MODINE MANUFACTURING CO 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended June 30, 2020 was the first quarter of fiscal 2021. COVID-19 As the COVID-19 pandemic continues, the health and overall well-being of our employees continues to be our top priority. We have implemented strict measures to mitigate risk in our manufacturing operations and administrative offices, including face masks, social distancing, and enhanced sanitation protocols. We are also committed to meeting our customers’ needs and will work to overcome any obstacles that may arise to deliver quality products and services to our customers in a timely manner. The COVID-19 pandemic and the resulting broad economic impacts on our key end markets negatively impacted our business operations and financial results during the first quarter of fiscal 2021. In March and April 2020, we suspended production at many manufacturing facilities around the world due to local government requirements or customer shutdowns. Although we have since reopened all of the temporarily-closed facilities, we are currently operating approximately half of our facilities at reduced production levels based upon customer demand. In an effort to mitigate the negative impacts of COVID-19 on our financial results, we have taken actions that are yielding significant cost savings, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization. We have also taken advantage of government assistance programs, primarily offered in European countries, to offset idle labor costs and to avoid employee layoffs to the extent possible. In addition, we have reduced operating and administrative expenses, including travel and entertainment expenditures, and lowered the annual compensation paid to the Board of Directors. We are also focused on reducing capital expenditures and, where possible, have delayed certain projects and the purchase of some program-related equipment and tooling. First Quarter Highlights Net sales in the first quarter of fiscal 2021 decreased $181.2 million, or 34 percent, from the first quarter of fiscal 2020, primarily due to lower sales in our Heavy Duty Equipment (“HDE”), Automotive, and Commercial and Industrial Solutions (“CIS”) segments. Sales in each of these segments were significantly impacted by market-driven volume declines and the temporary plant closures described above related to the COVID-19 pandemic. Cost of sales decreased $143.9 million, or 32 percent, from the first quarter of fiscal 2020, primarily due to lower sales volume. Gross profit decreased $37.3 million and gross margin declined 250 basis points to 13.3 percent. Selling, general and administrative (“SG&A”) expenses decreased $18.8 million, primarily due to cost-reduction initiatives in response to the negative impacts of COVID-19 and lower project costs associated with our review of strategic alternatives for the automotive business, which decreased approximately $8.0 million compared with the first quarter of fiscal 2020. The operating loss during the first quarter of fiscal 2021 of $3.2 million represents a $21.3 million decline from the prior-year operating income of $18.1 million and was primarily due to lower earnings in our HDE, Automotive, and CIS segments, partially offset by increased earnings in our Building HVAC Systems (“BHVAC”) segment. We previously reported that we had paused our evaluation of strategic alternatives for the automotive business in light of the impacts of the COVID-19 pandemic and vehicular market weakness. We resumed this process during the first quarter of fiscal 2021 and are committed to exiting the automotive business in a manner that is in the best interest of our shareholders. Recent Announcement On August 4, 2020, we announced that Thomas A. Burke stepped down from his position as President and Chief Executive Officer ( “CEO” ) and as a member of Modine ’s Board of Directors, effective immediately. The Board of Directors has launched a search for Mr. Burke ’s successor and has named Michael B. Lucareli, our Vice President, Finance and Chief Financial Officer, as Interim President and CEO. As a result of Mr. Burke ’s departure and based upon the terms of his employment agreement, we expect to record severance expense during the second quarter of fiscal 2021 of approximately $5.0 million, to be paid on a bi-weekly basis over the next three years. 21 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS The following table presents our consolidated financial results on a comparative basis for the three months ended June 30, 2020 and 2019: Three months ended June 30, 2020 2019 (in millions) $'s % of sales $'s % of sales Net sales $ 347.8 100.0 % $ 529.0 100.0 % Cost of sales 301.7 86.7 % 445.6 84.2 % Gross profit 46.1 13.3 % 83.4 15.8 % Selling, general and administrative expenses 44.7 12.9 % 63.5 12.0 % Restructuring expenses 4.6 1.3 % 1.8 0.3 % Operating (loss) income (3.2 ) -0.9 % 18.1 3.4 % Interest expense (5.4 ) -1.6 % (5.9 ) -1.1 % Other expense – net - - (1.1 ) -0.2 % (Loss) earnings before income taxes (8.6 ) -2.5 % 11.1 2.1 % Benefit (provision) for income taxes 0.2 0.1 % (2.9 ) -0.6 % Net (loss) earnings $ (8.4 ) -2.4 % $ 8.2 1.5 % First quarter net sales of $347.8 million were $181.2 million, or 34 percent, lower than the first quarter of the prior year, primarily due to lower sales volume in our HDE, Automotive, and CIS segments. Sales in these segments decreased $92.9 million, $51.5 million, and $46.3 million, respectively, and were significantly impacted by market-driven volume declines and temporary plant closures due to the COVID-19 pandemic. First quarter cost of sales decreased $143.9 million, or 32 percent, primarily due to lower sales volume. Cost of sales was favorably impacted by the benefits of cost-reduction initiatives in response to lower end market demand and procurement initiatives. As a percentage of sales, cost of sales increased 250 basis points to 86.7 percent, primarily due to the unfavorable impact of the lower sales volume. As a result of lower sales and higher cost of sales as a percentage of sales, first quarter gross profit decreased $37.3 million and gross margin declined 250 basis points to 13.3 percent. First quarter SG&A expenses decreased $18.8 million. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $10.0 million, and lower costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment’s business operations, which decreased approximately $8.0 million. The lower compensation-related expenses resulted primarily from our cost-reduction initiatives aimed to mitigate the negative impacts of COVID-19. Restructuring expenses totaled $4.6 million in the first quarter of fiscal 2021 and primarily consisted of severance expenses in the CIS and HDE segments. The severance expenses related to targeted headcount reductions in support of our objective to reduce operational and SG&A cost structures and plant consolidation activities. The operating loss of $3.2 million represents a $21.3 million decline from the prior-year operating income of $18.1 million and was primarily due to lower earnings in our HDE, CIS, and Automotive segments, partially offset by increased earnings in our BHVAC segment. The benefit for income taxes was $0.2 million during the first quarter of fiscal 2021, compared with a provision for income taxes of $2.9 million during the first quarter of the prior year. The $3.1 million change was primarily due to lower earnings and changes in the mix of foreign and U.S. earnings. 22 Table of Contents 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 are 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 months ended June 30, 2020 and 2019: Commercial and Industrial Solutions Three months ended June 30, 2020 2019 (in millions) $'s % of sales $'s % of sales Net sales $ 122.5 100.0 % $ 168.8 100.0 % Cost of sales 107.0 87.4 % 144.5 85.6 % Gross profit 15.5 12.6 % 24.3 14.4 % Selling, general and administrative expenses 13.1 10.6 % 15.1 9.0 % Restructuring expenses 2.4 2.0 % 0.2 0.1 % Operating income $ - - $ 9.0 5.3 % CIS net sales decreased $46.3 million, or 27 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic. Sales to commercial HVAC&R and data center cooling customers decreased $37.0 million and $10.4 million, respectively. CIS cost of sales decreased $37.5 million, or 26 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 180 basis points to 87.4 percent, primarily due to the unfavorable impact of lower sales volume, partially offset by cost-reduction initiatives and favorable sales mix. As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $8.8 million and gross margin declined 180 basis points to 12.6 percent. SG&A expenses decreased $2.0 million compared with the first 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 first quarter of fiscal 2021 totaled $2.4 million and primarily consisted of severance expenses related to plant consolidation activities in China and targeted headcount reductions in North America. Operating income decreased $9.0 million, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower gross profit and higher restructuring expenses, partially offset by lower SG&A expenses. 23 Table of Contents Building HVAC Systems Three months ended June 30, 2020 2019 (in millions) $'s % of sales $'s % of sales Net sales $ 47.6 100.0 % $ 49.0 100.0 % Cost of sales 33.1 69.5 % 35.3 72.1 % Gross profit 14.5 30.5 % 13.7 27.9 % Selling, general and administrative expenses 7.4 15.5 % 8.4 17.2 % Operating income $ 7.1 15.0 % $ 5.3 10.7 % BHVAC net sales decreased $1.4 million, or 3 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021 and were negatively impacted by the COVID-19 pandemic. Compared with the first quarter of the prior year, BHVAC sales decreased $3.1 million in the U.S. and increased $1.7 million in the U.K. The lower sales in the U.S. were primarily driven by decreased sales of heating and ventilation products. The higher sales in the U.K. were primarily due to higher sales of data center products, partially offset by lower sales of air conditioning products. BHVAC cost of sales decreased $2.2 million, or 6 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021. As a percentage of sales, cost of sales decreased 260 basis points to 69.5 percent and was positively impacted by favorable customer pricing, cost-reduction initiatives and lower material costs. As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit increased $0.8 million and gross margin improved 260 basis points to 30.5 percent. SG&A expenses decreased $1.0 million, or 170 basis points as a percentage of sales, from the prior year. The decrease in SG&A expenses was primarily due to lower compensation-related expenses and lower travel expenses. Operating income of $7.1 million increased $1.8 million during the quarter, primarily due to higher gross profit and lower SG&A expenses. Heavy Duty Equipment Three months ended June 30, 2020 2019 (in millions) $'s % of sales $'s % of sales Net sales $ 123.5 100.0 % $ 216.4 100.0 % Cost of sales 112.2 90.8 % 183.9 85.0 % Gross profit 11.3 9.2 % 32.5 15.0 % Selling, general and administrative expenses 11.9 9.7 % 14.8 6.8 % Restructuring expenses 1.9 1.5 % 0.4 0.2 % Operating (loss) income $ (2.5 ) -2.0 % $ 17.3 8.0 % HDE net sales decreased $92.9 million, or 43 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic. Sales to commercial vehicle, off-highway, and automotive customers decreased $46.4 million, $16.8 million, and $13.8 million, respectively. These sales declines, which were most significant in the Americas and Europe, largely resulted from weakness in the global vehicular markets. In addition, the planned wind-down of certain programs contributed, to a lesser extent, to the lower sales to commercial vehicle customers. 24 Table of Contents HDE cost of sales decreased $71.7 million, or 39 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 580 basis points to 90.8 percent. The significant unfavorable impact of the lower sales volume was partially offset by improved operating efficiencies and cost savings 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 $21.2 million and gross margin declined 580 basis points to 9.2 percent. SG&A expenses decreased $2.9 million compared with the first 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, and lower travel expenses. Restructuring expenses during the first quarter of fiscal 2021 totaled $1.9 million and primarily consisted of severance expenses resulting from targeted headcount reductions in North America. The operating loss of $2.5 million represents a $19.8 million decline from the prior-year operating income of $17.3 million and was primarily due to lower gross profit, partially offset by lower SG&A expenses. Automotive Three months ended June 30, 2020 2019 (in millions) $'s % of sales $'s % of sales Net sales $ 62.1 100.0 % $ 113.6 100.0 % Cost of sales 57.3 92.3 % 101.1 89.0 % Gross profit 4.8 7.7 % 12.5 11.0 % Selling, general and administrative expenses 8.4 13.6 % 11.3 10.0 % Restructuring expenses 0.2 0.2 % 1.2 1.0 % Operating (loss) income $ (3.8 ) -6.1 % $ - - Automotive net sales decreased $51.5 million, or 45 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic. Sales in Europe and North America decreased $43.4 million and $9.9 million, respectively. Automotive cost of sales decreased $43.8 million, or 43 percent, from the first quarter of fiscal 2020 to the first quarter of fiscal 2021, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 330 basis points to 92.3 percent. The significant unfavorable impact of the lower sales volume was partially offset by improved operating efficiencies and favorable raw material costs. As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $7.7 million and gross margin declined 330 basis points to 7.7 percent. SG&A expenses decreased $2.9 million compared with the first quarter of the prior year. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $3.0 million. Restructuring expenses during the first quarter of fiscal 2021 totaled $0.2 million and primarily consisted of severance expenses resulting from targeted headcount reductions in Europe. The operating loss of $3.8 million represents a $3.8 million decline from the prior-year operating income of less than $0.1 million and was primarily due to lower gross profit, partially offset by lower SG&A and restructuring expenses. 25 Table of Contents Liquidity and Capital Resources Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of June 30, 2020 of $77.2 million, and an available borrowing capacity of $118.4 million under our revolving credit facility. Given our extensive international operations, approximately $57.0 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated. In response to lower customer demand resulting from the COVID-19 pandemic, we have taken actions to reduce operating expenses, conserve cash and maximize liquidity. These actions have included, but are not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization. In addition, we have reduced operating and administrative expenses. Further, as described below, we are focused on reducing our capital expenditures and executed amendments to our primary credit agreements to help ensure liquidity through 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 uncommittted 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. 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 and could adversely affect our access to capital and/or financing. Net Cash Provided by Operating Activities Net cash provided by operating activities for the three months ended June 30, 2020 was $12.3 million, which represents an $11.8 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 business, partially offset by lower operating earnings in the current year. The favorable changes in working capital during the first three months of fiscal 2021, compared with the same period in the prior year, included lower payments for incentive compensation, employee benefits, income taxes and payroll taxes. We have deferred, and expect to continue to defer, payments of payroll taxes, as permitted by the Coronavirus Aid, Relief and Economic Security Act. Capital Expenditures In response to the economic impacts of the COVID-19 pandemic, we are taking steps to preserve our financial liquidity. As part of this initiative, we are 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 $9.1 million during the first three months of fiscal 2021 decreased $11.2 million compared with the same period in the prior year. Debt Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant further discussed below. Also, as specified in the credit agreement, the term loans may require prepayments in the event of certain asset sales. 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. We believe this additional flexibility will enable us to be compliant with our debt covenants, even if the adverse effects of the COVID-19 pandemic on our business are more severe than we currently anticipate. However, failure to comply with the debt covenants could result in an event of default, which, if not cured or waived, could result in us being required to repay borrowings before their due date. 26 Table of Contents 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”). For fiscal 2021, the leverage ratio covenant limit is 4.00 to 1, 4.75 to 1, 5.25 to 1, and 5.75 to 1 for the first, second, third, and fourth quarters, respectively. 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. 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 June 30, 2020, we were in compliance with our debt covenants; our leverage ratio and interest coverage ratio were 2.9 and 7.0, respectively. We expect to remain in compliance with our debt covenants during fiscal 2021 and beyond. Forward-Looking Statements This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2020. Other risks and uncertainties include, but are not limited to, the following: Market Risks: • The impact of the COVID-19 pandemic on the national and global economy, our business, suppliers, customers, and employees; • Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency exchange rate fluctuations; tariffs (and any potential trade war resulting from tariffs or retaliatory actions); inflation; changes in interest rates; recession and recovery therefrom; restrictions and uncertainty associated with cross-border trade, public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S. 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 component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication 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. This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions; and • The impact of current and future environmental laws and regulations on our business and the businesses of our customers, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives. 27 Table of Contents Operational Risks: • 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; • Unanticipated 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; • Unanticipated product or manufacturing difficulties or operating inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic; • Unanticipated delays or modifications initiated by major customers with respect to program launches, product applications or 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 protect our proprietary information and intellectual property from theft or attack by internal or external sources; • The impact of any substantial disruption or material breach of our information technology systems, and any related delays, problems or costs; • Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith; • Work stoppages or interference at our facilities or those of our major customers and/or suppliers; • The constant and increasing pressures associated with healthcare and associated insurance costs; and • Costs and other effects of unanticipated litigation, claims, or other obligations. 28 Table of Contents Strategic Risks: • Our ability to successfully exit the automotive business in a manner that is in the best interest of our shareholders in order to optimize the segment’s future financial performance; • 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 identify and execute growth and diversification opportunities in order to position us for long-term success; and • The potential impacts from unanticipated actions by activist shareholders, including disruption of our business and related costs. Financial Risks: • Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments, particularly in light of the volatility and negative pressure in the financial markets as a result of the COVID-19 pandemic and in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy; • 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 potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and • Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate. Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.