MODINE MANUFACTURING CO - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| ☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2023
or
| ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ____________ to ____________
Commission file number 1-1373
MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
|
Wisconsin
|
39-0482000
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
1500 DeKoven Avenue, Racine,
Wisconsin
|
53403
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code (262) 636-1200
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
Common Stock, $0.625 par value
|
MOD
|
New York Stock Exchange
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer ☐
|
Accelerated Filer ☑
|
||
|
Non-accelerated Filer ☐
|
Smaller reporting company ☐
|
||
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☑
The number of shares outstanding of the registrant’s common stock, $0.625 par value, was 52,242,268 at October 27, 2023.
MODINE MANUFACTURING COMPANY
|
PART I. FINANCIAL INFORMATION
|
||
|
1
|
||
|
24
|
||
|
34
|
||
|
34
|
||
|
PART II. OTHER INFORMATION
|
||
|
35
|
||
|
35
|
||
|
36
|
||
|
37
|
||
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 2023 and 2022
(In millions, except per share amounts)
(Unaudited)
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Net sales
|
$
|
620.5
|
$
|
578.8
|
$ | 1,242.9 | $ | 1,119.8 | ||||||||
|
Cost of sales
|
485.4
|
482.6
|
979.9 |
940.2 |
||||||||||||
|
Gross profit
|
135.1
|
96.2
|
263.0 |
179.6 |
||||||||||||
|
Selling, general and administrative expenses
|
68.9
|
58.8
|
130.3 |
115.1 |
||||||||||||
|
Restructuring expenses
|
0.5
|
0.6
|
0.5 |
2.1 |
||||||||||||
|
Operating income
|
65.7
|
36.8
|
132.2 | 62.4 | ||||||||||||
|
Interest expense
|
(6.1
|
)
|
(4.7
|
)
|
(12.0 | ) | (8.8 | ) | ||||||||
| Other income (expense) – net |
0.1
|
(1.4
|
)
|
(0.5 | ) | (3.7 | ) | |||||||||
|
Earnings before income taxes
|
59.7
|
30.7
|
119.7 | 49.9 | ||||||||||||
|
Provision for income taxes
|
(12.8
|
)
|
(6.4
|
)
|
(27.5 | ) | (11.3 | ) | ||||||||
|
Net earnings
|
46.9
|
24.3
|
92.2 | 38.6 | ||||||||||||
| Net (earnings) loss attributable to noncontrolling interest |
(0.4
|
)
|
0.1
|
(0.9 | ) | 0.1 | ||||||||||
|
Net earnings attributable to Modine
|
$
|
46.5
|
$
|
24.4
|
$ | 91.3 | $ | 38.7 | ||||||||
|
Net earnings per share attributable to Modine shareholders:
|
||||||||||||||||
|
Basic
|
$
|
0.89
|
$
|
0.47
|
$ | 1.74 | $ | 0.74 | ||||||||
|
Diluted
|
$
|
0.87
|
$
|
0.46
|
$ | 1.72 | $ | 0.74 | ||||||||
|
Weighted-average shares outstanding:
|
||||||||||||||||
|
Basic
|
52.4
|
52.2
|
52.4 |
52.2 |
||||||||||||
|
Diluted
|
53.4
|
52.7
|
53.2 |
52.5 |
||||||||||||
The notes to condensed consolidated financial statements are an integral part of these statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
For the three and six months ended September 30, 2023 and 2022
(In millions)
(Unaudited)
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Net earnings
|
$
|
46.9
|
$
|
24.3
|
$ | 92.2 | $ | 38.6 | ||||||||
|
Other comprehensive income (loss), net of income taxes:
|
||||||||||||||||
|
Foreign currency translation
|
(12.7
|
)
|
(23.9
|
)
|
(13.5 | ) | (47.8 | ) | ||||||||
|
Defined benefit
plans, net of income taxes of $0.3, $0,
$0.5 and $0 million
|
0.8
|
1.4
|
1.6 |
2.7 |
||||||||||||
|
Cash flow
hedges, net of income taxes of ($0.1), $0, ($0.3) and $0 million
|
(0.2
|
)
|
-
|
(0.9 | ) | (1.6 | ) | |||||||||
|
Total other comprehensive income (loss)
|
(12.1
|
)
|
(22.5
|
)
|
(12.8 | ) | (46.7 | ) | ||||||||
|
Comprehensive income (loss)
|
34.8
|
1.8
|
79.4 | (8.1 | ) | |||||||||||
|
Comprehensive (income) loss attributable to noncontrolling interest
|
(0.4
|
)
|
0.6
|
(0.7 | ) | 1.0 | ||||||||||
|
Comprehensive income (loss) attributable to Modine
|
$
|
34.4
|
$
|
2.4
|
$ | 78.7 | $ | (7.1 | ) | |||||||
The notes to condensed consolidated financial statements are an integral part of these statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED
BALANCE SHEETS
September 30, 2023 and March 31, 2023
(In millions, except per share amounts)
(Unaudited)
|
September 30, 2023
|
March 31, 2023
|
|||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$
|
120.2
|
$
|
67.1
|
||||
|
Trade accounts receivable – net
|
377.0
|
398.0
|
||||||
|
Inventories
|
321.5
|
324.9
|
||||||
| Assets held for sale |
18.4 | - | ||||||
|
Other current assets
|
60.9
|
56.4
|
||||||
|
Total current assets
|
898.0
|
846.4
|
||||||
|
Property, plant and equipment – net
|
303.8
|
314.5
|
||||||
|
Intangible assets – net
|
79.3
|
81.1
|
||||||
|
Goodwill
|
164.3
|
165.6
|
||||||
|
Deferred income taxes
|
77.6
|
83.7
|
||||||
|
Other noncurrent assets
|
82.1
|
74.6
|
||||||
|
Total assets
|
$
|
1,605.1
|
$
|
1,565.9
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Short-term debt
|
$
|
0.1
|
$
|
3.7
|
||||
|
Long-term debt – current portion
|
19.6
|
19.7
|
||||||
|
Accounts payable
|
274.9
|
332.8
|
||||||
|
Accrued compensation and employee benefits
|
78.4
|
89.8
|
||||||
| Liabilities held for sale |
21.1 | - | ||||||
|
Other current liabilities
|
99.0
|
61.1
|
||||||
|
Total current liabilities
|
493.1
|
507.1
|
||||||
|
Long-term debt
|
322.9
|
329.3
|
||||||
|
Deferred income taxes
|
5.2
|
4.8
|
||||||
|
Pensions
|
31.3
|
40.2
|
||||||
|
Other noncurrent liabilities
|
78.6
|
84.9
|
||||||
|
Total liabilities
|
931.1
|
966.3
|
||||||
|
Commitments and contingencies (see Note 18)
|
|
|||||||
|
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 55.7 million and 55.4 million shares
|
34.8
|
34.6
|
||||||
|
Additional paid-in capital
|
276.4
|
270.8
|
||||||
|
Retained earnings
|
588.8
|
497.5
|
||||||
|
Accumulated other comprehensive loss
|
(173.7
|
)
|
(161.1
|
)
|
||||
|
Treasury stock, at cost, 3.6
million and 3.3 million shares
|
(59.3
|
)
|
(49.0
|
)
|
||||
|
Total Modine shareholders’ equity
|
667.0
|
592.8
|
||||||
|
Noncontrolling interest
|
7.0
|
6.8
|
||||||
|
Total equity
|
674.0
|
599.6
|
||||||
|
Total liabilities and equity
|
$
|
1,605.1
|
$
|
1,565.9
|
||||
The notes to condensed consolidated financial statements are an integral part of these statements.
MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the six months ended September 30, 2023 and 2022
(In millions)
(Unaudited)
|
Six months ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net earnings
|
$
|
92.2
|
$
|
38.6
|
||||
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
27.7
|
27.3
|
||||||
|
Stock-based compensation expense
|
4.6
|
3.5
|
||||||
|
Deferred income taxes
|
5.5
|
(0.5
|
)
|
|||||
|
Other – net
|
3.8
|
1.8
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Trade accounts receivable
|
6.7
|
0.2
|
||||||
|
Inventories
|
(4.3
|
)
|
(30.5
|
)
|
||||
|
Accounts payable
|
(43.3
|
)
|
7.2
|
|||||
|
Other assets and liabilities
|
17.9
|
8.5
|
||||||
|
Net cash provided by operating activities
|
110.8
|
56.1
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Expenditures for property, plant and equipment
|
(26.2
|
)
|
(23.0
|
)
|
||||
| Payments for business acquisition |
(4.8 | ) | - | |||||
| Proceeds from disposition of assets |
1.1 | 0.1 | ||||||
|
Other – net
|
(4.5
|
)
|
-
|
|||||
|
Net cash used for investing activities
|
(34.4
|
)
|
(22.9
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Borrowings of debt
|
176.6
|
141.1
|
||||||
|
Repayments of debt
|
(182.4
|
)
|
(149.9
|
)
|
||||
|
Borrowings (repayments) on bank overdraft facilities – net
|
(3.7
|
)
|
9.2
|
|||||
|
Purchases of treasury stock under share repurchase program
|
(9.0
|
)
|
(2.6
|
)
|
||||
|
Dividend paid to noncontrolling interest
|
(0.5
|
)
|
(0.6
|
)
|
||||
|
Other – net
|
0.4
|
0.3
|
||||||
| Net cash used for financing activities |
(18.6
|
)
|
(2.5
|
)
|
||||
|
Effect of exchange rate changes on cash
|
(1.9
|
)
|
(5.8
|
)
|
||||
| Net increase in cash, cash equivalents, restricted cash and cash held for sale |
55.9
|
24.9
|
||||||
| Cash, cash equivalents, restricted cash and cash held for sale – beginning of period |
67.2
|
45.4
|
||||||
| Cash, cash equivalents, restricted cash and cash held for sale – end of period |
$
|
123.1
|
$
|
70.3
|
||||
The notes to condensed consolidated financial statements are an integral part of these statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three and six months ended September 30, 2023 and 2022
(In millions)
(Unaudited)
| |
Common stock
|
Additional paid-in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
loss
|
Treasury
stock, at
cost
|
Non- controlling
interest
|
Total
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
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
|
|||||||||||||||
|
Net earnings
|
-
|
-
|
-
|
46.5
|
-
|
-
|
0.4
|
46.9
|
||||||||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
-
|
(12.1
|
)
|
-
|
-
|
(12.1
|
)
|
||||||||||||||||||||||
|
Stock options and awards
|
0.1
|
0.1
|
0.6
|
-
|
-
|
-
|
-
|
0.7
|
||||||||||||||||||||||||
| Purchase of treasury stock |
- | - | - | - | - | (9.1 | ) | - | (9.1 | ) | ||||||||||||||||||||||
|
Stock-based compensation expense
|
-
|
-
|
3.1
|
-
|
-
|
-
|
-
|
3.1
|
||||||||||||||||||||||||
|
Balance, September 30,
2023
|
55.7
|
$
|
34.8
|
$
|
276.4
|
$
|
588.8
|
$
|
(173.7
|
)
|
$
|
(59.3
|
)
|
$
|
7.0
|
$
|
674.0
|
|||||||||||||||
|
Common stock
|
Additional
paid-in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive loss
|
Treasury
stock, at
cost
|
Non-
controlling
interest
|
Total
|
||||||||||||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||
|
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
|
|||||||||||||||
|
Net earnings (loss)
|
-
|
-
|
-
|
24.4
|
-
|
-
|
(0.1
|
)
|
24.3
|
|||||||||||||||||||||||
|
Other comprehensive loss
|
-
|
-
|
-
|
-
|
(22.0
|
)
|
-
|
(0.5
|
)
|
(22.5
|
)
|
|||||||||||||||||||||
|
Stock options and awards
|
0.2 |
0.1 |
0.9 |
- |
- |
- |
- |
1.0 |
||||||||||||||||||||||||
| Purchase of treasury stock |
- | - | - | - | - | (1.6 | ) | - | (1.6 | ) | ||||||||||||||||||||||
|
Stock-based compensation expense
|
-
|
-
|
2.4
|
-
|
-
|
-
|
-
|
2.4
|
||||||||||||||||||||||||
|
Balance, September 30,
2022
|
55.1
|
$
|
34.4
|
$
|
266.0
|
$
|
383.1
|
$
|
(195.3
|
)
|
$
|
(43.3
|
)
|
$
|
5.8
|
$
|
450.7
|
|||||||||||||||
The notes to condensed consolidated financial statements are an integral part of these statements.
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 six 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 in the consolidated balance sheets, totaled
$20.1 million and $21.2
million at September 30, 2023 and March 31, 2023, respectively.
Note 2: Acquisitions and Dispositions
Acquisition of Napps Technology Corporation
On July 1, 2023, the Company acquired substantially all of the net operating assets
of Napps Technology Corporation (“Napps”) for consideration totaling $5.8 million. The Company paid $4.8 million during the second quarter of fiscal 2024 and, based upon the terms of the agreement, expects to pay the remaining $1.0 million to the seller one year after closing.
Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing
units and heat pumps. 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. Since the date of the acquisition, the Company has reported the financial results of the Napps business within the Climate Solutions
segment.
6
For the September 30, 2023 condensed consolidated financial statements, the Company
has preliminarily allocated the purchase price to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date. The Company engaged a third-party valuation
specialist to assist in determining the fair value of the acquired intangible assets. The valuation analysis considered the expected future cash flows of the acquired business. The Company recorded $2.9 million of intangible assets, including customer relationship and acquired technology assets. The Company is amortizing the acquired intangible assets using a
weighted-average life of approximately ten years. The Company allocated the excess of the purchase price over the net assets recognized
to goodwill in the amount of $1.0 million, which is deductible for income tax purposes.
The Company’s preliminary allocation of the purchase price for its acquisition of
Napps was as follows:
|
Trade accounts receivable
|
$
|
1.2
|
||
|
Inventories
|
1.3
|
|||
|
Property, plant and equipment and other assets
|
0.1
|
|||
|
Intangible assets
|
2.9
|
|||
|
Goodwill
|
1.0
|
|||
|
Accounts payable and other liabilities
|
(0.7
|
)
|
||
|
Purchase price
|
$
|
5.8
|
Disposition of two coatings facilities
On September 19, 2023, the Company sold two coatings facilities, located in California and Florida, to Protecall, LLC. These facilities provide aftermarket application services, in which HVAC units are sprayed with an
anti-corrosion protective coating. The Company’s other coatings businesses will continue to own and license its spray-applied coatings used in aftermarket applications and are strategically pursuing growth through product licensing arrangements.
Prior to the disposition, the Company reported the financial results of these businesses within the Performance Technologies segment. In fiscal 2023, the net sales of these two businesses totaled $6.4 million. As a result of this transaction, the
Company wrote-off $0.7 million of goodwill attributable to the disposed businesses and recorded a gain on sale of less than $0.1 million during the second quarter of fiscal 2024.
Germany automotive businesses held for sale
On September 6, 2023, the Company signed a definitive agreement to sell three automotive businesses based in Germany (the “disposal group”) to affiliates of Regent, L.P. The Company expects that the sale of these businesses,
which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, will support its strategic prioritization of resources towards higher-margin technologies. The Company reports
financial results of the disposal group within its Performance Technologies segment. During the first six months of fiscal 2024 and 2023, net sales of the disposal group totaled $46.2 million and $36.6 million, respectively.
7
The Company classified the disposal group as held for sale beginning on September 6,
2023. Upon classification as held for sale, the Company compared the disposal group’s carrying value with its fair value, less costs to sell. Through this review, the Company identified an implied gain on sale that is not material to its
consolidated financial statements. In addition, the Company determined the disposal group does not qualify as a discontinued operation for reporting purposes under U.S. GAAP. As part of its evaluation, the Company considered anticipated future
sales to automotive and other vehicular customers with similar product offerings and using similar heat-transfer technology within the Performance Technologies segment. The Company will also continue to operate in Europe as it does today.
For the
September 30, 2023 consolidated balance sheet, the Company separately classified the assets and liabilities of the disposal group as held for sale. The major classes of assets and
liabilities held for sale were as follows:
|
September 30, 2023
|
||||
|
ASSETS
|
||||
|
Cash and cash equivalents
|
$
|
1.5
|
||
|
Trade accounts receivables – net
|
8.5
|
|||
|
Inventories
|
5.4
|
|||
|
Other current assets
|
0.8
|
|||
|
Property, plant and equipment – net
|
1.6
|
|||
|
Other noncurrent assets
|
0.6
|
|||
|
Total assets held for sale
|
$
|
18.4
|
||
|
LIABILITIES
|
||||
|
Accounts payable
|
$
|
6.6
|
||
|
Accrued compensation and employee benefits
|
3.6
|
|||
|
Other current liabilities
|
1.9
|
|||
|
Pensions
|
7.2
|
|||
|
Other noncurrent liabilities
|
1.8
|
|||
|
Total liabilities held for sale
|
$
|
21.1
|
||
This sale transaction closed on October 31, 2023. The determination of the final
purchase price is pending and will be adjusted for net working capital and certain other items, as defined by the sale agreement. The Company currently expects that the total net proceeds and the resulting gain or loss on sale, to be recorded during
the third quarter of fiscal 2024, will be immaterial to its consolidated financial statements.
8
Note 3: Revenue Recognition
Disaggregation
of Revenue
The tables below present 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 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 tables below for fiscal 2023 has been recast to be comparable with the fiscal 2024 presentation.
|
Three months ended September 30, 2023
|
Three months ended September 30, 2022
|
|||||||||||||||||||||||
|
Climate
Solutions
|
Performance
Technologies
|
Segment
Total
|
Climate
Solutions
|
Performance
Technologies
|
Segment
Total
|
|||||||||||||||||||
|
Product groups:
|
||||||||||||||||||||||||
|
Heat transfer
|
$
|
105.8
|
$
|
-
|
$
|
105.8
|
$
|
126.3
|
$
|
-
|
$
|
126.3
|
||||||||||||
|
HVAC & refrigeration
|
91.2 | - | 91.2 | 93.2 | - | 93.2 | ||||||||||||||||||
|
Data center cooling
|
78.8
|
-
|
78.8
|
36.3
|
-
|
36.3
|
||||||||||||||||||
|
Air-cooled
|
-
|
173.3
|
173.3
|
-
|
169.3
|
169.3
|
||||||||||||||||||
|
Liquid-cooled
|
-
|
126.4
|
126.4
|
-
|
119.0
|
119.0
|
||||||||||||||||||
|
Advanced solutions
|
-
|
45.0
|
45.0
|
-
|
34.7
|
34.7
|
||||||||||||||||||
|
Inter-segment sales
|
-
|
7.0
|
7.0
|
0.1
|
7.0
|
7.1
|
||||||||||||||||||
|
Net sales
|
$
|
275.8
|
$
|
351.7
|
$
|
627.5
|
$
|
255.9
|
$
|
330.0
|
$
|
585.9
|
||||||||||||
|
Geographic location:
|
||||||||||||||||||||||||
|
Americas
|
$
|
163.2
|
$
|
189.9
|
$
|
353.1
|
$
|
156.3
|
$
|
182.8
|
$
|
339.1
|
||||||||||||
|
Europe
|
106.6
|
112.9
|
219.5
|
90.9
|
91.3
|
182.2
|
||||||||||||||||||
|
Asia
|
6.0
|
48.9
|
54.9
|
8.7
|
55.9
|
64.6
|
||||||||||||||||||
|
Net sales
|
$
|
275.8
|
$
|
351.7
|
$
|
627.5
|
$
|
255.9
|
$
|
330.0
|
$
|
585.9
|
||||||||||||
|
Timing of revenue recognition:
|
||||||||||||||||||||||||
|
Products transferred at a point in time
|
$
|
271.1
|
$
|
335.2
|
$
|
606.3
|
$
|
243.0
|
$
|
309.8
|
$
|
552.8
|
||||||||||||
|
Products transferred over time
|
4.7
|
16.5
|
21.2
|
12.9
|
20.2
|
33.1
|
||||||||||||||||||
|
Net sales
|
$
|
275.8
|
$
|
351.7
|
$
|
627.5
|
$
|
255.9
|
$
|
330.0
|
$
|
585.9
|
||||||||||||
9
|
Six months ended September 30, 2023
|
Six
months ended September 30, 2022
|
|||||||||||||||||||||||
|
Climate
Solutions
|
Performance
Technologies
|
Segment
Total
|
Climate
Solutions
|
Performance
Technologies
|
Segment
Total
|
|||||||||||||||||||
|
Product groups:
|
||||||||||||||||||||||||
|
Heat transfer
|
$
|
231.7
|
$
|
-
|
$
|
231.7
|
$
|
261.0
|
$
|
-
|
$
|
261.0
|
||||||||||||
|
HVAC & refrigeration
|
168.9
|
-
|
168.9
|
172.2
|
-
|
172.2
|
||||||||||||||||||
|
Data center cooling
|
147.0
|
-
|
147.0
|
66.8
|
-
|
66.8
|
||||||||||||||||||
|
Air-cooled
|
-
|
346.0
|
346.0
|
-
|
322.3
|
322.3
|
||||||||||||||||||
|
Liquid-cooled
|
-
|
261.1
|
261.1
|
-
|
229.9
|
229.9
|
||||||||||||||||||
|
Advanced solutions
|
-
|
88.2
|
88.2
|
-
|
67.6
|
67.6
|
||||||||||||||||||
|
Inter-segment sales
|
-
|
15.3
|
15.3
|
0.3
|
14.5
|
14.8
|
||||||||||||||||||
|
Net sales
|
$
|
547.6
|
$
|
710.6
|
$
|
1,258.2
|
$
|
500.3
|
$
|
634.3
|
$
|
1,134.6
|
||||||||||||
|
Geographic location:
|
||||||||||||||||||||||||
|
Americas
|
$
|
304.8
|
$
|
374.9
|
$
|
679.7
|
$
|
295.7
|
$
|
347.1
|
$
|
642.8
|
||||||||||||
|
Europe
|
230.3
|
236.4
|
466.7
|
189.9
|
187.4
|
377.3
|
||||||||||||||||||
|
Asia
|
12.5
|
99.3
|
111.8
|
14.7
|
99.8
|
114.5
|
||||||||||||||||||
|
Net sales
|
$
|
547.6
|
$
|
710.6
|
$
|
1,258.2
|
$
|
500.3
|
$
|
634.3
|
$
|
1,134.6
|
||||||||||||
|
Timing of revenue recognition:
|
||||||||||||||||||||||||
|
Products transferred at a point in time
|
$
|
528.8
|
$
|
676.6
|
$
|
1,205.4
|
$
|
473.8
|
$
|
591.6
|
$
|
1,065.4
|
||||||||||||
|
Products transferred over time
|
18.8
|
34.0
|
52.8
|
26.5
|
42.7
|
69.2
|
||||||||||||||||||
|
Net sales
|
$
|
547.6
|
$
|
710.6
|
$
|
1,258.2
|
$
|
500.3
|
$
|
634.3
|
$
|
1,134.6
|
||||||||||||
Contract Balances
Contract assets and contract liabilities from contracts with customers were as follows:
| |
September 30, 2023
|
March 31, 2023
|
||||||
|
Contract assets
|
$
|
18.2
|
$
|
19.3
|
||||
|
Contract liabilities
|
52.5
|
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 $1.1 million
decrease in contract assets during the first six months of fiscal 2024 primarily resulted from a decrease 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 data center cooling products and
customer-owned tooling. The $31.0 million increase in contract liabilities during the first six months of fiscal 2024 primarily resulted
from payments received in advance of the Company’s satisfaction of performance obligations, largely associated with contracts with long inventory lead times.
10
Note 4: 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. In addition, the Company assesses the fair value of a disposal group for each reporting period it is held for sale. See Note 2 for additional information regarding assets held for sale.
The fair value of the Company’s long-term debt is disclosed in Note 17.
Note 5: Pensions
Pension cost included the following components:
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Service cost
|
$
|
-
|
$
|
-
|
$
|
0.1
|
$
|
0.1
|
||||||||
|
Interest cost
|
2.4
|
2.0
|
4.8
|
4.0
|
||||||||||||
|
Expected return on plan assets
|
(2.6
|
)
|
(2.9
|
)
|
(5.2
|
)
|
(5.8
|
)
|
||||||||
|
Amortization of unrecognized net loss
|
1.2
|
1.5
|
2.3
|
2.9
|
||||||||||||
|
Net periodic benefit cost
|
$
|
1.0
|
$
|
0.6
|
$
|
2.0
|
$
|
1.2
|
||||||||
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.
11
Note 6: 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 $3.1 million and $2.4 million for the three months ended September 30, 2023 and 2022, respectively. The Company recognized stock-based compensation expense of $4.6
million and $3.5 million for the six months ended September 30, 2023 and 2022, respectively.
During the first six months 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 six months of fiscal 2023, the Company granted restricted stock awards, stock options, and
performance cash awards.
The weighted-average fair value of stock-based compensation awards granted during the six months ended September 30, 2023 and 2022 were as follows:
| Six months ended September 30, |
||||||||||||||||
| 2023 |
2022 |
|||||||||||||||
| Fair Value | Fair Value | |||||||||||||||
|
Shares
|
Per Award
|
Shares |
Per Award
|
|||||||||||||
|
Performance stock awards
|
0.3
|
$
|
27.29
|
- | - | |||||||||||
|
Restricted stock awards
|
0.1
|
$
|
33.19
|
0.4 | $ | 12.51 | ||||||||||
| Stock options | - | - | 0.2 | $ |
6.97 | |||||||||||
As of September 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 | $ | 13.3 | 2.5 | |||||
|
Restricted stock awards
|
|
8.0
|
1.9
|
|||||
|
Stock options
|
1.6
|
1.6
|
||||||
|
Total
|
$
|
22.9
|
2.2
|
|||||
12
Note 7: Restructuring Activities
During the first six months of fiscal 2024, restructuring and repositioning expenses
primarily consisted of equipment transfer costs in the Climate Solutions and Performance Technologies segments. These restructuring activities are part of the Company’s transformational initiatives supported by 80/20 principles and include product
line transfers intended to achieve production efficiency improvements in its manufacturing facilities.
During the first six months of fiscal 2023, restructuring and repositioning expenses
primarily consisted of severance expenses related to targeted headcount reductions in Europe within the Performance Technologies segment. In addition, the Company incurred equipment transfer costs and closure costs related to a previously-leased
facility in the Performance Technologies and Climate Solutions segments, respectively.
Restructuring and repositioning expenses were as follows:
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Employee severance and related benefits
|
$
|
0.1
|
$
|
-
|
$
|
0.1
|
$
|
1.4
|
||||||||
|
Other restructuring and repositioning expenses
|
0.4
|
0.6
|
0.4
|
0.7
|
||||||||||||
|
Total
|
$
|
0.5
|
$
|
0.6
|
$
|
0.5
|
$
|
2.1
|
||||||||
Other restructuring and repositioning expenses primarily consist of equipment transfer and plant consolidation costs.
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 September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Beginning balance
|
$
|
8.9
|
$
|
17.4
|
||||
|
Additions
|
0.1
|
-
|
||||||
|
Payments
|
(3.1
|
)
|
(3.4
|
)
|
||||
| Reclassified to held for sale | (2.5 | ) | - | |||||
|
Effect of exchange rate changes
|
(0.2
|
)
|
(1.1
|
)
|
||||
|
Ending balance
|
$
|
3.2
|
$
|
12.9
|
||||
| Six months ended September 30, | ||||||||
| 2023 |
2022 |
|||||||
| Beginning balance | $ | 10.6 | $ | 20.2 | ||||
| Additions | 0.1 |
1.4 |
||||||
| Payments | (4.9 | ) | (6.7 | ) | ||||
| Reclassified to held for sale | (2.5 | ) | - | |||||
| Effect of exchange rate changes | (0.1 | ) | (2.0 | ) | ||||
| Ending balance | $ | 3.2 | $ | 12.9 | ||||
13
Note 8: Other Income and Expense
Other income and expense consisted of the following:
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Interest income
|
$
|
1.2
|
$
|
0.3
|
$
|
1.7
|
$
|
0.4
|
||||||||
|
Foreign currency transactions (a)
|
(0.2
|
)
|
(1.1
|
)
|
(0.5
|
)
|
(3.1
|
)
|
||||||||
|
Net periodic benefit cost (b)
|
(0.9
|
)
|
(0.6
|
)
|
(1.7
|
)
|
(1.0
|
)
|
||||||||
|
Total other income (expense) – net
|
$
|
0.1
|
$
|
(1.4
|
)
|
$
|
(0.5
|
)
|
$
|
(3.7
|
)
|
|||||
|
|
(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 9: Income Taxes
The Company’s effective tax rate for the three months ended September 30, 2023 and 2022 was 21.4 percent and 20.8 percent, respectively. The Company’s
effective tax rate for the six months ended September 30, 2023 and 2022 was 23.0 percent and 22.6 percent, respectively. The effective tax rates for fiscal 2024 are higher than the prior year, primarily due to changes in the mix and amount
of foreign and U.S. earnings. In addition, the effective tax rates for the fiscal 2024 periods were favorably impacted by the release of a $1.8
million unrecognized tax benefit during the second quarter of fiscal 2024, due to a lapse in statute of limitations.
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.
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.
At September 30, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $36.6 million and $26.6 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.
14
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. In
addition, the Company excludes the impact of operations anticipated to generate net operating losses for the full fiscal year from the overall effective tax rate calculation and instead records them discretely based upon year-to-date results.
The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2024.
Note 10: Earnings
Per Share
The components of basic and diluted earnings per share were as follows:
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Net earnings attributable to Modine
|
$
|
46.5
|
$
|
24.4
|
$
|
91.3
|
$
|
38.7
|
||||||||
|
Weighted-average shares outstanding – basic
|
52.4
|
52.2
|
52.4
|
52.2
|
||||||||||||
|
Effect of dilutive securities
|
1.0
|
0.5
|
0.8
|
0.3
|
||||||||||||
|
Weighted-average shares outstanding – diluted
|
53.4
|
52.7
|
53.2
|
52.5
|
||||||||||||
|
Earnings per share:
|
||||||||||||||||
|
Net earnings per share – basic
|
$
|
0.89
|
$
|
0.47
|
$
|
1.74
|
$
|
0.74
|
||||||||
|
Net earnings per share – diluted
|
$
|
0.87
|
$
|
0.46
|
$
|
1.72
|
$
|
0.74
|
||||||||
For the six months ended September 30, 2023,
the calculation of diluted earnings per share excluded 0.1 million restricted stock awards because they were anti-dilutive.
For both the three and six months ended
September 30, 2022, the calculation of diluted earnings per share excluded 0.7 million and 0.1 million stock options and restricted stock awards, respectively, because they were anti-dilutive.
Note 11: Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consisted of the following:
|
September 30, 2023
|
March 31, 2023
|
|||||||
|
Cash and cash equivalents
|
$
|
120.2
|
$
|
67.1
|
||||
|
Restricted cash
|
1.4
|
0.1
|
||||||
| Cash held for sale | 1.5 | - | ||||||
|
Total cash, cash equivalents, restricted cash and cash held for sale
|
$
|
123.1
|
$
|
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.
15
Note 12: Inventories
Inventories consisted of the following:
| |
September 30, 2023
|
March 31, 2023
|
||||||
|
Raw materials
|
$
|
205.7
|
$
|
218.3
|
||||
|
Work in process
|
53.7
|
49.9
|
||||||
|
Finished goods
|
62.1
|
56.7
|
||||||
|
Total inventories
|
$
|
321.5
|
$
|
324.9
|
||||
The September 30, 2023 inventories in the
table above exclude amounts classified as held for sale. See Note 2 for additional information.
Note 13: Property, Plant and Equipment
Property, plant and equipment, including depreciable lives, consisted of the following:
|
September 30, 2023
|
March 31, 2023
|
|||||||
|
Land
|
$
|
15.6
|
$
|
16.4
|
||||
|
Buildings and improvements (10-40 years)
|
260.1
|
264.0
|
||||||
|
Machinery and equipment (3-15 years)
|
790.9
|
853.3
|
||||||
|
Office equipment (3-10 years)
|
92.7
|
93.6
|
||||||
|
Construction in progress
|
40.6
|
47.5
|
||||||
|
1,199.9
|
1,274.8
|
|||||||
|
Less: accumulated depreciation
|
(896.1
|
)
|
(960.3
|
)
|
||||
|
Net property, plant and equipment
|
$
|
303.8
|
$
|
314.5
|
||||
The September 30, 2023 property, plant and
equipment in the table above exclude amounts classified as held for sale. See Note 2 for additional information.
Note 14: Goodwill and Intangible Assets
The following table presents a roll forward
of the carrying value of goodwill from March 31, 2023 to September 30, 2023.
|
Climate Solutions
|
Performance Technologies
|
Total
|
||||||||||
|
Goodwill, March 31, 2023
|
$
|
105.7
|
$
|
59.9
|
$
|
165.6
|
||||||
|
Acquisition (disposition) (a)
|
1.0
|
(0.7
|
)
|
0.3
|
||||||||
|
Effect of exchange rate changes
|
(1.5
|
)
|
(0.1
|
)
|
(1.6
|
)
|
||||||
|
Goodwill, September 30, 2023
|
$
|
105.2
|
$
|
59.1
|
$
|
164.3
|
||||||
|
|
(a) | During the second quarter of fiscal 2024, the Company recorded $1.0 million of goodwill in connection with its acquisition of Napps. In addition, the Company wrote-off $0.7 million of goodwill in connection with the sale of two coatings facilities. See Note 2 for additional information. |
16
Intangible assets consisted of the following:
|
September 30, 2023
|
March 31, 2023
|
|||||||||||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||||||||||
| Carrying | Accumulated |
Intangible |
Carrying |
Accumulated |
Intangible |
|||||||||||||||||||
|
Value
|
Amortization
|
Assets
|
Value
|
Amortization
|
Assets
|
|||||||||||||||||||
|
Customer relationships
|
$
|
62.2
|
$
|
(24.9
|
)
|
$
|
37.3
|
$
|
60.3
|
$
|
(23.4
|
)
|
$
|
36.9
|
||||||||||
|
Trade names
|
49.8
|
(17.0
|
)
|
32.8
|
50.1
|
(15.9
|
)
|
34.2
|
||||||||||||||||
|
Acquired technology
|
22.6
|
(13.4
|
)
|
9.2
|
22.6
|
(12.6
|
)
|
10.0
|
||||||||||||||||
|
Total intangible assets
|
$
|
134.6
|
$
|
(55.3
|
)
|
$
|
79.3
|
$
|
133.0
|
$
|
(51.9
|
)
|
$
|
81.1
|
||||||||||
During the second quarter of fiscal
2024, the Company recorded customer relationship and acquired technology intangible assets totaling $2.9 million related to the Napps
acquisition. See Note 2 for additional information.
The Company recorded amortization expense of $2.0 million for
both the three months ended September 30, 2023 and 2022. The Company recorded amortization expense of $4.0 million for both the six months ended September 30, 2023 and 2022. The Company estimates that it will record approximately $4.0 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.
Note 15: Product Warranties
Changes in accrued warranty costs were as follows:
|
Three months ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Beginning balance
|
$
|
7.9
|
$
|
6.2
|
||||
|
Warranties recorded at time of sale
|
1.6
|
1.9
|
||||||
|
Adjustments to pre-existing warranties
|
2.5
|
(0.3
|
)
|
|||||
|
Settlements
|
(1.4
|
)
|
(1.3
|
)
|
||||
| Reclassified to held for sale | (0.2 | ) | - | |||||
|
Effect of exchange rate changes
|
(0.1
|
)
|
(0.3
|
)
|
||||
|
Ending balance
|
$
|
10.3
|
$
|
6.2
|
||||
|
Six months ended September 30,
|
||||||||
|
2023
|
2022
|
|||||||
|
Beginning balance
|
$
|
6.9
|
$
|
6.3
|
||||
|
Warranties recorded at time of sale
|
3.1
|
3.3
|
||||||
|
Adjustments to pre-existing warranties
|
3.1
|
(0.5
|
)
|
|||||
|
Settlements
|
(2.5
|
)
|
(2.4
|
)
|
||||
| Reclassified to held for sale | (0.2 | ) | - | |||||
|
Effect of exchange rate changes
|
(0.1
|
)
|
(0.5
|
)
|
||||
|
Ending balance
|
$
|
10.3
|
$
|
6.2
|
||||
17
Note 16: Leases
Lease Assets and Liabilities
The following table provides a summary of leases recorded on the consolidated balance
sheets. The September 30, 2023 amounts exclude operating lease right
of use (“ROU”) assets and liabilities, which each totaled $0.6 million, that are classified as held for sale on the Company’s
consolidated balance sheet. See Note 2 for additional information.
|
Balance Sheet Location
|
September 30, 2023
|
March 31, 2023
|
||||||||
|
Lease Assets
|
||||||||||
|
Operating lease ROU assets
|
|
$
|
58.2
|
$
|
59.1
|
|||||
|
Finance lease ROU assets (a)
|
|
6.7
|
7.1
|
|||||||
|
Lease Liabilities
|
||||||||||
|
Operating lease liabilities
|
|
$
|
11.8
|
$
|
11.8
|
|||||
|
Operating lease liabilities
|
|
47.4
|
48.9
|
|||||||
|
Finance lease liabilities
|
|
0.4
|
0.4
|
|||||||
|
Finance lease liabilities
|
|
2.0
|
2.3
|
|||||||
| (a) |
ROU assets were recorded net of accumulated amortization of $3.4 million and $3.2 million as
of September 30, 2023 and March 31, 2023, respectively.
|
Components of Lease Expense
The components of lease expense were as follows:
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Operating lease
expense (a)
|
$
|
5.6
|
$
|
5.5
|
$
|
11.5
|
$
|
10.8
|
||||||||
|
Finance lease
expense:
|
||||||||||||||||
|
Depreciation of
ROU assets
|
0.2
|
0.2
|
0.3
|
0.3
|
||||||||||||
|
Interest on
lease liabilities
|
0.1
|
0.1 |
0.1 |
0.1
|
||||||||||||
|
Total lease
expense
|
$
|
5.9
|
$
|
5.8
|
$
|
11.9
|
$
|
11.2
|
||||||||
|
(a)
|
For the three and six months ended September 30, 2023, operating lease
expense included short-term lease expense of $1.4 million and $2.9 million, respectively. For the three and six months ended September 30, 2022, operating lease expense included short-term lease expense of $1.5 million and $2.8 million,
respectively. Variable lease expense was not significant.
|
18
Note 17: Indebtedness
Long-term debt consisted of the following:
| |
Fiscal year
of maturity
|
September 30, 2023
|
March 31, 2023
|
||||||
|
Term loans
|
|
$
|
209.2
|
$
|
215.7
|
||||
|
5.9% Senior Notes
|
|
100.0
|
100.0
|
||||||
|
5.8% Senior Notes
|
|
33.3
|
33.3
|
||||||
|
Other (a)
|
2.4
|
2.7
|
|||||||
|
344.9
|
351.7
|
||||||||
|
Less: current portion
|
(19.6
|
)
|
(19.7
|
)
|
|||||
|
Less: unamortized debt issuance costs
|
(2.4
|
)
|
(2.7
|
)
|
|||||
|
Total long-term debt
|
$
|
322.9
|
$
|
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
|
$
|
14.0
|
||
|
2025
|
19.6
|
|||
|
2026
|
44.6
|
|||
|
2027
|
44.6
|
|||
|
2028
|
196.6
|
|||
|
2029 & beyond
|
25.5
|
|||
|
Total
|
$
|
344.9
|
||
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 September 30, 2023, the weighted-average interest rate for the term loans was 6.6 percent. Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and swingline facilities as
long-term and short-term debt, respectively, on its consolidated balance sheets.
At September 30, 2023 and March 31,2023, the Company had no outstanding borrowings
under either its revolving credit or swingline facilities. As of September 30, 2023, domestic letters of credit totaled $5.6 million and,
as a result, available borrowing capacity under the Company’s revolving credit facility was $269.4 million.
19
The Company also maintains credit agreements for its foreign subsidiaries. The
outstanding short-term borrowings related to these foreign credit agreements totaled $0.1 million and $3.7 million at September 30, 2023 and March 31, 2023, respectively.
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 include a leverage ratio covenant, which requires the Company to limit its consolidated indebtedness, less a portion of its
cash balances, both as defined by the credit agreements, to no more than 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 September 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 September 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 $125.6 million and $125.9 million, respectively. The fair value of the
Company’s long-term debt is categorized as Level 2 within the fair value hierarchy. Refer to Note 4 for the definition of a Level 2 fair value measurement.
Note 18: Risks, Uncertainties, Contingencies and Litigation
Environmental
The 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
$17.2 million and $17.6
million as of September 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.
20
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.
Note 19: Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss were as follows:
|
Three months ended September 30, 2023
|
Six months ended September 30, 2023
|
|||||||||||||||||||||||||||||||
|
Foreign
Currency
Translation
|
Defined
Benefit
Plans
|
Cash Flow
Hedges
|
Total
|
Foreign
Currency
Translation
|
Defined
Benefit
Plans
|
Cash Flow
Hedges
|
Total
|
|||||||||||||||||||||||||
|
Beginning balance
|
$
|
(58.1
|
)
|
$
|
(103.6
|
)
|
$
|
0.1
|
$
|
(161.6
|
)
|
$ | (57.5 | ) | $ | (104.4 | ) | $ | 0.8 | $ | (161.1 | ) | ||||||||||
|
Other comprehensive income (loss) before reclassifications
|
(12.7
|
)
|
-
|
-
|
(12.7
|
)
|
(13.3 | ) | - | (0.4 | ) | (13.7 | ) | |||||||||||||||||||
|
Reclassifications:
|
||||||||||||||||||||||||||||||||
|
Amortization of unrecognized net loss (a)
|
-
|
1.1
|
-
|
1.1
|
- | 2.1 | - | 2.1 | ||||||||||||||||||||||||
|
Realized gains – net (b)
|
-
|
-
|
(0.3
|
)
|
(0.3
|
)
|
- | - | (0.8 | ) | (0.8 | ) | ||||||||||||||||||||
|
Income taxes
|
- |
(0.3
|
)
|
0.1
|
(0.2
|
)
|
- | (0.5 | ) | 0.3 | (0.2 | ) | ||||||||||||||||||||
|
Total other comprehensive income (loss)
|
(12.7
|
)
|
0.8
|
(0.2
|
)
|
(12.1
|
)
|
(13.3 | ) | 1.6 | (0.9 | ) | (12.6 | ) | ||||||||||||||||||
|
Ending balance
|
$
|
(70.8
|
)
|
$
|
(102.8
|
)
|
$
|
(0.1
|
)
|
$
|
(173.7
|
)
|
$ | (70.8 | ) | $ | (102.8 | ) | $ | (0.1 | ) | $ | (173.7 | ) | ||||||||
|
Three months ended September 30, 2022
|
Six months ended September 30, 2022
|
|||||||||||||||||||||||||||||||
|
Foreign
Currency
Translation
|
Defined
Benefit
Plans
|
Cash Flow
Hedges
|
Total
|
Foreign
Currency
Translation
|
Defined
Benefit
Plans
|
Cash Flow
Hedges
|
Total
|
|||||||||||||||||||||||||
|
Beginning balance
|
$
|
(62.6
|
)
|
$
|
(109.8
|
)
|
$
|
(0.9
|
)
|
$
|
(173.3
|
)
|
$ | (39.1 | ) | $ | (111.1 | ) | $ | 0.7 | $ | (149.5 | ) | |||||||||
|
Other comprehensive income (loss) before reclassifications
|
(23.4
|
)
|
-
|
-
|
(23.4
|
)
|
(46.9 | ) | - | (1.2 | ) | (48.1 | ) | |||||||||||||||||||
|
Reclassifications:
|
||||||||||||||||||||||||||||||||
|
Amortization of unrecognized net loss (a)
|
-
|
1.4
|
-
|
1.4
|
- | 2.7 | - | 2.7 | ||||||||||||||||||||||||
|
Realized gains – net (b)
|
- | - | - | - | - | - | (0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
|
Income taxes
|
-
|
-
|
-
|
-
|
- | - | - | - | ||||||||||||||||||||||||
|
Total other comprehensive income (loss)
|
(23.4
|
)
|
1.4
|
-
|
(22.0
|
)
|
(46.9 | ) | 2.7 | (1.6 | ) | (45.8 | ) | |||||||||||||||||||
|
Ending balance
|
$
|
(86.0
|
)
|
$
|
(108.4
|
)
|
$
|
(0.9
|
)
|
$
|
(195.3
|
)
|
$ | (86.0 | ) | $ | (108.4 | ) | $ | (0.9 | ) | $ | (195.3 | ) | ||||||||
| (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 5 for additional information about the Company’s pension plans.
|
| (b) |
Amounts represent net gains and losses associated with
cash flow hedges that were reclassified to net earnings.
|
21
Note 20: Segment Information
The following is a summary of net sales, gross profit and operating income by segment:
|
Three months ended September 30,
|
||||||||||||||||||||||||
|
2023
|
2022
|
|||||||||||||||||||||||
|
External
Sales
|
Inter-segment
Sales
|
Total
|
External
Sales
|
Inter-segment
Sales
|
Total
|
|||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||
| Climate Solutions |
$ | 275.8 | $ | - | $ | 275.8 | $ | 255.8 | $ | 0.1 | $ | 255.9 | ||||||||||||
| Performance Technologies |
344.7 | 7.0 | 351.7 | 323.0 | 7.0 | 330.0 | ||||||||||||||||||
|
Segment total
|
620.5
|
7.0
|
627.5
|
578.8
|
7.1
|
585.9
|
||||||||||||||||||
|
Corporate and eliminations
|
-
|
(7.0
|
)
|
(7.0
|
)
|
-
|
(7.1
|
)
|
(7.1
|
)
|
||||||||||||||
|
Net sales
|
$
|
620.5
|
$
|
-
|
$
|
620.5
|
$
|
578.8
|
$
|
-
|
$
|
578.8
|
||||||||||||
|
Six months ended September 30,
|
||||||||||||||||||||||||
|
2023
|
2022
|
|||||||||||||||||||||||
|
External
Sales
|
Inter-segment
Sales
|
Total
|
External
Sales
|
Inter-segment
Sales
|
Total
|
|||||||||||||||||||
|
Net sales:
|
||||||||||||||||||||||||
|
Climate Solutions
|
$ |
547.6 | $ |
- | $ |
547.6 | $ |
500.0 | $ |
0.3 | $ |
500.3 | ||||||||||||
|
Performance Technologies
|
695.3 | 15.3 | 710.6 | 619.8 | 14.5 | 634.3 | ||||||||||||||||||
|
Segment total
|
1,242.9
|
15.3
|
1,258.2
|
1,119.8
|
14.8
|
1,134.6
|
||||||||||||||||||
|
Corporate and eliminations
|
-
|
(15.3
|
)
|
(15.3
|
)
|
-
|
(14.8
|
)
|
(14.8
|
)
|
||||||||||||||
|
Net sales
|
$
|
1,242.9
|
$
|
-
|
$
|
1,242.9
|
$
|
1,119.8
|
$
|
-
|
$
|
1,119.8
|
||||||||||||
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
| $’s | % of sales | $’s | % of sales | $’s | % of sales | $’s | % of sales | |||||||||||||||||||||||||
|
Gross profit:
|
||||||||||||||||||||||||||||||||
| Climate Solutions | $ | 71.8 | 26.0 | % | $ | 57.3 | 22.4 | % | $ | 140.8 | 25.7 | % | $ | 107.7 | 21.5 | % | ||||||||||||||||
| Performance Technologies | 62.8 | 17.8 | % | 39.2 | 11.9 | % | 121.4 | 17.1 | % | 72.2 | 11.4 | % | ||||||||||||||||||||
|
Segment total
|
134.6
|
21.4
|
%
|
96.5
|
16.5
|
%
|
262.2
|
20.8
|
%
|
179.9
|
15.9
|
%
|
||||||||||||||||||||
|
Corporate and eliminations
|
0.5
|
-
|
(0.3
|
)
|
-
|
0.8
|
-
|
(0.3
|
)
|
-
|
||||||||||||||||||||||
|
Gross profit
|
$
|
135.1
|
21.8
|
%
|
$
|
96.2
|
16.6
|
%
|
$
|
263.0
|
21.2
|
%
|
$
|
179.6
|
16.0
|
%
|
||||||||||||||||
22
|
Three months ended
September 30,
|
Six months ended
September 30,
|
|||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||
|
Operating income:
|
||||||||||||||||
| Climate Solutions | $ |
44.6 | $ | 32.7 | $ |
88.9 | $ |
59.7 | ||||||||
| Performance Technologies | 33.6 | 16.3 | 65.6 | 23.7 | ||||||||||||
|
Segment total
|
78.2
|
49.0
|
154.5
|
83.4
|
||||||||||||
|
Corporate and eliminations
|
(12.5
|
)
|
(12.2
|
)
|
(22.3
|
)
|
(21.0
|
)
|
||||||||
|
Operating income
|
$
|
65.7
|
$
|
36.8
|
$
|
132.2
|
$
|
62.4
|
||||||||
The following is a summary of segment assets, comprised entirely of trade
accounts receivable and inventories, and other assets:
|
September 30, 2023
|
March 31, 2023
|
|||||||
|
Assets:
|
||||||||
| Climate Solutions | $ |
336.8 | $ |
334.8 | ||||
| Performance Technologies | 361.7 | 388.1 | ||||||
| Other (a) |
906.6 | 843.0 | ||||||
|
Total assets
|
$
|
1,605.1
|
$
|
1,565.9
|
||||
|
(a)
|
Represents cash and cash equivalents, assets held for sale, 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.
|
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 September 30, 2023 was the second quarter of fiscal 2024.
Acquisition of Napps Technology Corporation
On July 1, 2023, we acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for consideration totaling $5.8 million. Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing
units and heat pumps. This acquisition expands our indoor air quality product portfolio and supports our growth strategy and mission of improving indoor air quality. Napps has historical annual sales of approximately $5.0 million. Since the date
of the acquisition, we have reported the financial results of the Napps business within the Climate Solutions segment.
Disposition of two coatings facilities
On September 19, 2023, we sold two coatings facilities, located in California and Florida, to Protecall, LLC. These facilities provide aftermarket application services, in which HVAC units are sprayed with an
anti-corrosion protective coating. Our other coatings businesses will continue to own and license spray-applied coatings used in aftermarket applications and are strategically pursuing growth through product licensing arrangements. Prior to the
disposition, we reported the financial results of these businesses within the Performance Technologies segment. In fiscal 2023, the net sales of these two businesses totaled $6.4 million. As a result of this transaction, we recorded a gain on
sale of less than $0.1 million during the second quarter of fiscal 2024.
Disposition of Germany Automotive Businesses
On September 6, 2023, we signed a definitive agreement to sell three automotive businesses based in Germany to affiliates of Regent, L.P. We expect that the sale of these businesses, which produce air- and liquid-cooled products for internal
combustion diesel and gasoline engines for the European automotive market, will support our strategic prioritization of resources towards higher-margin technologies. This sale transaction closed on October 31, 2023. The determination of the final purchase price is pending and will be adjusted for net working capital and certain other items, as defined by the sale agreement. We currently expect that the total net proceeds and the resulting gain or loss
on sale, to be recorded during the third quarter of fiscal 2024, will be immaterial to the consolidated financial statements. See Note 2 of the Notes to Condensed Consolidated Financial Statements for more information regarding this
sale.
Second Quarter Highlights
Net sales in the second quarter of fiscal 2024 increased $41.7 million, or 7 percent, from the second quarter of fiscal 2023, primarily due to higher sales in our Performance Technologies and Climate Solutions segments. Cost of sales increased
$2.8 million, or 1 percent. Gross profit increased $38.9 million and gross margin improved 520 basis points to 21.8 percent. Selling, general and administrative (“SG&A”) expenses increased $10.1 million and included higher
compensation-related expenses. Operating income of $65.7 million during the second quarter of fiscal 2024 increased $28.9 million from the prior year, primarily due to higher earnings in our operating segments.
Year-to-date Highlights
Net sales in the first six months of fiscal 2024 increased $123.1 million, or 11 percent, from the same period last year, primarily due to higher sales in our Performance Technologies and Climate Solutions segments. Cost of sales increased
$39.7 million, or 4 percent, from the same period last year, primarily due to higher sales volume. Gross profit increased $83.4 million and gross margin improved 520 basis points to 21.2 percent. SG&A expenses increased $15.2 million,
primarily due to higher compensation-related expenses. Operating income of $132.2 million during the first six months of fiscal 2024 increased $69.8 million from the prior year, primarily due to higher earnings in our operating segments.
CONSOLIDATED RESULTS OF OPERATIONS
The following table presents our consolidated financial results on a comparative basis for the three and six months ended September 30, 2023 and 2022:
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
|
(in millions)
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
||||||||||||||||||||||||
|
Net sales
|
$
|
620.5
|
100.0
|
%
|
$
|
578.8
|
100.0
|
%
|
$
|
1,242.9
|
100.0
|
%
|
$
|
1,119.8
|
100.0
|
%
|
||||||||||||||||
|
Cost of sales
|
485.4
|
78.2
|
%
|
482.6
|
83.4
|
%
|
979.9
|
78.8
|
%
|
940.2
|
84.0
|
%
|
||||||||||||||||||||
|
Gross profit
|
135.1
|
21.8
|
%
|
96.2
|
16.6
|
%
|
263.0
|
21.2
|
%
|
179.6
|
16.0
|
%
|
||||||||||||||||||||
|
Selling, general and administrative expenses
|
68.9
|
11.1
|
%
|
58.8
|
10.1
|
%
|
130.3
|
10.5
|
%
|
115.1
|
10.3
|
%
|
||||||||||||||||||||
|
Restructuring expenses
|
0.5
|
0.1
|
%
|
0.6
|
0.1
|
%
|
0.5
|
-
|
2.1
|
0.2
|
%
|
|||||||||||||||||||||
|
Operating income
|
65.7
|
10.6
|
%
|
36.8
|
6.4
|
%
|
132.2
|
10.6
|
%
|
62.4
|
5.6
|
%
|
||||||||||||||||||||
|
Interest expense
|
(6.1
|
)
|
-1.0
|
%
|
(4.7
|
)
|
-0.8
|
%
|
(12.0
|
)
|
-1.0
|
%
|
(8.8
|
)
|
-0.8
|
%
|
||||||||||||||||
|
Other income (expense) – net
|
0.1
|
-
|
(1.4
|
)
|
-0.3
|
%
|
(0.5
|
)
|
-
|
(3.7
|
)
|
-0.3
|
%
|
|||||||||||||||||||
|
Earnings before income taxes
|
59.7
|
9.6
|
%
|
30.7
|
5.3
|
%
|
119.7
|
9.6
|
%
|
49.9
|
4.5
|
%
|
||||||||||||||||||||
|
Provision for income taxes
|
(12.8
|
)
|
-2.1
|
%
|
(6.4
|
)
|
-1.1
|
%
|
(27.5
|
)
|
-2.2
|
%
|
(11.3
|
)
|
-1.0
|
%
|
||||||||||||||||
|
Net earnings
|
$
|
46.9
|
7.6
|
%
|
$
|
24.3
|
4.2
|
%
|
$
|
92.2
|
7.4
|
%
|
$
|
38.6
|
3.4
|
%
|
||||||||||||||||
Comparison of Three Months ended September 30, 2023 and 2022
Second quarter net sales of $620.5 million were $41.7 million, or 7 percent, higher than the second quarter of the prior year, primarily due to favorable commercial pricing and a $14.7 million favorable impact of foreign currency exchange
rates. Sales in the Performance Technologies and Climate Solutions segments increased $21.7 million and $19.9 million, respectively.
Second quarter cost of sales increased $2.8 million, or 1 percent, primarily due to an $11.7 million unfavorable impact of foreign currency exchange rates and, to a lesser extent, higher labor and inflationary costs and warranty expenses. These
increases were partially offset by lower raw material prices, which decreased approximately $11.0 million, and improved operating efficiencies. As a percentage of sales, cost of sales decreased 520 basis points to 78.2 percent, primarily due to
the favorable impact of higher sales.
As a result of higher sales and lower cost of sales as a percentage of sales, second quarter gross profit increased $38.9 million and gross margin improved 520 basis points to 21.8 percent.
Second quarter SG&A expenses increased $10.1 million, or 17 percent. As a percentage of sales, SG&A expenses increased by 100 basis points. The increase in SG&A expenses included higher compensation-related expenses, which
increased approximately $3.0 million, and increases across other general and administrative expenses, such as higher product development costs, professional service fees, and employee travel expenses. The compensation-related expenses included
higher incentive compensation expenses driven by improved financial results, as compared with the prior year. In addition, environmental charges related to a previously-closed manufacturing facility in the U.S. increased $0.7 million.
Restructuring expenses decreased $0.1 million compared with the second quarter of fiscal 2023, primarily due to lower equipment transfer costs in the Performance Technologies segment.
Operating income of $65.7 million in the second quarter of fiscal 2024 increased $28.9 million compared with the second quarter of fiscal 2023, primarily due to higher gross profit in our operating segments, partially offset by higher SG&A
expenses.
Interest expense during the second quarter of fiscal 2024 increased $1.4 million compared with the second quarter of fiscal 2023, primarily due to unfavorable changes in interest rates.
The provision for income taxes was $12.8 million and $6.4 million in the second quarter of fiscal 2024 and 2023, respectively. The $6.4 million increase was primarily due to higher earnings in the current year as compared with the same period
in the prior year.
Comparison of Six Months ended September 30, 2023 and 2022
Fiscal 2024 year-to-date net sales of $1,242.9 million were $123.1 million, or 11 percent, higher than the same period last year, primarily due to higher sales volume, favorable commercial pricing and a $15.1 million favorable impact of foreign
currency exchange rates. Sales in the Performance Technologies and Climate Solutions segments increased $76.3 million and $47.3 million, respectively.
Fiscal 2024 year-to-date cost of sales of $979.9 million increased $39.7 million, or 4 percent, primarily due to higher sales volume, a $12.1 unfavorable impact of foreign currency exchange rates and, to a lesser extent, higher labor and
inflationary costs and warranty expenses. These increases were partially offset by lower raw material prices, which decreased approximately $28.0 million and, to a lesser extent, improved operating efficiencies. As a percentage of sales, cost of
sales decreased 520 basis points to 78.8 percent, primarily due to the favorable impact of higher sales.
As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $83.4 million and gross margin improved 520 basis points to 21.2 percent.
Fiscal 2024 year-to-date SG&A expenses increased $15.2 million, or 13 percent. As a percentage of sales, SG&A expenses increased by 20 basis points. The increase in SG&A expenses was primarily driven by higher compensation-related
expenses, which increased approximately $7.0 million, and increases across other general and administrative expenses. The compensation-related expenses included higher incentive compensation expenses driven by improved financial results, as
compared with the prior year.
Restructuring expenses during the first six months of fiscal 2024 decreased $1.6 million compared with the same period last year, primarily due to lower severance expenses in the Performance Technologies segment.
Operating income of $132.2 million during the first six months of fiscal 2024 increased $69.8 million compared with the same period last year, primarily due to higher gross profit in our operating segments, partially offset by higher SG&A
expenses.
Interest expense during the first six months of fiscal 2024 increased $3.2 million compared with the same period last year, primarily due to unfavorable changes in interest rates.
The provision for income taxes was $27.5 million and $11.3 million during the first six months of fiscal 2024 and 2023, respectively. The $16.2 million increase was primarily due to higher earnings in the current year as compared with the same
period in the prior year.
SEGMENT RESULTS OF OPERATIONS
The following is a discussion of our segment results of operations for the three and six months ended September 30, 2023 and 2022:
Climate Solutions
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
|
(in millions)
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
||||||||||||||||||||||||
|
Net sales
|
$
|
275.8
|
100.0
|
%
|
$
|
255.9
|
100.0
|
%
|
$
|
547.6
|
100.0
|
%
|
$
|
500.3
|
100.0
|
%
|
||||||||||||||||
|
Cost of sales
|
204.0
|
74.0
|
%
|
198.6
|
77.6
|
%
|
406.8
|
74.3
|
%
|
392.6
|
78.5
|
%
|
||||||||||||||||||||
|
Gross profit
|
71.8
|
26.0
|
%
|
57.3
|
22.4
|
%
|
140.8
|
25.7
|
%
|
107.7
|
21.5
|
%
|
||||||||||||||||||||
|
Selling, general and administrative expenses
|
26.9
|
9.7
|
%
|
24.3
|
9.5
|
%
|
51.6
|
9.4
|
%
|
47.7
|
9.5
|
%
|
||||||||||||||||||||
|
Restructuring expenses
|
0.3
|
0.1
|
%
|
0.3
|
0.1
|
%
|
0.3
|
0.1
|
%
|
0.3
|
0.1
|
%
|
||||||||||||||||||||
|
Operating income
|
$
|
44.6
|
16.2
|
%
|
$
|
32.7
|
12.8
|
%
|
$
|
88.9
|
16.2
|
%
|
$
|
59.7
|
11.9
|
%
|
||||||||||||||||
Comparison of Three Months ended September 30, 2023 and 2022
Climate Solutions net sales increased $19.9 million, or 8 percent, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to higher sales volume and a $6.6 million favorable impact of foreign currency exchange
rates. Compared with the second quarter of the prior year, sales of data center cooling products increased $42.5 million. Sales of heat transfer and HVAC & refrigeration products decreased $20.5 million and $2.0 million, respectively.
Climate Solutions cost of sales increased $5.4 million, or 3 percent, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to higher sales volume, a $5.0 million unfavorable impact of foreign currency
exchange rates and, to a lesser extent, higher warranty expenses, which increased approximately $3.0 million, and higher labor and inflationary costs. These increases were partially offset by improved operating efficiencies and lower raw material
prices, which decreased approximately $4.0 million. As a percentage of sales, cost of sales decreased 360 basis points to 74.0 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $14.5 million and gross margin improved 360 basis points to 26.0 percent.
SG&A expenses increased $2.6 million compared with the second quarter of the prior year. As a percentage of sales, SG&A expenses increased by 20 basis points. The increase in SG&A expenses includes higher compensation-related
expenses and increases across other general and administrative expenses.
Restructuring expenses totaled $0.3 million during both the second quarter of fiscal 2024 and 2023. The fiscal 2024 expenses consist of equipment transfer and severance expenses. The fiscal 2023 expenses primarily relate to closure costs
associated with a previously-leased facility.
Operating income of $44.6 million increased $11.9 million from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to higher gross profit.
Comparison of Six Months ended September 30, 2023 and 2022
Climate Solutions year-to-date net sales increased $47.3 million, or 9 percent, from the same period last year, primarily due to higher sales volume and a $7.4 million favorable impact of foreign currency exchange rates. Compared with the same
period in the prior year, sales of data center cooling products increased $80.2 million. Sales of heat transfer and HVAC & refrigeration products decreased $29.3 million and $3.3 million, respectively.
Climate Solutions year-to-date cost of sales increased $14.2 million, or 4 percent, from the same period last year, primarily due to higher sales volume, a $5.5 million unfavorable impact of foreign currency exchanges rates, and higher warranty
expenses and labor and inflationary costs. These increases were partially offset by lower raw material prices, which decreased approximately $14.0 million and improved operating efficiencies. As a percentage of sales, cost of sales decreased 420
basis points to 74.3 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $33.1 million and gross margin improved 420 basis points to 25.7 percent.
Climate Solutions year-to-date SG&A expenses increased $3.9 million, yet decreased 10 basis points as a percentage of sales. The increase in SG&A expenses includes higher compensation-related expenses and increases across other general
and administrative expenses.
Restructuring expenses totaled $0.3 million during both the first six months of fiscal 2024 and 2023. The fiscal 2024 expenses consist of equipment transfer and severance expenses. The fiscal 2023 expenses primarily relate to closure costs
associated with a previously-leased facility.
Operating income of $88.9 million during the first six months of fiscal 2024 increased $29.2 million from the same period last year, primarily due to higher gross profit.
Performance Technologies
|
Three months ended September 30,
|
Six months ended September 30,
|
|||||||||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||||||||||
|
(in millions)
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
$’s
|
% of sales
|
||||||||||||||||||||||||
|
Net sales
|
$
|
351.7
|
100.0
|
%
|
$
|
330.0
|
100.0
|
%
|
$
|
710.6
|
100.0
|
%
|
$
|
634.3
|
100.0
|
%
|
||||||||||||||||
|
Cost of sales
|
288.9
|
82.2
|
%
|
290.8
|
88.1
|
%
|
589.2
|
82.9
|
%
|
562.1
|
88.6
|
%
|
||||||||||||||||||||
|
Gross profit
|
62.8
|
17.8
|
%
|
39.2
|
11.9
|
%
|
121.4
|
17.1
|
%
|
72.2
|
11.4
|
%
|
||||||||||||||||||||
|
Selling, general and administrative expenses
|
29.0
|
8.2
|
%
|
22.6
|
6.9
|
%
|
55.6
|
7.8
|
%
|
46.7
|
7.4
|
%
|
||||||||||||||||||||
|
Restructuring expenses
|
0.2
|
-
|
0.3
|
0.1
|
%
|
0.2
|
-
|
1.8
|
0.3
|
%
|
||||||||||||||||||||||
|
Operating income
|
$
|
33.6
|
9.6
|
%
|
$
|
16.3
|
4.9
|
%
|
$
|
65.6
|
9.2
|
%
|
$
|
23.7
|
3.7
|
%
|
||||||||||||||||
Comparison of Three Months ended September 30, 2023 and 2022
Performance Technologies net sales increased $21.7 million, or 7 percent, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to favorable commercial pricing and an $8.0 million favorable impact of foreign
currency exchange rates. These increases were partially offset by lower sales volume. Compared with the second quarter of the prior year, sales of advanced solutions, liquid-cooled and air-cooled products increased $10.3 million, $7.4 million,
and $4.0 million, respectively.
Performance Technologies cost of sales decreased $1.9 million, or 1 percent, from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to lower raw material prices, which decreased approximately $8.0 million and
lower sales volume. These decreases were partially offset by a $6.7 million unfavorable impact of foreign currency exchange rates and higher labor and inflationary costs. As a percentage of sales, cost of sales decreased 590 basis points to 82.2
percent, primarily due to the favorable impact of higher sales, partially offset by higher labor and inflationary costs.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $23.6 million and gross margin improved 590 basis points to 17.8 percent.
SG&A expenses increased $6.4 million, or 28 percent, compared with the second quarter of the prior year. As a percentage of sales, SG&A expenses increased by 130 basis points. The increase in SG&A expenses was primarily due to
higher compensation-related expenses, which increased approximately $3.0 million, higher product development costs and increases across other general and administrative expenses.
Restructuring expenses decreased $0.1 million compared with the second quarter of fiscal 2023, primarily due to lower equipment transfer costs.
Operating income of $33.6 million increased $17.3 million from the second quarter of fiscal 2023 to the second quarter of fiscal 2024, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Comparison of Six Months ended September 30, 2023 and 2022
Performance Technologies year-to-date net sales increased $76.3 million, or 12 percent, from the same period last year, primarily due to favorable commercial pricing, higher sales volume, and a $7.8 million favorable impact of foreign currency
exchange rates. Compared with the same period in the prior year, sales of liquid-cooled, air-cooled, and advanced solutions products increased $31.2 million, $23.7 million, and $20.6 million, respectively.
Performance Technologies year-to-date cost of sales increased $27.1 million, or 5 percent, from the same period last year, primarily due to higher sales volume, higher labor and inflationary costs and a $6.7 million unfavorable impact of foreign
currency exchange rates. These increases were partially offset by lower raw material prices, which decreased approximately $14.0 million. As a percentage of sales, cost of sales decreased 570 basis points to 82.9 percent, primarily due to the
favorable impact of higher sales, partially offset by higher labor and inflationary costs.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $49.2 million and gross margin improved 570 basis points to 17.1 percent.
Performance Technologies year-to-date SG&A expenses increased $8.9 million, or 19 percent, compared with the same period last year. As a percentage of sales, year-to-date SG&A expenses increased by 40 basis points. The increase in
SG&A expenses was primarily due to higher compensation-related expenses and increases across other general and administrative expenses.
Restructuring expenses during the first six months of fiscal 2024 decreased $1.6 million compared with the same period last year, primarily due to lower severance expenses.
Operating income of $65.6 million during the first six months of fiscal 2024 increased $41.9 million from the same period last year, primarily due to higher gross profit, 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 as of September 30, 2023 of $120.2 million, and available borrowing capacity of $269.4 million under our revolving credit facility. Given
our extensive international operations, approximately $71.0 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. 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 six months ended September 30, 2023 was $110.8 million, which represents a $54.7 million increase compared with the same period in the prior year. This increase in operating cash flow was
primarily due to the favorable impact of higher earnings, partially offset by unfavorable net changes in working capital, as compared with the same period in the prior year. The unfavorable changes in working capital include higher payments for
incentive compensation, as compared with the same period in the prior year.
Capital Expenditures
Capital expenditures of $26.2 million during the first six months of fiscal 2024 increased $3.2 million compared with the same period in the prior year. The fiscal 2024 capital expenditures include investments supporting our strategic growth
initiatives across several of our business units.
Debt
Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant, which are discussed further below. Indebtedness under our credit agreements is
secured by liens on substantially all domestic assets. These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in
certain transactions with affiliates; or make restricted payments including dividends. Also, the credit agreements may require prepayments in the event of certain asset sales.
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 September 30, 2023, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during the remainder of fiscal 2024 and beyond.
Share Repurchase Program
During the first six months of fiscal 2024, we repurchased $9.0 million of our common stock. As of September 30, 2023, we had $36.4 million of share repurchase authorization remaining under the current repurchase program, which expires in
November 2024. Our decision whether and to what extent to repurchase additional shares will depend on a number of factors, including business conditions, other cash priorities, and stock price.
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, 2023. Other risks and uncertainties include, but are not limited to, the following:
Market Risks:
| • |
The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, supply chain challenges, tariffs, sanctions and other trade issues or
cross-border trade restrictions (and any potential resulting trade war), and military conflicts, including the current conflicts in Ukraine and in the Middle East;
|
| • |
The impact of other 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 foreign currency
exchange rate fluctuations; increases in interest rates; recession and recovery therefrom; and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade that have been or may be
implemented in the U.S. or abroad;
|
| • |
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, including through our quotation process or through contract provisions for
prospective price adjustments, as well as the inherent lag in timing of such contract provisions;
|
| • |
Our ability to mitigate increased labor costs and labor shortages;
|
| • |
The impact of public health threats, such as COVID-19, on the national and global economy, our business, suppliers (and the supply chain), customers, and employees; and
|
| • |
The impact of legislation, regulations, and government incentive programs, including those addressing climate change, on demand for our products and the markets we serve, including our ability to take advantage of opportunities to supply
alternative new technologies to meet environmental and/or energy standards and objectives.
|
Operational Risks:
| • |
The impact of problems, including logistic and transportation challenges, associated 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;
|
| • |
The overall health of and price-reduction pressure from our 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,
including impacts associated with the recent United Auto Workers union strikes;
|
| • |
Our ability to maintain current customer relationships and compete effectively for new business, including our ability to achieve profit margins acceptable to us by offsetting or otherwise addressing any cost increases associated with
supply chain challenges and inflationary market conditions;
|
| • |
The impact of product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and warranty claims;
|
| • |
The impact of delays or modifications initiated by major customers with respect to product or 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 manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring
activities and realizing the anticipated benefits thereof;
|
| • |
Costs and other effects of the investigation and remediation of environmental contamination; including 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;
|
| • |
Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;
|
| • |
The impact of a 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;
|
| • |
Increasing emphasis by customers, investors, and employees on environmental, social and corporate governance matters may impose additional costs on us, adversely affect our reputation or expose us to new risks;
|
| • |
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 litigation, claims, or other obligations, including those that may be asserted against us in connection with divested businesses.
|
Strategic Risks:
| • |
Our ability to successfully realize anticipated benefits, including improved profit margins and cash flow, from strategic initiatives and our continued application of 80/20 principles across our businesses;
|
| • |
Our ability to accelerate growth by identifying and executing on organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses; and
|
| • |
The potential impacts from actions by activist shareholders, including disruption of our business and related costs.
|
Financial Risks:
| • |
Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the
global economy;
|
| • |
The impact of increases in interest rates in relation to our variable-rate debt obligations;
|
| • |
The impact of changes in federal, state or local taxes 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; 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.
The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. The Company’s market risks have not
materially changed since the fiscal 2023 Form 10-K was filed.
Evaluation Regarding Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, management of the Company, under the supervision, and with the participation, of the Company’s President and Chief Executive Officer
and Executive Vice President, Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, at a reasonable assurance level, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based
upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective, at a
reasonable assurance level, as of September 30, 2023.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ISSUER PURCHASES OF EQUITY SECURITIES
The following describes the Company’s purchases of common stock during the second quarter of fiscal 2024:
|
Period
|
Total Number of
Shares Purchased
|
Average
Price Paid
Per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Maximum Number (or
Approximate Dollar
Value) of Shares
that May Yet Be Purchased
Under the Plans or Programs (a)
|
|
July 1 – July 31, 2023
|
_______
|
_______
|
_______
|
$45,372,391
|
| |
||||
|
August 1 – August 31, 2023
|
1,222 (b)
|
$45.91
|
_______
|
$45,372,391
|
|
|
||||
|
September 1 – September 30, 2023
|
200,000 (c)
|
$45.01
|
200,000
|
$36,370,398
|
|
|
||||
|
Total
|
201,222
|
$45.02
|
200,000 |
| (a) |
Effective November 5, 2022, the Company’s Board of Directors authorized the Company to repurchase up to $50.0 million of Modine common stock at such times and prices that it deems to be appropriate. This authorization expires in
November 2024.
|
| (b) |
Includes shares delivered back to the Company by employees and/or directors to satisfy tax withholding obligations that arise upon the vesting of stock awards. The Company, pursuant to its equity compensation plans, gives participants
the opportunity to turn back to the Company the number of shares from the award sufficient to satisfy tax withholding obligations that arise upon the termination of restrictions. These shares are held as treasury shares.
|
| (c) |
Includes shares acquired pursuant to the repurchase program described in (a) above.
|
| Item 5. |
Other Information.
|
On August 17, 2023, Michael B. Lucareli, Executive Vice President and Chief Financial Officer of the Company, adopted a Stock Sale Plan (the “Plan”) intended to satisfy the affirmative
defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended. The Plan provides for the sale of up to 80,000 shares of Modine common stock during the
beginning on November 20, 2023 and ending on May 20, 2024, subject to a formula and other terms and conditions set forth in the Plan.
No other director or “officer” of the Company adopted
or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a)
of Regulation S-K, during the three months ended September 30, 2023.
|
(a)
|
Exhibits:
|
|
Exhibit No.
|
Description
|
Incorporated Herein By
Reference To
|
Filed
Herewith
|
|
Rule 13a-14(a)/15d-14(a) Certification of Neil D. Brinker, President and Chief Executive Officer.
|
X
|
||
|
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.
|
X
|
||
|
Section 1350 Certification of Neil D. Brinker, President and Chief Executive Officer.
|
X
|
||
|
Section 1350 Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.
|
X
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
X
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema.
|
X
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
X
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
X
|
|
|
10.1.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
X
|
|
|
10.1.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
X
|
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
X
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MODINE MANUFACTURING COMPANY
(Registrant)
By: /s/ Michael B. Lucareli
Michael B. Lucareli, Executive Vice President, Chief Financial Officer*
Date: November 2, 2023
|
*
|
Executing as both the principal financial officer and a duly authorized officer of the Company
|
37