. For the refined fiscal 2024 presentation, the Company reports
revenue based upon the respective product lines and related customer relationships managed by each market-based vertical team. The disaggregated revenue information presented in the table below for fiscal 2023 has been recast to be comparable with the fiscal 2024
presentation.
Three months ended June 30 , 2023
Three months ended June 30 , 2022
Climate
Solutions
Performance
Technologies
Segment
Total
Climate
Solutions
Performance
Technologies
Segment
Total
Product groups:
Heat transfer
$
125.9
$
-
$
125.9
$
134.7
$
-
$
134.7
HVAC & refrigeration
77.7
-
77.7
79.0
-
79.0
Data center cooling
68.2
-
68.2
30.5
-
30.5
Air-cooled
-
172.7
172.7
-
153.0
153.0
Liquid-cooled
-
134.7
134.7
-
110.9
110.9
Advanced solutions
-
43.2
43.2
-
32.9
32.9
Inter-segment sales
-
8.3
8.3
0.2
7.5
7.7
Net sales
$
271.8
$
358.9
$
630.7
$
244.4
$
304.3
$
548.7
Geographic location:
Americas
$
141.6
$
185.0
$
326.6
$
139.4
$
164.3
$
303.7
Europe
123.7
123.5
247.2
99.0
96.1
195.1
Asia
6.5
50.4
56.9
6.0
43.9
49.9
Net sales
$
271.8
$
358.9
$
630.7
$
244.4
$
304.3
$
548.7
Timing of revenue recognition:
Products transferred at a point in time
$
257.7
$
341.4
$
599.1
$
230.8
$
281.8
$
512.6
Products transferred over time
14.1
17.5
31.6
13.6
22.5
36.1
Net sales
$
271.8
$
358.9
$
630.7
$
244.4
$
304.3
$
548.7
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Contract Balances
Contract assets and contract liabilities from contracts with customers were as follows:
June 30, 2023
March 31, 2023
Contract assets
$
26.6
$
19.3
Contract liabilities
35.5
21.5
Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling
contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed. The $ 7.3 million inc rease in contract assets during the first three months of fiscal 2024
primarily resulted from an increase in contract assets for revenue recognized over time.
Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance
obligations under customer contracts, including contracts for customer-owned tooling. The $ 14.0 million increase in contract liabilities
during the first three months of fiscal 2024 primarily resulted from payments received in advance of the Company’s satisfaction of performance obligations.
Note 3: Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants. Fair value measurements are classified under the following hierarchy:
•
Level 1 – Quoted prices for identical instruments in active markets.
•
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in
which all significant inputs are observable in active markets.
•
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.
When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1. In some cases, where market prices are not
available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2. If quoted or observable market prices are not available, the Company determines fair value based upon
valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates. These measurements are classified as Level 3.
The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair
value due to the short-term nature of these instruments. The fair value of the Company’s long-term debt is disclosed in Note 16 .
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 4: Pensions
Pension cost included the following components:
Three months ended June 30,
2023
2022
Service cost
$
0.1
$
0.1
Interest cost
2.4
2.0
Expected return on plan assets
( 2.6
)
( 2.9
)
Amortization of unrecognized net loss
1.1
1.4
Net periodic benefit cost
$
1.0
$
0.6
The
Company’s funding policy is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations. In connection with funding relief provisions within the
American Rescue Plan Act of 2021, the Company does not expect to make cash contributions to its U.S. pension plans during fiscal 2024.
Note 5: Stock-Based Compensation
The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive plan (“LTIP”) for officers and other executives that authorizes grants of
stock awards, stock options, and performance-based awards for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.
The Company calculates compensation expense based upon the fair value of the awards at the time of grant and subsequently recognizes expense ratably over the respective
vesting periods of the stock-based awards. The Company recognized stock-based compensation expense of $ 1.5 million and $ 1.1 million f or the three months ended June 30, 2023 and 2022, respectively.
During the first quarter of fiscal 2024, the Company granted performance-based stock awards and restricted stock awards. The performance metrics for
the performance-based stock 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 performance period ending March 31, 2026.
During the first quarter of fiscal 2023, the Company granted restricted stock awards, stock options, and
performance cash awards.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The fair value of stock-based compensation awards granted during the three months ended June 30, 2023 and 2022 were as follows:
Three months ended June 30,
2023
2022
Shares
Fair Value
Per Award
Shares
Fair Value
Per Award
Performance stock awards
0.3
$
27.29
-
-
Restricted stock awards
0.1
$
27.29
0.2
$
12.28
Stock options
-
-
0.2
$
6.92
As of June 30, 2023, unrecognized compensation expense related to non-vested stock-based compensation awards,
which will be recognized as expense over the remaining service periods, was as follows:
Unrecognized
Compensation
Expense
Weighted-Average
Remaining Service
Period in Years
Performance stock awards
$
12.9
2.7
Restricted stock awards
7.2
2.1
Stock options
1.9
1.9
Total
$
22.0
2.4
Note 6: Restructuring Activities
During the first quarter of fiscal 2023, restructuring and repositioning expenses primarily consisted of severance expenses related to targeted headcount reductions in
Europe within the Performance Technologies segment.
Restructuring and repositioning expenses were as follows:
Three months ended June 30,
2023
2022
Employee severance and related benefits
$
-
$
1.4
Other restructuring and repositioning expenses
-
0.1
Total
$
-
$
1.5
Other restructuring and repositioning expenses primarily consist of equipment transfer and plant consolidation costs.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements. Changes in accrued severance were as follows:
Three months ended June 30,
2023
2022
Beginning balance
$
10.6
$
20.2
Additions
-
1.4
Payments
( 1.8
)
( 3.3
)
Effect of exchange rate changes
0.1
( 0.9
)
Ending balance
$
8.9
$
17.4
Note 7: Other Income and Expense
Other income and expense consisted of the following:
Three months ended June 30,
2023
2022
Interest income
$
0.5
$
0.1
Foreign currency transactions (a)
( 0.3
)
( 2.0
)
Net periodic benefit cost (b)
( 0.8
)
( 0.4
)
Total other expense – net
$
( 0.6
)
$
( 2.3
)
(a)
Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the
re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on certain foreign currency exchange
contracts.
(b)
Net periodic benefit cost for the Company’s pension and postretirement plans is exclusive of
service cost.
Note 8: Income Taxes
The Company’s effective tax rate for the three months ended June 30, 2023 and 2022 was 24.5 percent and 25.5 percent, respectively. The effective tax rate for the first quarter of fiscal 2024 is lower than the first quarter of the prior year, primarily due to changes in the mix
and amount of foreign and U.S. earnings.
The Company records valuation allowances against its net deferred tax assets to the extent it determines it is more likely than not that such assets will not be realized in the future. Each quarter, the Company evaluates the probability that
its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of significant estimates and assumptions, including expectations of
future taxable income and tax planning strategies. In addition, the Company considers the duration of statutory carryforward periods and historical financial results.
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
At June 30, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $ 35.5 million and $ 27.6 million, respectively. The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not
the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in the
U.S. and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.
Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate. Under this methodology, the Company applies its estimated annual income
tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur. The Company
excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full
fiscal year in these jurisdictions. The Company estimates a $ 2.1 million net decrease in unrecognized tax benefits during the
remainder of fiscal 2024 mainly due to lapses in statutes of limitations.
Note 9: Earnings Per Share
The components of basic and diluted earnings per share were as follows:
Three months ended June 30,
2023
2022
Net earnings attributable to Modine
$
44.8
$
14.3
Weighted-average shares outstanding – basic
52.3
52.2
Effect of dilutive securities
0.7
0.2
Weighted-average shares outstanding – diluted
53.0
52.4
Earnings per share:
Net earnings per share – basic
$
0.86
$
0.27
Net earnings per share – diluted
$
0.85
$
0.27
For the three months ended June 30, 2023, the calculation of diluted earnings per share excluded 0.1 million restricted stock awards because they were anti-dilutive.
For the three months ended June 30, 2022, the calculation of diluted earnings per share excluded 0.9 million and 0.5 million stock options and restricted stock awards, respectively, because they were anti-dilutive .
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 10: Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following:
June 30, 2023
March 31, 2023
Cash and cash equivalents
$
92.5
$
67.1
Restricted cash
1.5
0.1
Total cash, cash equivalents and restricted cash
$
94.0
$
67.2
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.
Note 11: Inventories
Inventories consisted of the following:
June 30, 2023
March 31, 2023
Raw materials
$
216.8
$
218.3
Work in process
52.7
49.9
Finished goods
64.0
56.7
Total inventories
$
333.5
$
324.9
Note 12: Property, Plant and Equipment
Property, plant and equipment, including depreciable lives, consisted of the following:
June 30, 2023
March 31, 2023
Land
$
16.5
$
16.4
Buildings and improvements ( 10 - 40 years)
265.2
264.0
Machinery and equipment ( 3 - 15 years)
855.9
853.3
Office equipment ( 3 - 10 years)
94.5
93.6
Construction in progress
46.6
47.5
1,278.7
1,274.8
Less: accumulated depreciation
( 968.4
)
( 960.3
)
Net property, plant and equipment
$
310.3
$
314.5
13
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 13: Goodwill and Intangible Assets
The following table presents a roll forward of the carrying value of goodwill from March 31, 2023 to June 30, 2023.
Climate
Solutions
Performance
Technologies
Total
Goodwill, March 31 ,
2023
$
105.7
$
59.9
$
165.6
Effect of exchange rate changes
-
-
-
Goodwill, June 30 ,
2023
$
105.7
$
59.9
$
165.6
Intangible assets consisted of the following:
June 30, 2023
March 31, 2023
Gross
Net
Gross
Net
Carrying
Accumulated
Intangible
Carrying
Accumulated
Intangible
Value
Amortization
Assets
Value
Amortization
Assets
Customer relationships
$
60.3
$
( 24.3
)
$
36.0
$
60.3
$
( 23.4
)
$
36.9
Trade names
50.1
( 16.5
)
33.6
50.1
( 15.9
)
34.2
Acquired technology
22.6
( 13.1
)
9.5
22.6
( 12.6
)
10.0
Total intangible assets
$
133.0
$
( 53.9
)
$
79.1
$
133.0
$
( 51.9
)
$
81.1
The Company recorded amortization expense of $ 2.0 million for
both the three months ended June 30, 2023 and 2022 . The Company estimates that it will record approximately $ 6.0 million of amortization expense during the remainder of fiscal 2024. The Company estimates that it will record approximately $ 8.0 million of annual amortization expense in fiscal 2025 through 2028 and approximately $ 7.0 million in fiscal 2029. These estimates exclude amortization expense associated with the acquisition that closed during the second quarter of
fiscal 2024, as discussed in Note 20.
Note 14: Product Warranties
Changes in accrued warranty costs were as follows:
Three months ended June 30,
2023
2022
Beginning balance
$
6.9
$
6.3
Warranties recorded at time of sale
1.5
1.4
Adjustments to pre-existing warranties
0.6
( 0.2
)
Settlements
( 1.1
)
( 1.1
)
Effect of exchange rate changes
-
( 0.2
)
Ending balance
$
7.9
$
6.2
14
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 15: Leases
Lease Assets and Liabilities
The following table provides a summary of leases recorded on the consolidated balance sheets.
Balance Sheet Location
June 30, 2023
March 31, 2023
Lease Assets
Operating lease ROU assets
Other noncurrent assets
$
57.4
$
59.1
Finance lease ROU assets (a)
Property, plant and equipment – net
7.0
7.1
Lease Liabilities
Operating lease liabilities
Other current liabilities
$
11.8
$
11.8
Operating lease liabilities
Other noncurrent liabilities
47.3
48.9
Finance lease liabilities
Long-term debt – current portion
0.4
0.4
Finance lease liabilities
Long-term debt
2.2
2.3
(a)
Finance lease right-of-use (“ROU”) assets were recorded net of accumulated amortization of $ 3.3 million and $ 3.2 million as of June 30, 2023 and March 31, 2023, respectively.
Components of Lease Expense
The components of lease expense were as follows:
Three months ended June 30,
2023
2022
Operating lease expense (a)
$
5.9
$
5.3
Finance lease expense:
Depreciation of ROU assets
0.1
0.1
Interest on lease liabilities
-
-
Total lease expense
$
6.0
$
5.4
(a)
For the three months
ended June 30, 2023 and 2022, operating lease expense included short-term lease expense of $ 1.5 million and $ 1.3 million, respectively. Variable lease expense was not significant.
15
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 16: Indebtedness
Long-term debt consisted of the following:
Fiscal year
of maturity
June 30, 2023
March 31, 2023
Term loans
2028
$
213.2
$
215.7
5.9 % Senior Notes
2029
100.0
100.0
5.8 % Senior Notes
2027
33.3
33.3
Revolving credit facility
2028
3.2
-
Other (a)
2.6
2.7
352.3
351.7
Less: current portion
( 19.7
)
( 19.7
)
Less: unamortized debt issuance costs
( 2.6
)
( 2.7
)
Total long-term debt
$
330.0
$
329.3
(a)
Other long-term debt primarily
includes finance lease obligations .
Long-term debt, including the current portion of long-term debt, matures as
follows:
Fiscal Year
Remainder of 2024
$
16.9
2025
19.7
2026
44.7
2027
44.7
2028
200.9
2029 & beyond
25.4
Total
$
352.3
The Company maintains a credit agreement
with a syndicate of banks that provides for a multi-currency $ 275.0 million revolving credit facility and U.S. dollar- and
euro-denominated term loan facilities maturing in October 2027. In addition, the credit agreement provides for 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, 2023, the weighted-average interest rates for revolving credit facility borrowings and
the term loans were 6.3 and 6.4
percent, respectively. 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, 2023, the Company’s borrowings under its revolving credit and swingline facilities totaled $ 3.2
million and $ 8.0 million, respectively, and domestic letters of credit totaled $ 5.5 million. As a result, available borrowing capacity under the Company’s revolving credit facility was $ 258.3 million as of June 30, 2023 . At March 31, 2023, the Company had no outstanding borrowings under these facilities.
The Company also maintains credit agreements for its foreign subsidiaries. The
outstanding short-term borrowings related to these foreign credit agreements totaled $ 3.7 million at March 31, 2023. There were no short-term borrowings related to these agreements at June 30, 2023.
16
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Indebtedness under the Company’s credit agreement and Senior Note agreements is secured by liens on substantially all domestic assets. These agreements further require
compliance with various covenants that may limit the Company’s ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; and make restricted payments including
dividends. In addition, the agreements may require prepayment in the event of certain asset sales.
Financial covenants within its credit agreements require 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 must also maintain a ratio of Adjusted EBITDA of at least three
times consolidated interest expense. As of June 30, 2023, the Company was in compliance with its debt covenants.
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 June 30, 2023 and March 31, 2023, 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 $ 125.9 million at each reporting date. The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy. Refer to Note 3 for the
definition of a Level 2 fair value measurement.
Note 17: Risks, Uncertainties, Contingencies and Litigation
Environmental
T he Company has recorded environmental investigation and remediation accruals related to manufacturing facilities in the U.S., one of which the Company currently owns and operates, and at its
former manufacturing facility in the Netherlands. These accruals primarily relate to soil and groundwater contamination at 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. 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
$ 17.5 million and $ 17.6
million as of June 30, 2023 and March 31, 2023, respectively. As additional information becomes available regarding 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.
Other Litigation
In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits and enforcement proceedings by private parties, governmental
agencies and/or others in which claims are asserted against Modine. The Company believes that any additional loss in excess of amounts already accrued would not have a material effect on the Company’s consolidated balance sheet, results of
operations, and cash flows. In addition, management expects that the liabilities which may ultimately result from such lawsuits or proceedings, if any, would not have a material adverse effect on the Company’s financial position .
17
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 18: Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss were as follows:
Three months ended June 30, 2023
Foreign
Currency
Translation
Defined
Benefit
Plans
Cash Flow
Hedges
Total
Beginning balance
$
( 57.5
)
$
( 104.4
)
$
0.8
$
( 161.1
)
Other comprehensive income (loss) before reclassifications
( 0.6
)
-
( 0.4
)
( 1.0
)
Reclassifications:
Amortization of unrecognized net loss (a)
-
1.0
-
1.0
Realized gains – net (b)
-
-
( 0.5
)
( 0.5
)
Income taxes
-
( 0.2
)
0.2
-
Total other comprehensive income (loss)
( 0.6
)
0.8
( 0.7
)
( 0.5
)
Ending balance
$
( 58.1
)
$
( 103.6
)
$
0.1
$
( 161.6
)
Three months ended June 30, 2022
Foreign
Currency
Translation
Defined
Benefit
Plans
Cash Flow
Hedges
Total
Beginning balance
$
( 39.1
)
$
( 111.1
)
$
0.7
$
( 149.5
)
Other comprehensive income (loss) before reclassifications
( 23.5
)
-
( 1.2
)
( 24.7
)
Reclassifications:
Amortization of unrecognized net loss (a)
-
1.3
-
1.3
Realized gains – net (b)
-
-
( 0.4
)
( 0.4
)
Income taxes
-
-
-
-
Total other comprehensive income (loss)
( 23.5
)
1.3
( 1.6
)
( 23.8
)
Ending balance
$
( 62.6
)
$
( 109.8
)
$
( 0.9
)
$
( 173.3
)
(a)
Amounts are included in the calculation of net periodic benefit cost for the Company’s defined
benefit plans, which include pension and other postretirement plans. See Note 4 for additional information about the Company’s pension plans.
(b)
A mounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings .
18
Table
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 19: Segment Information
The following is a summary of net sales, gross profit and operating income by segment:
Three months ended June 30,
2023
2022
External Sales
Inter-segment
Sales
Total
External Sales
Inter-segment
Sales
Total
Net sales:
Climate Solutions
$
271.8
$
-
$
271.8
$
244.2
$
0.2
$
244.4
Performance Technologies
350.6
8.3
358.9
296.8
7.5
304.3
Segment total
622.4
8.3
630.7
541.0
7.7
548.7
Corporate and eliminations
-
( 8.3
)
( 8.3
)
-
( 7.7
)
( 7.7
)
Net sales
$
622.4
$
-
$
622.4
$
541.0
$
-
$
541.0
Three months ended June 30,
2023
2022
_ $’s
% of sales
_ $’s
% of sales
Gross profit:
Climate Solutions
$
69.0
25.4
%
$
50.4
20.6
%
Performance Technologies
58.6
16.3
%
33.0
10.8
%
Segment total
127.6
20.2
%
83.4
15.2
%
Corporate and eliminations
0.3
-
-
-
Gross profit
$
127.9
20.6
%
$
83.4
15.4
%
Three months ended June 30,
2023
2022
Operating income:
Climate Solutions
$
44.3
$
27.0
Performance Technologies
32.0
7.4
Segment total
76.3
34.4
Corporate and eliminations
( 9.8
)
( 8.8
)
Operating income
$
66.5
$
25.6
19
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The following is a summary of segment
assets, comprised entirely of trade accounts receivable and inventories, and other assets:
June 30, 2023
March 31, 2023
Assets:
Climate Solutions
$
355.0
$
334.8
Performance Technologies
378.3
388.1
Other (a)
874.6
843.0
Total assets
$
1,607.9
$
1,565.9
(a)
Represents cash and cash equivalents, other current assets, property
plant and equipment, intangible assets, goodwill, deferred income taxes, and other noncurrent assets for the Climate Solutions and Performance Technologies segments and Corporate.
Note 20: Subsequent Event
On July 1, 2023, the Company acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for a purchase price of $ 5.3 million. Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps primarily for the K-12 school
market. This acquisition expands the Company’s indoor air quality product portfolio and supports its growth strategy and mission of improving indoor air quality. Napps has historical annual sales of approximately $ 5.0 million, and will be reported within the Company’s Climate Solutions segment beginning in the second quarter of fiscal 2024.
20
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