0001140361-18-035022.txt : 20180802 0001140361-18-035022.hdr.sgml : 20180802 20180802103805 ACCESSION NUMBER: 0001140361-18-035022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 80 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180802 DATE AS OF CHANGE: 20180802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODINE MANUFACTURING CO CENTRAL INDEX KEY: 0000067347 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 390482000 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01373 FILM NUMBER: 18987051 BUSINESS ADDRESS: STREET 1: 1500 DEKOVEN AVE CITY: RACINE STATE: WI ZIP: 53403 BUSINESS PHONE: 2626361200 MAIL ADDRESS: STREET 1: 1500 DEKOVEN AVE CITY: RACINE STATE: WI ZIP: 53403 10-Q 1 form10q.htm 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 June 30, 2018

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

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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 ☐
(Do not check if a smaller reporting company)
Smaller reporting company ☐
     
   
Emerging growth company ☐

If an emerging growth company, indicate by checkmark if the registrant has not elected 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 50,690,875 at July 27, 2018.
 


MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION  
       
  Item 1. 
1
       
  Item 2.
21
       
  Item 3.
27
       
  Item 4. 
27
       
PART II. 
OTHER INFORMATION  
       
  Item 2.
28
       
  Item 6.
29
       
30
 
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2018 and 2017
(In millions, except per share amounts)
(Unaudited)

   
Three months ended June 30,
 
   
2018
   
2017
 
Net sales
 
$
566.1
   
$
515.5
 
Cost of sales
   
471.8
     
427.0
 
Gross profit
   
94.3
     
88.5
 
Selling, general and administrative expenses
   
59.3
     
59.2
 
Restructuring expenses
   
0.2
     
1.7
 
Operating income
   
34.8
     
27.6
 
Interest expense
   
(6.2
)
   
(6.6
)
Other expense – net
   
(1.1
)
   
(0.9
)
Earnings before income taxes
   
27.5
     
20.1
 
Provision for income taxes
   
(5.0
)
   
(2.7
)
Net earnings
   
22.5
     
17.4
 
Net earnings attributable to noncontrolling interest
   
(0.5
)
   
(0.4
)
Net earnings attributable to Modine
 
$
22.0
   
$
17.0
 
                 
Net earnings per share attributable to Modine shareholders:
               
Basic
 
$
0.43
   
$
0.34
 
Diluted
 
$
0.43
   
$
0.34
 
                 
Weighted-average shares outstanding:
               
Basic
   
50.3
     
49.5
 
Diluted
   
51.2
     
50.1
 

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 months ended June 30, 2018 and 2017
(In millions)
(Unaudited)

   
Three months ended June 30,
 
   
2018
   
2017
 
Net earnings
 
$
22.5
   
$
17.4
 
Other comprehensive income (loss):
               
Foreign currency translation
   
(25.1
)
   
16.5
 
Defined benefit plans, net of income taxes of $0.3 and $0.5 million
   
1.0
     
0.8
 
Cash flow hedges, net of income taxes of $0.1 million
   
0.4
     
-
 
Total other comprehensive income (loss)
   
(23.7
)
   
17.3
 
                 
Comprehensive income (loss)
   
(1.2
)
   
34.7
 
Comprehensive income attributable to noncontrolling interest
   
(0.1
)
   
(0.4
)
Comprehensive income (loss) attributable to Modine
 
$
(1.3
)
 
$
34.3
 

The notes to condensed consolidated financial statements are an integral part of these statements.
 
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, 2018 and March 31, 2018
(In millions, except per share amounts)
(Unaudited)

   
June 30, 2018
   
March 31, 2018
 
ASSETS
           
Cash and cash equivalents
 
$
41.4
   
$
39.3
 
Trade accounts receivable – net
   
347.6
     
342.4
 
Inventories
   
203.7
     
191.3
 
Other current assets
   
68.6
     
70.1
 
Total current assets
   
661.3
     
643.1
 
Property, plant and equipment – net
   
486.9
     
504.3
 
Intangible assets – net
   
124.7
     
129.9
 
Goodwill
   
170.4
     
173.8
 
Deferred income taxes
   
94.9
     
96.9
 
Other noncurrent assets
   
24.5
     
25.4
 
Total assets
 
$
1,562.7
   
$
1,573.4
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Short-term debt
 
$
93.2
   
$
53.2
 
Long-term debt – current portion
   
41.2
     
39.9
 
Accounts payable
   
276.6
     
277.9
 
Accrued compensation and employee benefits
   
80.3
     
97.3
 
Other current liabilities
   
46.5
     
47.2
 
Total current liabilities
   
537.8
     
515.5
 
Long-term debt
   
371.9
     
386.3
 
Deferred income taxes
   
9.1
     
9.9
 
Pensions
   
104.7
     
109.6
 
Other noncurrent liabilities
   
53.0
     
53.6
 
Total liabilities
   
1,076.5
     
1,074.9
 
Commitments and contingencies (see Note 16)
               
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 52.7 million and 52.3 million shares
   
32.9
     
32.7
 
Additional paid-in capital
   
231.7
     
229.9
 
Retained earnings
   
409.3
     
394.9
 
Accumulated other comprehensive loss
   
(163.6
)
   
(140.3
)
Treasury stock, at cost, 2.0 million and 1.8 million shares
   
(30.8
)
   
(27.1
)
Total Modine shareholders' equity
   
479.5
     
490.1
 
Noncontrolling interest
   
6.7
     
8.4
 
Total equity
   
486.2
     
498.5
 
Total liabilities and equity
 
$
1,562.7
   
$
1,573.4
 

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 three months ended June 30, 2018 and 2017
(In millions)
(Unaudited)

   
Three months ended June 30,
 
   
2018
   
2017
 
Cash flows from operating activities:
           
Net earnings
 
$
22.5
   
$
17.4
 
Adjustments to reconcile net earnings to net cash (used for) provided by operating activities:
               
Depreciation and amortization
   
19.4
     
18.5
 
Stock-based compensation expense
   
2.0
     
2.3
 
Deferred income taxes
   
1.0
     
(4.1
)
Other – net
   
0.6
     
2.2
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
(18.6
)
   
(14.0
)
Inventories
   
(21.7
)
   
(7.3
)
Accounts payable
   
15.4
     
15.2
 
Other assets and liabilities
   
(24.7
)
   
(9.6
)
Net cash (used for) provided by operating activities
   
(4.1
)
   
20.6
 
                 
Cash flows from investing activities:
               
Expenditures for property, plant and equipment
   
(22.6
)
   
(21.6
)
Other – net
   
2.9
     
(0.8
)
Net cash used for investing activities
   
(19.7
)
   
(22.4
)
                 
Cash flows from financing activities:
               
Borrowings of debt
   
105.9
     
48.1
 
Repayments of debt
   
(72.7
)
   
(36.7
)
Dividend paid to noncontrolling interest
   
(1.8
)
   
(0.9
)
Other – net
   
(3.8
)
   
(0.9
)
Net cash provided by financing activities
   
27.6
     
9.6
 
                 
Effect of exchange rate changes on cash
   
(1.8
)
   
1.4
 
Net increase in cash, cash equivalents and restricted cash
   
2.0
     
9.2
 
                 
Cash, cash equivalents and restricted cash – beginning of period
   
40.3
     
34.8
 
Cash, cash equivalents and restricted cash – end of period
 
$
42.3
   
$
44.0
 

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 condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States applied on a basis consistent with those principles used in the preparation of the annual consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) for the fiscal year ended March 31, 2018, except in regard to the new accounting guidance adopted, as described below.  The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.  Results for the first three months of fiscal 2019 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, 2018.

New Accounting Guidance

Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers.  The Company adopted this new guidance for its first quarter of fiscal 2019 using the modified-retrospective transition method.

The Company assessed customer contracts and evaluated contractual provisions in light of the new guidance.  Through its evaluation process, the Company identified a limited number of customer contracts that provide an enforceable right to payment for customized products, which require revenue recognition prior to the product being shipped to the customer.  As a result of its adoption of the new guidance, the Company recorded an increase of $0.7 million to retained earnings as of April 1, 2018, along with related balance sheet reclassifications. The increase to retained earnings reflects $3.0 million of net sales that, had the new guidance been in effect, the Company would have recognized as of March 31, 2018.  See Note 2 for additional information regarding revenue recognition.

Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued new guidance related to income tax accounting for intercompany asset transfers. This new guidance requires companies to recognize the income tax effects of intercompany asset transfers other than inventory at the transaction date. The income tax effects of these transfers were previously deferred. The Company adopted this new guidance for its first quarter of fiscal 2019 using the modified-retrospective transition method. Upon adoption, the Company recorded a decrease to retained earnings of $8.3 million as of April 1, 2018.

Statement of Cash Flows: Restricted Cash
In November 2016, the FASB issued new guidance that requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending balances presented within the statement of cash flows. The Company adopted this new guidance for its first quarter of fiscal 2019 using the retrospective transition method.  As a result, all prior period information has been recast to be comparable to the new presentation requirements.  See Note 10 for information regarding the Company’s restricted cash.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance. Upon adoption of this new guidance, the Company will be required to recognize most leases on its balance sheet. This guidance is effective for the Company’s first quarter of fiscal 2020. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued new guidance related to the accounting for certain stranded income tax effects in accumulated other comprehensive income (loss) resulting from tax reform legislation that was enacted in the U.S. in December 2017.  This guidance permits companies to reclassify stranded income tax effects to retained earnings and is effective for the Company’s first quarter of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

The cumulative effects on the Company’s consolidated balance sheet, as of April 1, 2018, resulting from the adoption of new accounting guidance were as follows:

         
Adjustments Due to New Accounting
Guidance
       
   
Balance as of
March 31, 2018
   
Revenue
Recognition
   
Intra-entity
Transfers of Assets
   
Balance as of
April 1, 2018
 
ASSETS
                       
Inventories
 
$
191.3
   
$
(2.0
)
 
$
-
   
$
189.3
 
Other current assets
   
70.1
     
3.0
     
(8.3
)
   
64.8
 
Deferred income taxes
   
96.9
     
(0.2
)
   
-
     
96.7
 
                                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                               
Deferred income taxes
 
$
9.9
   
$
0.1
   
$
-
   
$
10.0
 
Retained earnings
   
394.9
     
0.7
     
(8.3
)
   
387.3
 
 
Note 2:
Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s condensed consolidated financial statements for the three months ended June 30, 2018 reflect the adoption of this new guidance; however the comparable prior-year period has not been restated.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

Significant Accounting Policy
The Company generates revenue from selling innovative thermal management products and solutions to diversified global markets and customers.  The Company recognizes revenue based upon consideration specified in a contract and as it satisfies performance obligations by transferring control over its products to its customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.

The Company records an allowance for doubtful accounts for estimated uncollectible receivables and accrues for estimated warranty costs at the time of sale.  These estimates are based upon historical experience, current business trends, and current economic conditions.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The Company accounts for shipping and handling activities as fulfilment costs rather than separate performance obligations, and records shipping and handling costs in cost of sales and related amounts billed to customers in net sales.

The Company establishes payment terms with its customers based upon industry and regional practices, which typically do not exceed 90 days.  As the Company expects to receive payment from its customers within one year from the time of sale, it disregards the effects of the time value of money in its determination of the transaction price.

The Company has not disclosed the value of unsatisfied performance obligations because the original expected performance period is one year or less for the large majority of its customer contracts.

Nature of Goods and Services and Significant Judgments
The following is a description of the Company’s principal revenue-generating activities:

Vehicular Thermal Solutions (“VTS”)
The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment.  This segment provides powertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, EGR coolers, and fuel coolers, to original equipment manufacturers (“OEMs”) in the automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions.  In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets.

While the VTS segment provides customized production and service parts to customers under multi-year programs, these programs typically do not contain contractually-guaranteed volumes to be purchased by the customer.  As a result, individual purchase orders typically represent the quantities ordered by the customer. With the exception of a small number of VTS customers, the terms within the customer agreement, purchase order, or customer-owned tooling contract do not provide the Company with an enforceable right to payment for performance completed to date.  As a result, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to VTS customers with contractual cancellation terms that provide an enforceable right to payment for performance completed to date, the Company recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations.  The VTS segment measures progress by evaluating the production status of ordered products not yet shipped to the customer.

For certain customer programs, the Company agrees to provide annual price reductions based upon contract terms.  For these scheduled price reductions, the Company evaluates whether the provisions represent a material right to the customer, and if so, defers associated revenue as a result.

At times, the Company makes up-front incentive payments to certain customers related to future sales under multi-year programs.  The Company capitalizes these incentive payments, which it expects to recover through future sales, and amortizes the assets as a reduction to revenue when the related products are sold to customers.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Commercial and Industrial Solutions (“CIS”)
The CIS segment principally generates revenue from providing thermal management products, including customized coils and coolers, to the heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets in North America, Europe, and Asia.  In addition, the segment applies corrosion protection solutions, which are referred to as coatings, to heat-transfer equipment.

For the sale of coils and coolers, individual customer purchase orders generally represent the Company’s contract with its customers.  With the exception of a small number of customers, the applicable customer contracts do not provide the Company with an enforceable right to payment for performance completed to date.  As a result, the CIS segment recognizes revenue for its sale of coils and coolers primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

For both sales to customers whose contract cancellation terms provide an enforceable right to payment and sales from the coatings businesses, in which the customers control the heat-transfer equipment being enhanced by the coating application, the CIS segment recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations.  The segment measures progress by evaluating the production status towards completion of ordered products or services not yet shipped to its customers.

Building HVAC Systems (“BHVAC”)
The BHVAC segment principally generates revenue from providing a variety of heating, ventilating, and air conditioning products, primarily for commercial buildings and related applications in North America and the U.K., as well as mainland Europe and the Middle East.

Heating products are manufactured in the U.S. and are generally sold to independent distributors, who in turn market the heating products to end customers.  Because these products are sold to many different customers without contractual or practical limitations, the BHVAC segment recognizes revenue at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

Ventilation and air conditioning products are highly-specified to a customer’s needs; however, the underlying sales contracts do not provide the Company with an enforceable right to payment for performance completed to date.  As a result, the BHVAC segment recognizes revenue for these products at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Disaggregation of Revenue
The table below presents revenue to external customers for each of the Company’s business segments by primary end market, by geographic location and based upon the timing of revenue recognition.

   
Three months ended June 30, 2018
 
   
VTS
   
CIS
   
BHVAC
   
Segment Total
 
Primary end market:
                       
Automotive
 
$
145.1
   
$
-
   
$
-
   
$
145.1
 
Commercial vehicle
   
99.7
     
-
     
-
     
99.7
 
Off-highway
   
83.8
     
-
     
-
     
83.8
 
Commercial HVAC
   
-
     
84.5
     
32.0
     
116.5
 
Commercial refrigeration
   
-
     
50.8
     
-
     
50.8
 
Data center cooling
   
-
     
34.1
     
12.2
     
46.3
 
Industrial cooling
   
-
     
11.5
     
-
     
11.5
 
Other
   
24.2
     
3.0
     
0.8
     
28.0
 
Net sales
 
$
352.8
   
$
183.9
   
$
45.0
   
$
581.7
 
                                 
Geographic location:
                               
Americas
 
$
150.9
   
$
104.8
   
$
25.3
   
$
281.0
 
Europe
   
148.4
     
65.2
     
19.7
     
233.3
 
Asia
   
53.5
     
13.9
     
-
     
67.4
 
Net sales
 
$
352.8
   
$
183.9
   
$
45.0
   
$
581.7
 
                                 
Timing of revenue recognition:
                               
Products transferred at a point in time
 
$
342.8
   
$
153.6
   
$
45.0
   
$
541.4
 
Products transferred over time
   
10.0
     
30.3
     
-
     
40.3
 
Net sales
 
$
352.8
   
$
183.9
   
$
45.0
   
$
581.7
 

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

   
June 30, 2018
  March 31, 2018  
Contract assets
   
18.8
  13.5  
Contract liabilities
   
11.7
  12.4  

Contract assets, included within other current assets in the consolidated balance sheet, 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.

Contract liabilities, included within other current liabilities in the consolidated balance sheet, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Impacts of Adopting New Accounting Guidance
The impacts from the adoption of the new revenue recognition guidance to the Company’s consolidated statement of operations for the three months ended June 30, 2018 and its consolidated balance sheet as of June 30, 2018 were as follows:

   
Three months ended June 30, 2018
 
   
As Reported
   
Impact of New
Accounting
Guidance
   
Results Without
Impact of New
Accounting Guidance
 
Net sales
 
$
566.1
   
$
(1.2
)
 
$
564.9
 
Net earnings attributable to Modine
   
22.0
     
(0.3
)
   
21.7
 
                         
Net earnings per share attributable to Modine shareholders:
                       
Basic
 
$
0.43
   
$
(0.01
)
 
$
0.43
 
Diluted
   
0.43
     
(0.01
)
   
0.42
 

   
June 30, 2018
 
   
As Reported
   
Impact of New
Accounting
Guidance
   
Balances Without
Impact of New
Accounting Guidance
 
ASSETS
                 
Inventories
 
$
203.7
   
$
2.8
   
$
206.5
 
Other current assets
   
68.6
     
(4.2
)
   
64.4
 
Deferred income taxes
   
94.9
     
0.1
     
95.0
 
                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                       
Deferred income taxes
 
$
9.1
   
$
(0.2
)
 
$
8.9
 
Retained earnings
   
409.3
     
(1.1
)
   
408.2
 

Note 3:
Fair Value Measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Fair value measurements are classified under the following hierarchy:

·
Level 1 – Quoted prices for identical instruments in active markets.
·
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
·
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.
 
When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value based upon valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates.  These measurements are classified as Level 3.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans. The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy. The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.6 million and $5.8 million as of June 30, 2018 and March 31, 2018, respectively.  The fair value of the Company’s long-term debt is disclosed in Note 15.

Note 4:
Pensions

Pension cost included the following components:

   
Three months ended June 30,
 
   
2018
   
2017
 
Service cost
 
$
0.1
   
$
0.1
 
Interest cost
   
2.4
     
2.5
 
Expected return on plan assets
   
(3.0
)
   
(3.0
)
Amortization of unrecognized net loss
   
1.4
     
1.4
 
Net periodic benefit cost
 
$
0.9
   
$
1.0
 

During each of the three months ended June 30, 2018 and 2017, the Company contributed $1.9 million to its U.S. pension plans.

Note 5:
Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and other executives that consists of stock awards, stock options, and performance-based stock awards granted 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 instruments at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards.  The Company recognized stock-based compensation expense of $2.0 million and $2.3 million for the three months ended June 30, 2018 and 2017, respectively. The performance component of awards granted under the Company’s long-term incentive plan during the first quarter of fiscal 2019 is based upon both a target three-year average cash flow return on invested capital and a target three-year average revenue growth at the end of the three-year performance period.

The fair value of stock-based compensation awards granted during the three months ended June 30, 2018 and 2017 were as follows:

   
Three months ended June 30,
 
   
2018
   
2017
 
   
Shares
   
Fair Value
Per Award
   
Shares
   
Fair Value
Per Award
 
Stock options
   
0.2
   
$
7.81
     
0.2
   
$
7.30
 
Restricted stock awards
   
0.2
   
$
17.90
     
0.2
   
$
15.90
 
Performance stock awards
   
0.2
   
$
17.90
     
0.2
   
$
15.90
 
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The Company used the following assumptions in determining fair value for stock options:

   
Three months ended June 30,
 
   
2018
   
2017
 
Expected life of awards in years
   
6.3
     
6.4
 
Risk-free interest rate
   
2.8
%
   
1.9
%
Expected volatility of the Company's stock
   
39.7
%
   
44.3
%
Expected dividend yield on the Company's stock
   
0.0
%
   
0.0
%

As of June 30, 2018, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be amortized over the remaining service periods, was as follows:

   
Unrecognized
Compensation
Expense
   
Weighted-Average
Remaining Service
Period in Years
 
Stock options
 
$
3.6
     
3.1
 
Restricted stock awards
   
8.4
     
3.1
 
Performance stock awards
   
6.8
     
2.1
 
Total
 
$
18.8
     
2.7
 

Note 6:
Restructuring Activities

The Company’s restructuring actions during the first quarter of fiscal 2019 and 2018 consisted primarily of plant consolidation activities and targeted headcount reductions in the VTS segment.

Restructuring and repositioning expenses were as follows:

   
Three months ended June 30,
 
   
2018
   
2017
 
Employee severance and related benefits
 
$
0.1
   
$
0.5
 
Other restructuring and repositioning expenses
   
0.1
     
1.2
 
Total
 
$
0.2
   
$
1.7
 

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 June 30,
 
   
2018
   
2017
 
Beginning balance
 
$
11.0
   
$
6.5
 
Additions
   
0.1
     
0.5
 
Payments
   
(5.8
)
   
(3.3
)
Effect of exchange rate changes
   
(0.5
)
   
0.3
 
Ending balance
 
$
4.8
   
$
4.0
 
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 7:
Other Income and Expense

Other income and expense consisted of the following:

   
Three months ended June 30,
 
   
2018
   
2017
 
Equity in earnings of non-consolidated affiliate
 
$
0.2
   
$
-
 
Interest income
   
0.2
     
0.1
 
Foreign currency transactions (a)
   
(0.8
)
   
(0.2
)
Net periodic benefit cost (b)
   
(0.7
)
   
(0.8
)
Total other expense - net
 
$
(1.1
)
 
$
(0.9
)
 

(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 foreign currency exchange contracts.
(b)
Represents net periodic benefit cost, exclusive of service cost, for the Company’s pension and postretirement plans.

Note 8:
Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2018 and 2017 was 18.2 percent and 13.4 percent, respectively.  The effective tax rate for the first quarter of fiscal 2019 is higher than the first quarter of the prior year, primarily due to a $3.5 million benefit for a Hungarian development tax credit in the prior year, partially offset by the reversal of a valuation allowance on deferred tax assets in a foreign jurisdiction during the first quarter of fiscal 2019.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  Shortly after the Tax Act was enacted, the SEC issued accounting guidance which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act.  To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under the Tax Act.

The Company is in process of evaluating whether to utilize its deferred tax attributes against the transition tax.  If the Company elects not to do so, it expects to pay the estimated $19.0 million transition tax liability over the next eight years, beginning with a payment of approximately $1.5 million during fiscal 2019.  The Company is also awaiting additional technical guidance on the treatment of the transition tax and its impact on fiscal year taxpayers.  In addition, the Company is analyzing the state tax impact of the transition tax and the associated impact on the realizability of tax attributes and the impact of the global intangible low taxed income (“GILTI”) provision of the Tax Act on its deferred tax attributes.  The Company has elected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The Company has not yet completed its accounting for the income tax effects of certain elements of the Tax Act.  In regard to the reduction in the U.S. corporate tax rate, the Company will continue to analyze the impacts of the Tax Act through the finalization of its fiscal 2018 U.S. federal tax return.  In regard to the transition tax, the Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information in order to more precisely compute the amount of this tax.

Previously, the Company’s practice and intention was to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S.  As a result, the Company did not record U.S. deferred income taxes or foreign withholding taxes for these earnings.  The Company is currently analyzing its global working capital requirements and the potential tax liabilities that would be incurred if its non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding taxes and potential U.S. state taxes.  The Company expects to complete its analysis of the accounting guidance related to the Tax Act and its evaluation of the impacts of the Tax Act in the second or third quarter of fiscal 2019.

The Company is continuing to analyze the provisions of the Tax Act to determine the impact on its fiscal 2019 effective tax rate.  For the first quarter of fiscal 2019, the Company has recorded an estimate for GILTI, the base erosion anti-abuse tax provision of the Tax Act, new limits on the deductibility of executive compensation, and the state tax implications of these provisions.

As of June 30, 2018, valuation allowances against deferred tax assets in certain foreign jurisdictions totaled $33.7 million and valuation allowances against certain U.S. deferred tax assets totaled $7.0 million, as it is more likely than not these assets will not be realized based upon historical financial results.  During the first quarter of fiscal 2019, the Company recorded a benefit of $2.0 million related to the reversal of a valuation allowance for deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized in the future.  The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate.  Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.  The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.  The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions.

The Company estimates that reductions to unrecognized tax benefits for the remainder of fiscal 2019 will total $2.2 million due mainly to lapses in statutes of limitations, which, if recognized, would have a $1.6 million favorable impact on its effective tax rate.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 9:
Earnings Per Share

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

   
Three months ended June 30,
 
   
2018
   
2017
 
Net earnings attributable to Modine
 
$
22.0
   
$
17.0
 
Less: Undistributed earnings attributable to unvested shares
   
(0.1
)
   
(0.2
)
Net earnings available to Modine shareholders
 
$
21.9
   
$
16.8
 
                 
Weighted-average shares outstanding - basic
   
50.3
     
49.5
 
Effect of dilutive securities
   
0.9
     
0.6
 
Weighted-average shares outstanding - diluted
   
51.2
     
50.1
 
                 
Earnings per share:
               
Net earnings per share - basic
 
$
0.43
   
$
0.34
 
Net earnings per share - diluted
 
$
0.43
   
$
0.34
 

For the three months ended June 30, 2018 and 2017, the calculation of diluted earnings per share excluded 0.4 million and 0.5 million stock options, respectively, because they were anti-dilutive.

Note 10:
Cash, Cash Equivalents and Restricted Cash

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

   
June 30, 2018
   
March 31, 2018
 
Cash and cash equivalents
 
$
41.4
   
$
39.3
 
Restricted cash
   
0.9
     
1.0
 
   
$
42.3
   
$
40.3
 

Restricted cash, which is reported within other noncurrent assets in the consolidated balance sheets, consists primarily of deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

Note 11:
Inventories

Inventories consisted of the following:

   
June 30, 2018
   
March 31, 2018
 
Raw materials
 
$
123.4
   
$
114.4
 
Work in process
   
37.0
     
34.8
 
Finished goods
   
43.3
     
42.1
 
Total inventories
 
$
203.7
   
$
191.3
 
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 12:
Property, Plant and Equipment

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

   
June 30, 2018
   
March 31, 2018
 
Land
 
$
21.5
   
$
22.6
 
Buildings and improvements (10-40 years)
   
287.4
     
295.6
 
Machinery and equipment (3-12 years)
   
823.9
     
840.8
 
Office equipment (3-10 years)
   
89.8
     
93.0
 
Construction in progress
   
53.7
     
50.2
 
     
1,276.3
     
1,302.2
 
Less: accumulated depreciation
   
(789.4
)
   
(797.9
)
Net property, plant and equipment
 
$
486.9
   
$
504.3
 

Note 13:
Goodwill and Intangible Assets

Changes in the carrying amount of goodwill were as follows:

   
VTS
   
Building
HVAC
   
CIS
   
Total
 
Goodwill, March 31, 2018
 
$
0.5
   
$
15.0
   
$
158.3
   
$
173.8
 
Effect of exchange rate changes
   
-
     
(0.7
)
   
(2.7
)
   
(3.4
)
Goodwill, June 30, 2018
 
$
0.5
   
$
14.3
   
$
155.6
   
$
170.4
 

Intangible assets consisted of the following:

   
June 30, 2018
   
March 31, 2018
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Intangible
Assets
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Intangible
Assets
 
Customer relationships
 
$
62.5
   
$
(6.4
)
 
$
56.1
   
$
64.2
   
$
(5.7
)
 
$
58.5
 
Trade names
   
59.5
     
(11.3
)
   
48.2
     
60.6
     
(10.8
)
   
49.8
 
Acquired technology
   
24.4
     
(4.0
)
   
20.4
     
25.2
     
(3.6
)
   
21.6
 
Total intangible assets
 
$
146.4
   
$
(21.7
)
 
$
124.7
   
$
150.0
   
$
(20.1
)
 
$
129.9
 

The Company recorded amortization expense of $2.3 million and $2.4 million for the three months ended June 30, 2018 and 2017, respectively. The Company estimates that it will record approximately $9.0 million of annual amortization expense in fiscal 2020 and 2021 and approximately $8.0 million of annual amortization expense in fiscal 2022 through 2024.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 14:
Product Warranties

Changes in accrued warranty costs were as follows:

   
Three months ended June 30,
 
   
2018
   
2017
 
Beginning balance
 
$
9.3
   
$
10.0
 
Warranties recorded at time of sale
   
1.4
     
1.3
 
Adjustments to pre-existing warranties
   
(0.4
)
   
(0.5
)
Settlements
   
(1.3
)
   
(1.0
)
Effect of exchange rate changes
   
(0.3
)
   
0.3
 
Ending balance
 
$
8.7
   
$
10.1
 

Note 15:
Indebtedness

Long-term debt consisted of the following:

 
Fiscal year
of maturity
 
June 30, 2018
   
March 31, 2018
 
Term loans
 
2022
 
$
257.0
   
$
267.8
 
6.8% Senior Notes
 
2021
   
97.0
     
101.0
 
5.8% Senior Notes
 
2027
   
50.0
     
50.0
 
Other (a)
 
2034
   
14.1
     
12.8
 
         
418.1
     
431.6
 
Less: current portion
       
(41.2
)
   
(39.9
)
Less: unamortized debt issuance costs
       
(5.0
)
   
(5.4
)
Total long-term debt
     
$
371.9
   
$
386.3
 
 

(a)
Other long-term debt includes borrowings by foreign subsidiaries, capital lease obligations and other financing-type obligations.

As of June 30, 2018 and March 31, 2018, the Company had $62.1 million and $21.3 million, respectively, of short-term borrowings under its $175.0 million multi-currency revolving credit facility, which expires in November 2021.  As of June 30, 2018, domestic letters of credit totaled $4.3 million, resulting in available capacity under the Company’s revolving credit facility of $108.6 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings as of June 30, 2018 and March 31, 2018 of $31.1 million and $31.9 million, respectively.  As of June 30, 2018, the Company’s foreign unused lines of credit totaled $1.2 million.  In aggregate, the Company had total available lines of credit of $109.8 million as of June 30, 2018.

Provisions in the Company’s amended and restated credit agreement, Senior Note agreements, and various foreign credit agreements require the Company to maintain compliance with various covenants and include certain cross-default clauses. Under its primary debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as defined in the credit agreement, in the event the Company’s annual excess cash flow exceeds defined levels or in the event of certain asset sales.  The Company is also subject to leverage ratio covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its 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”).  The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.  The Company was in compliance with its debt covenants as of June 30, 2018.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable maturities.  As of June 30, 2018 and March 31, 2018, 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 approximately $148.2 million and $153.1 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 3 for the definition of a Level 2 fair value measurement.

Note 16:
Contingencies and Litigation

Environmental
The Company has recorded environmental investigation and remediation accruals related to soil and groundwater contamination at two manufacturing facilities in the United States, one of which the Company no longer owns, and at its former manufacturing facility in the Netherlands, along with accruals for lesser environmental matters at certain other facilities in the United States and Brazil.  These accruals generally relate to facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.  The accruals for these environmental matters totaled $17.1 million and $16.7 million as of June 30, 2018 and March 31, 2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon currently available information, the Company believes the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.  However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.

Other Litigation
In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted against Modine.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s financial position.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 17:
Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:

   
Three months ended June 30, 2018
 
   
Foreign
Currency
Translation
   
Defined
Benefit Plans
   
Cash Flow
Hedges
   
Total
 
Beginning balance
 
$
(5.5
)
 
$
(134.9
)
 
$
0.1
   
$
(140.3
)
                                 
Other comprehensive income (loss) before reclassifications
   
(24.7
)
   
-
     
0.5
     
(24.2
)
Reclassifications for amortization of unrecognized net loss (a)
   
-
     
1.3
     
-
     
1.3
 
Income taxes
   
-
     
(0.3
)
   
(0.1
)
   
(0.4
)
Total other comprehensive income (loss)
   
(24.7
)
   
1.0
     
0.4
     
(23.3
)
                                 
Ending balance
 
$
(30.2
)
 
$
(133.9
)
 
$
0.5
   
$
(163.6
)

   
Three months ended June 30, 2017
 
   
Foreign
Currency
Translation
   
Defined
Benefit Plans
   
Total
 
Beginning balance
 
$
(46.8
)
 
$
(135.0
)
 
$
(181.8
)
                         
Other comprehensive income before reclassifications
   
16.5
     
-
     
16.5
 
Reclassifications for amortization of unrecognized net loss (a)
   
-
     
1.3
     
1.3
 
Income taxes
   
-
     
(0.5
)
   
(0.5
)
Total other comprehensive income
   
16.5
     
0.8
     
17.3
 
                         
Ending balance
 
$
(30.3
)
 
$
(134.2
)
 
$
(164.5
)
 

 
(a)
Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans.  See Note 4 for additional information about the Company’s pension plans.

Note 18:
Segment Information

Effective April 1, 2018, the Company formed the VTS segment by combining its Americas, Europe, and Asia operations to enable it to operate as a more global, product-based organization. As part of this segment combination and its CIS integration activities, the Company also merged its Americas coils business into the CIS segment and expects to achieve operational improvements and organizational efficiencies as a result.  The Company began reporting financial results for its new segments beginning in fiscal 2019. Segment financial information for fiscal 2018 has been recast to conform to the fiscal 2019 presentation.
 
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

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

   
Three months ended June 30,
 
   
2018
   
2017
 
   
External Sales
   
Inter-segment
Sales
   
Total
   
External Sales
   
Inter-segment
Sales
   
Total
 
Net sales:
                                   
Vehicular Thermal Solutions
 
$
338.3
   
$
14.5
   
$
352.8
   
$
301.4
   
$
13.9
   
$
315.3
 
Commercial and Industrial Solutions
   
183.5
     
0.4
     
183.9
     
171.1
     
0.3
     
171.4
 
Building HVAC Systems
   
44.3
     
0.7
     
45.0
     
43.0
     
-
     
43.0
 
Segment total
   
566.1
     
15.6
     
581.7
     
515.5
     
14.2
     
529.7
 
Corporate and eliminations
   
-
     
(15.6
)
   
(15.6
)
   
-
     
(14.2
)
   
(14.2
)
Net sales
 
$
566.1
   
$
-
   
$
566.1
   
$
515.5
   
$
-
   
$
515.5
 

   
Three months ended June 30,
 
   
2018
   
2017
 
   
$'s
   
% of
sales
   
$'s
   
% of
sales
 
Gross profit:
                       
Vehicular Thermal Solutions
 
$
54.0
     
15.3
%
 
$
50.8
     
16.1
%
Commercial and Industrial Solutions
   
28.6
     
15.6
%
   
26.7
     
15.6
%
Building HVAC Systems
   
11.6
     
25.9
%
   
11.1
     
25.9
%
Segment total
   
94.2
     
16.2
%
   
88.6
     
16.7
%
Corporate and eliminations
   
0.1
     
-
     
(0.1
)
   
-
 
Gross profit
 
$
94.3
     
16.7
%
 
$
88.5
     
17.2
%

   
Three months ended June 30,
 
   
2018
   
2017
 
Operating income:
           
Vehicular Thermal Solutions
 
$
25.5
   
$
22.2
 
Commercial and Industrial Solutions
   
13.2
     
11.4
 
Building HVAC Systems
   
3.2
     
3.1
 
Segment total
   
41.9
     
36.7
 
Corporate and eliminations
   
(7.1
)
   
(9.1
)
Operating income
 
$
34.8
   
$
27.6
 
 
   
June 30, 2018
   
March 31, 2018
 
Total assets:
           
Vehicular Thermal Solutions
 
$
746.3
   
$
754.8
 
Commercial and Industrial Solutions
   
634.1
     
630.2
 
Building HVAC Systems
   
92.2
     
88.1
 
Corporate and eliminations
   
90.1
     
100.3
 
Total assets
 
$
1,562.7
   
$
1,573.4
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company.  Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters.  The quarter ended June 30, 2018 was the first quarter of fiscal 2019.

First Quarter Highlights

Net sales in the first quarter of fiscal 2019 increased $50.6 million, or 10 percent, from the first quarter of fiscal 2018, primarily due to higher sales in all of our operating segments.  Gross profit increased $5.8 million, or 7 percent.  Gross margin declined 50 basis points to 16.7 percent, as the benefit from higher sales volume was more than offset by unfavorable material costs and temporary production inefficiencies largely related to increased volumes.  Selling, general and administrative (“SG&A”) expenses decreased 100 basis points as a percentage of sales.  Operating income during the first quarter of fiscal 2019 increased $7.2 million, or 26 percent, to $34.8 million, and our net earnings increased $5.1 million, or 29 percent.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three months ended June 30, 2018 and 2017:

   
Three months ended June 30,
 
   
2018
   
2017
 
(in millions)
 
$'s
   
% of sales
   
$'s
   
% of sales
 
Net sales
 
$
566.1
     
100.0
%
 
$
515.5
     
100.0
%
Cost of sales
   
471.8
     
83.3
%
   
427.0
     
82.8
%
Gross profit
   
94.3
     
16.7
%
   
88.5
     
17.2
%
Selling, general and administrative expenses
   
59.3
     
10.5
%
   
59.2
     
11.5
%
Restructuring expenses
   
0.2
     
-
     
1.7
     
0.3
%
Operating income
   
34.8
     
6.1
%
   
27.6
     
5.4
%
Interest expense
   
(6.2
)
   
-1.1
%
   
(6.6
)
   
-1.3
%
Other expense – net
   
(1.1
)
   
-0.2
%
   
(0.9
)
   
-0.2
%
Earnings before income taxes
   
27.5
     
4.9
%
   
20.1
     
3.9
%
Provision for income taxes
   
(5.0
)
   
-0.9
%
   
(2.7
)
   
-0.5
%
Net earnings
 
$
22.5
     
4.0
%
 
$
17.4
     
3.4
%

First quarter net sales of $566.1 million were $50.6 million, or 10 percent, higher than the first quarter of the prior year, primarily due to higher sales in all of our operating segments and an $18.4 million favorable impact of foreign currency exchange rate changes.

First quarter gross profit increased $5.8 million, yet gross margin declined 50 basis points to 16.7 percent.  The decline in gross margin was primarily due to unfavorable material costs and temporary production inefficiencies largely related to increased volumes, partially offset by higher sales volume.  In addition, gross profit was favorably impacted by $3.0 million from foreign currency exchange rate changes.

First quarter SG&A expenses increased $0.1 million; however, as a percentage of net sales, SG&A expenses decreased 100 basis points compared with the first quarter of the prior year.  The slight increase in SG&A expenses was primarily due to a $1.5 million unfavorable impact of foreign currency exchange rate changes, partially offset by lower integration costs associated with our acquisition of Luvata HTS during fiscal 2017.
 
Restructuring expenses of $0.2 million in the first quarter of fiscal 2019 decreased $1.5 million compared with the prior year, primarily due to lower plant consolidation and severance costs.

Operating income of $34.8 million in the first quarter of fiscal 2019 improved $7.2 million, or 26 percent, compared with the first quarter of fiscal 2018, primarily due to higher gross profit and lower restructuring expenses.

Interest expense in the first quarter of fiscal 2019 decreased $0.4 million, or 6 percent, compared with the first quarter of the prior year, primarily due to lower outstanding long-term debt.

The provision for income taxes was $5.0 million and $2.7 million in the first quarter of fiscal 2019 and 2018, respectively.  The $2.3 million increase was primarily due to $3.5 million of benefit for a Hungarian development tax credit in the prior year, partially offset by a $2.0 million tax valuation allowance reversal in a foreign jurisdiction during the first quarter of fiscal 2019.  See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information regarding U.S. tax reform and income tax valuation allowances.

SEGMENT RESULTS OF OPERATIONS

Effective April 1, 2018, we formed the Vehicular Thermal Solutions (“VTS”) segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.  As part of this segment combination and our Commercial and Industrial Solutions (“CIS”) integration activities, we also merged our Americas coils business into the CIS segment and expect to achieve operational improvements and organizational efficiencies as a result.  We began reporting financial results for our new segments beginning for fiscal 2019.  Segment financial information for fiscal 2018 has been recast to conform to the fiscal 2019 presentation.

The following is a discussion of our segment results of operations for the three months ended June 30, 2018 and 2017:

Vehicular Thermal Solutions
     
   
Three months ended June 30,
 
   
2018
   
2017
 
(in millions)
 
$'s
   
% of
sales
   
$'s
   
% of
sales
 
Net sales
 
$
352.8
     
100.0
%
 
$
315.3
     
100.0
%
Cost of sales
   
298.8
     
84.7
%
   
264.5
     
83.9
%
Gross profit
   
54.0
     
15.3
%
   
50.8
     
16.1
%
Selling, general and administrative expenses
   
28.4
     
8.1
%
   
26.9
     
8.5
%
Restructuring expenses
   
0.1
     
-
     
1.7
     
0.6
%
Operating income
 
$
25.5
     
7.2
%
 
$
22.2
     
7.0
%

VTS net sales increased $37.5 million, or 12 percent, from the first quarter of fiscal 2018 to the first quarter of fiscal 2019, primarily due to higher sales volume to automotive customers in all of our geographic markets and off-highway customers in Asia and the Americas.  Foreign currency exchange rate changes favorably impacted first quarter net sales by $11.8 million.  Gross profit increased $3.2 million, yet gross margin declined 80 basis points to 15.3 percent.  The decline in gross margin was primarily due to unfavorable material costs and temporary production inefficiencies largely related to increased volumes, partially offset by higher sales volume.  Changes in foreign currency exchange rates favorably impacted gross profit by $2.0 million during the first quarter of fiscal 2019.  SG&A expenses increased $1.5 million, primarily due to environmental charges for investigative and remedial work related to a previously-owned manufacturing facility and a $0.9 million unfavorable impact of foreign currency exchange rate changes.  Restructuring expenses decreased $1.6 million in the first quarter of fiscal 2019, primarily due to lower plant consolidation and severance costs.  Operating income increased $3.3 million to $25.5 million during the first quarter, primarily due to higher gross profit.
 
Commercial and Industrial Solutions
                       
   
Three months ended June 30,
 
   
2018
   
2017
 
(in millions)
 
$'s
   
% of
sales
   
$'s
   
% of
sales
 
Net sales
 
$
183.9
     
100.0
%
 
$
171.4
     
100.0
%
Cost of sales
   
155.3
     
84.4
%
   
144.7
     
84.4
%
Gross profit
   
28.6
     
15.6
%
   
26.7
     
15.6
%
Selling, general and administrative expenses
   
15.3
     
8.3
%
   
15.3
     
8.9
%
Restructuring expenses
   
0.1
     
0.1
%
   
-
     
-
 
Operating income
 
$
13.2
     
7.2
%
 
$
11.4
     
6.7
%

CIS net sales increased $12.5 million, or 7 percent, from the first quarter of fiscal 2018 to the first quarter of fiscal 2019, primarily due to higher sales volume to data center customers, partially offset by lower sales volume to industrial customers.  Foreign currency exchange rate changes favorably impacted first quarter net sales by $5.5 million.  Gross profit increased $1.9 million, primarily due to higher sales volume, and gross margin was unchanged at 15.6 percent.  SG&A expenses remained consistent compared with the prior year, and decreased 60 basis points as a percentage of sales.  Operating income of $13.2 million increased $1.8 million, primarily due to higher sales.

Building HVAC Systems
                       
   
Three months ended June 30,
 
   
2018
   
2017
 
(in millions)
 
$'s
   
% of
sales
   
$'s
   
% of
sales
 
Net sales
 
$
45.0
     
100.0
%
 
$
43.0
     
100.0
%
Cost of sales
   
33.4
     
74.1
%
   
31.9
     
74.1
%
Gross profit
   
11.6
     
25.9
%
   
11.1
     
25.9
%
Selling, general and administrative expenses
   
8.4
     
18.8
%
   
8.0
     
18.7
%
Operating income
 
$
3.2
     
7.1
%
 
$
3.1
     
7.2
%

Building HVAC Systems (“BHVAC”) net sales increased $2.0 million, or 5 percent, from the first quarter of fiscal 2018 to the first quarter of fiscal 2019, primarily due to higher heating product sales volume in North America, partially offset by lower ventilation product sales volume.  Foreign currency exchange rate changes favorably impacted first quarter net sales by $1.2 million.  Gross profit increased $0.5 million, primarily due to higher sales, and gross margin was unchanged at 25.9 percent.  SG&A expenses increased $0.4 million, primarily due to higher compensation-related expenses, including commission expenses resulting from the increased sales.  Operating income of $3.2 million increased $0.1 million, 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 June 30, 2018 of $41.4 million, and an available borrowing capacity of $109.8 million under lines of credit provided by banks in the United States and abroad.  Given our extensive international operations, approximately $40.0 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 have not encountered, and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.

Net cash used for operating activities for the three months ended June 30, 2018 was $4.1 million, which represents a $24.7 million decrease compared with $20.6 million of net cash provided by operating activities during the same period in the prior year.  This decrease in operating cash flow was primarily due to unfavorable net changes in working capital associated with higher sales levels, partially offset by the favorable impact of stronger earnings.  The changes in working capital during the first quarter of fiscal 2019, compared with the first quarter of the prior year, included higher inventory levels and higher incentive compensation and employee benefit payments.  Capital expenditures of $22.6 million during the first three months of fiscal 2019 increased $1.0 million compared with the same period in the prior year.

Debt

Our debt agreements require us to maintain compliance with various covenants.  The term loans require prepayments, as defined in the credit agreement, in the event our annual excess cash flow exceeds defined levels or in the event of certain asset sales.  In addition, under our primary debt agreements in the U.S., we are subject to leverage ratio covenants, the most restrictive of which requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreement, 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 June 30, 2018, our leverage ratio and interest coverage ratio was 2.5 and 8.6, respectively.  We were in compliance with our debt covenants as of June 30, 2018 and expect to remain in compliance during the balance of fiscal 2019 and beyond.

Shelf Registration Statement

We filed a shelf registration statement with the Securities and Exchange Commission, which was declared effective as of June 26, 2017.  The shelf registration statement allows us to offer and sell, from time to time, shares of our common stock and certain other equity or debt securities in one or more offerings in amounts, at prices and on terms that we determine at the time of any such offering, with an aggregate initial offering price of up to $200.0 million.
 
Forward-Looking Statements

This report, including, but not limited to, the discussion under Item 7. 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, 2018.  Other risks and uncertainties include, but are not limited to, the following:

Market Risks:

Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency exchange rate fluctuations, tariffs, inflation, changes in interest rates, recession and recovery therefrom, restrictions and uncertainty associated with cross-border trade, 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 United States or by its trade partners, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;

The impact of potential increases in commodity prices, which may be impacted by a variety of factors, including changes in trade laws and tariffs, and our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and

The impact of current and future environmental laws and regulations on our business and the businesses of our customers, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives.

Operational Risks:

Our ability to realize cost and revenue synergies associated with our acquisition of Luvata HTS in accordance with our expectations, and to effectively manage any unanticipated risks that arise;

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

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

Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

Unanticipated delays or modifications initiated by major customers with respect to product launches, product applications or requirements;

Unanticipated problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers;
 
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 complete restructuring activities and realize the anticipated benefits thereof;

Our ability to recruit and maintain managerial and leadership talent in light of tightening global labor markets;

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

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

Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith;

Work stoppages or interference at our facilities or those of our major customers and/or suppliers;

The constant and increasing pressures associated with healthcare and associated insurance costs; and

Costs and other effects of unanticipated litigation, claims, or other obligations.

Strategic Risks:

Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our vehicular business;

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

The potential expense, disruption or other impacts that could result from unanticipated actions by activist shareholders.

Financial Risks:

Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;

The impact of potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;

Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;
 
The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar;

The effects of the recently-enacted tax reform legislation in the U.S. on our business, some of which are uncertain and may be material; and

Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

We do not assume any obligation to update any forward-looking statements.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

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, 2018.  The Company’s market risks have not materially changed since the fiscal 2018 Form 10-K was filed.

Item 4.
Controls and Procedures.

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, at the direction of the General Counsel and under the supervision, and with the participation, of the Company’s President and Chief Executive Officer and Vice President, Finance and 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 Vice President, Finance and 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 June 30, 2018.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting during the first quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II.  OTHER INFORMATION

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

The following describes the Company’s purchases of common stock during the first quarter of fiscal 2019:

 
 
 
 
 
 
 
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
 
April 1 – April 30, 2018
 
_______
   
_______
   
_______
 
_______
                           
 
May 1 – May 31, 2018
   
24,864 (a)
   
$
18.00
   
_______
 
_______
                               
 
June 1 – June 30, 2018
   
179,878 (a)
   
$
18.15
   
_______
 
_______
                               
 
Total
   
204,742 (a)
   
$
18.13
   
_______
 
_______
 
(a)
Consists of 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.
 
Item 6.
Exhibits.

(a)
Exhibits:
 
Exhibit No.
Description
Incorporated Herein By
Reference To
Filed
Herewith
       
Form of Fiscal 2019 Modine Performance Stock Award Agreement
 
X
       
Form of Fiscal 2019 Modine Incentive Stock Options Award Agreement
 
X
       
Form of Fiscal 2019 Modine Restricted Stock Unit Award Agreement
 
X
       
Form of Fiscal 2019 Modine Non-Qualified Stock Option Award Agreement
 
X
       
Rule 13a-14(a)/15d-14(a) Certification of Thomas A. Burke, President and Chief Executive Officer.
 
X
       
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.
 
X
       
Section 1350 Certification of Thomas A. Burke, President and Chief Executive Officer.
 
X
       
Section 1350 Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.
 
X
       
101.INS
Instance Document
 
X
       
101.SCH
XBRL Taxonomy Extension Schema
 
X
       
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
X
       
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
X
       
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
X
       
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
X
 
SIGNATURE

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, Vice President, Finance and
 
Chief Financial Officer*
 
   
Date:  August 2, 2018
 
 
*
Executing as both the principal financial officer and a duly authorized officer of the Company
 
 
30

EX-10.1 2 ex10_1.htm EXHIBIT 10.1

Exhibit 10.1
 
MODINE MANUFACTURING COMPANY
2017 INCENTIVE COMPENSATION PLAN
PERFORMANCE STOCK AWARD
AWARD AGREEMENT

We are pleased to inform you that you have been granted an opportunity to earn a Performance Stock Award of Modine Manufacturing Company (the “Company”), subject to the terms and conditions of the Modine Manufacturing Company 2017 Incentive Compensation Plan (the “Plan”) and of this Award Agreement.  Unless otherwise defined herein, all terms used in this Award Agreement shall have the same meanings as set forth in the Plan.
 
Full name of Grantee:
 
   
Date of Award:
May 30, 2018
   
Target number
of Common Stock:
 
   
Performance Period:
April 1, 2018 to March 31, 2021

1.    Performance Stock Award.  Pursuant to the Plan, you are hereby granted a Performance Stock Award, subject to the terms and conditions of this Award Agreement and the Plan.  The number of shares of Common Stock to be issued hereunder if the Target Performance Goals are achieved is set forth above.

2.    Terms of Performance Stock Award and Performance Goals.  You have been granted an opportunity to earn shares of Common Stock under this Performance Stock Award.  The actual number of shares of Common Stock earned by you will be determined as described below, based upon the actual results for the Performance Period set forth above compared to the Performance Goals set forth below, provided that you remain an employee of the Company or a Subsidiary for the entire Performance Period (subject to the provisions below regarding death, Disability or retirement) and the achievement of the Performance Goals is greater than the Threshold amount specified below (the “Conditions”).  If either of these Conditions is not satisfied, then except as otherwise provided in this Award Agreement and the Plan, no Common Stock shall be earned.  The Performance Goals for this Performance Stock Award are: Cash Flow Return on Invested Capital (“CFROIC”) and Average Annual Revenue Growth (“Revenue Growth”), with each having a 50% weight.  The Threshold Performance Goals are the minimum Performance Goals necessary for the Performance Period that must be achieved by the Company in order for you to qualify for any Common Stock and the Maximum Performance Goals are the minimum Performance Goals for the Performance Period in order for you to qualify for the maximum number of shares of Common Stock earned under this Performance Stock Award.
 

Performance Goal: CFROIC
Performance Stock Award Earned Based on
Achievement of Performance Goal
Threshold:  7.0%
5% of Target number of Common Stock
Target:   10.5%
50% of Target number of Common Stock
Maximum:   ≥14.0%
100% of Target number of Common Stock

Performance Goal: Revenue Growth
Performance Stock Award Earned Based on
Achievement of Performance Goal
Threshold:  3.0%
5% of Target number of Common Stock
Target: 8.0%
50% of Target number of Common Stock
Maximum: ≥13.0%
100% of Target number of Common Stock

“CFROIC” or “Cash Flow Return on Invested Capital” means Cash Flow Conversion divided by Average Capital Employed.  Cash Flow Conversion equals Adjusted Free Cash Flow, which equals current fiscal year “net cash provided by operating activities”, less “expenditures for property, plant and equipment” (both as reported externally in the Company’s consolidated statement of cash flows), plus or minus Permitted Adjustments (defined below) plus Cash Interest, which is cash interest expense paid on outstanding debt.  Average Capital Employed equals total debt plus shareholders’ equity measured on each of the following quarter-ends:  March 31, 2018, June 30, 2018, September 30, 2018, December 31, 2018 and March 31, 2019; divided by five; and where shareholder’s equity excludes shareholder equity attributable to minority shareholders.  Permitted Adjustments include:

Restructuring Charges
·
Fees and expenses for restructuring consultants or financial advisors
·
Employee severance, outplacement and related benefits
·
Employee insurance and benefits continuation
·
Contractual salary continuation for terminated employees
·
Equipment transfers and facility preparation
·
Environmental services (e.g. plant clean-up prior to sale)

Acquisition and Divestiture Charges
·
Fees and expenses for transaction advisors
·
Integration expenses
·
Other incremental costs and charges that are non-recurring and directly related to the transaction

Other
·
Fees and expenses for strategy advisory services associated with a specific transaction or unique project
 
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·
Unusual, non-recurring or extraordinary cash and non-cash charges or income

Adoption of New Accounting Standards
The impact of the adoption of new U.S. GAAP accounting standards and significant changes in the Company’s accounting methods.

Notwithstanding the foregoing, the Committee may disregard all or part of any Permitted Adjustment as separately applicable to each performance metric if doing so would decrease the amount payable under this Performance Stock Award.

“Revenue Growth” means the simple three-year arithmetic average of the Company’s annual change in revenue over the Performance Period, as reported on the Company’s audited financial statements.

If actual CFROIC or Revenue Growth for the Performance Period is between Threshold and Target and/or between Target and Maximum, the number of shares of Common Stock earned shall be determined on a linear basis.  In the event that the Company’s actual CFROIC or Revenue Growth does not meet the Threshold for the Performance Period, no Common Stock shall be earned relative to such metric under this Performance Stock Award.  In the event that the Company’s actual CFROIC or Revenue Growth exceeds the Maximum for the Performance Period, only the Maximum percentage of the Target number of shares of Common Stock set forth above shall be earned relative to such metric.

3.    Delivery of Shares of Common Stock.   Performance Stock earned shall be paid in shares of Common Stock delivered to you after the end of the Performance Period as soon as administratively practicable after the Committee has approved and certified the number of shares of Performance Stock that have been earned hereunder or, in the event of vesting covered under Paragraph 4 below, within thirty (30) days of the date of your termination of employment.
 
4.    Change in Control.    Notwithstanding anything in this Agreement to the contrary, upon a Change in Control, all outstanding Performance Stock shall be deemed to have satisfied the Target Performance Goals and shall continue to vest during the Performance Period; however, in the event of an involuntary termination of your employment with the Company or a Subsidiary without Cause within one year following a Change in Control, all outstanding Performance Stock shall vest pro-rata based upon the period worked during the Performance Period.
 
5.    Death, Disability or Retirement.  Notwithstanding anything in this Agreement to the contrary, upon your termination of employment due to death or Disability (as defined herein), or upon your retirement (with Committee approval), a prorated portion (based on the period working during the Performance Period) of the Performance Stock granted to you hereunder shall vest based on the Company’s actual achievement of the Performance Goals at the end of the Performance Period as certified by the Committee and shares will be delivered to you after the Committee has approved and certified the number of shares of Performance Stock that have been earned hereunder.  For purposes of this Award Agreement, “Disability” shall mean “permanent and total disability” as defined in Section 22 (e)(3) of the Code.

6.    Forfeiture.  Other than as described above in Paragraph 4 regarding a Change in Control or Paragraph 5 regarding Death, Disability or retirement, upon your termination of employment with the Company or a Subsidiary for any reason during the Performance Period, you will forfeit all Performance Stock covered by this Agreement.
 
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7.    Shareholder Status.  While this Performance Stock Award is outstanding and until Common Stock is issued hereunder, you shall not have any rights as a shareholder of the Company, including the right to vote and the right to receive dividends on any Common Stock potentially earned under this Performance Stock Award.
 
8.    Transfer.  The Performance Stock Award shall be nontransferable.  Notwithstanding the foregoing, you shall have the right to transfer the Performance Stock Award or Common Stock otherwise issued hereunder upon your death, either by the terms of your will or under the laws of descent and distribution.

9.    No Unlawful Issue of Common Stock.  If, in the opinion of its counsel, the issue of any Common Stock hereunder pursuant to this Performance Stock Award shall not be lawful for any reason, including the inability of the Company to obtain, from any regulatory body having jurisdiction, authority deemed by such counsel to be necessary to such issuance, the Company shall not be obligated to issue any such Common Stock pursuant to this Performance Stock Award.

10.  No Obligation of Employment.  This Performance Stock Award shall not impose any obligation on the Company to continue your employment with the Company or any Subsidiary.

11.  Controlling Provisions; Plan Controls.  In the event of a conflict between the terms of this Award Agreement and any employment agreement or change in control agreement between you and the Company, this Award Agreement shall control.   This Performance Stock Award is qualified in its entirety by reference to the terms and conditions of the Plan under which it is granted, a copy of which you may request from the Company.  The Plan empowers the Committee to make interpretations, rules and regulations thereunder and, in general, provides that the determinations of such Committee with respect to the Plan shall be binding upon you.  The Plan is incorporated herein by reference.

12.  Forfeiture Under Recoupment Policy.  The Company shall have the power and the right to require you to forfeit and return the shares of Common Stock issued hereunder or any proceeds therefrom consistent with any recoupment policy maintained by the Company under applicable law, as such policy is amended from time to time.

13.  Use of Words.  The use of words of the masculine gender in this Award Agreement is intended to include, wherever appropriate, the feminine or neuter gender and vice versa.

14.  Successors.  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company.

15.  Taxes.  The Company may require payment of or withhold any tax which it believes is required as a result of this Performance Stock Award, and the Company may defer making delivery with respect to shares issuable hereunder until arrangements satisfactory to the Company have been made with respect to such tax withholding obligations.

16.  Committee Discretion.  Notwithstanding anything in this Agreement, the Committee retains the discretion to make negative adjustments to the final determination of the achievement of any Performance Goals.
 
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17. Personal Information.  Solium Capital LLC and Equiniti Trust Company assist the Company in the operation of the Plan and the administration of the Performance Stock Award granted pursuant to this Award Agreement.  If you choose to participate in the Plan, you acknowledge and consent to the Company sharing your name, email, and information regarding the grant of the Performance Stock Award under this Award Agreement with both Solium Capital LLC and Equiniti Trust Company.

By your electronic agreement and the signature of the Company’s representative below, you and the Company agree that this Performance Stock Award awarded to you under this Award Agreement is subject to the terms and conditions of the Plan, a copy of which is available to you upon request.  As provided in the Plan, you hereby agree to accept as binding any decision of the Committee with respect to the interpretation of the Plan and this Award Agreement, or any other matters associated therewith.

IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed as of May 30, 2018.

 
MODINE MANUFACTURING COMPANY
     
 
By:
/s/ Thomas A. Burke
   
Thomas A. Burke
   
President and Chief Executive Officer
 
 
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EX-10.2 3 ex10_2.htm EXHIBIT 10.2

Exhibit 10.2
 
MODINE MANUFACTURING COMPANY
2017 INCENTIVE COMPENSATION PLAN
INCENTIVE STOCK OPTION
AWARD AGREEMENT

We are pleased to inform you that you have been granted an Option to purchase shares of Common Stock of Modine Manufacturing Company (the “Company”), subject to the terms and conditions of the Modine Manufacturing Company 2017 Incentive Compensation Plan (the “Plan”) and of this Award Agreement.  Unless otherwise defined herein, all terms used in this Award Agreement shall have the same meanings as set forth in the Plan.
 
Full name of Grantee:
 
   
Date of Award:
May 30, 2018
   
Exercise price per share:
 
   
Total number of shares:
 
   
Total exercise price:
 

1.    Option.  Pursuant to the Plan, you are hereby granted the option to purchase shares of Common Stock on the terms and conditions set forth in this Award Agreement.  The Option is intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code to the extent it meets the requirements thereof, including the $100,000 per year limitation in Code Section 422(d).  Any portion of the Option that does not qualify as an Incentive Stock Option shall be a Nonqualified Stock Option.  This Option is intended to qualify as an Incentive Stock Option so that you may obtain preferential tax treatment and, consequently, certain limitations on disposition must be observed.  In order to obtain preferential tax treatment, shares of Common Stock obtained upon exercise of the Option may not be disposed of within twenty-four (24) months after the Date of Award or within twelve (12) months after exercise of the Option.

2.    Vesting Schedule.  The Option granted pursuant to this Award will vest according to the following schedule, provided, however, that, except as otherwise provided in Section 12.02 of the Plan or in this Award Agreement, you must be employed by the Company or a Subsidiary on each vesting date for that portion of the Option to vest.  If you separate from service due to Disability (as defined below), death, or your retirement (with Committee approval) prior to any Vesting Date, any unvested portion of the Option shall become fully and immediately exercisable.  For purposes of this Award Agreement, “Disability” shall mean “permanent and total disability” as defined in Section 22 (e)(3) of the Code.

    Number of Shares of Common Stock
Vesting Date
25% of the total number of shares
May 30, 2019
25% of the total number of shares
May 30, 2020
25% of the total number of shares
May 30, 2021
25% of the total number of shares
May 30, 2022
 

3.    Time of Exercise; Exercise Limitation.  Vested Options may be exercised (in the manner provided in paragraph 4 hereof) in whole or in part, from time to time after the Vesting Date; provided, however, the Option may only be exercised, at any one time, exclusively in multiples of twenty‑five (25) shares with a one hundred (100) share exercise minimum, except for the purchase of all shares then remaining subject to these options.

4.    Method of Exercising Option.  Subject to the limitations stated elsewhere in this Award Agreement or in the Plan, this Option will be exercisable as to all or a portion of the Common Stock in accordance with the vesting schedule above in Paragraph 2.  In no event will the Option be exercisable if it would result in a violation of federal or state securities laws or would occur later than ten (10) years from the date of grant.  The Option may be exercised in whole or in part by delivery to the Company or its designee of (a) written notice identifying the Option and stating the number of shares with respect to which it is being exercised, and (b) payment in full of the exercise price of the shares then being acquired; provided, however, that you may pay the exercise price either in cash, by transferring to the Company shares of stock of the Company at their Fair Market Value as of the date of exercise of the Option ("Delivered Stock"), a combination of cash and Delivered Stock, or such other forms or means that the Company determines are consistent with the Plan's purpose and applicable law.  Notwithstanding the foregoing, the Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures.  No person shall acquire any rights or privileges of a shareholder of the Company with respect to any shares of Common Stock until such shares have been duly issued.  The Company shall have the right to delay the issue or delivery of any shares to be delivered hereunder until (a) the completion of such registration or qualification of such shares under federal, state or foreign law, ruling or regulation as the Company shall deem to be necessary or advisable, and (b) receipt from you of such documents and information as the Company may deem necessary or appropriate in connection with such registration or qualification or the issuance of shares hereunder.
 
5.    Expiration Date.  Upon a termination of your employment for any reason (except termination of employment for Cause), this Option shall expire one (1) year from the date of termination of your employment.  Upon your termination of employment for Cause, this Option shall immediately expire. Notwithstanding anything herein contained to the contrary, this Option shall not be exercisable subsequent to ten (10) years after the date of grant.  Your Option will become nonqualified (i.e., lose preferential tax treatment) if it is not exercised within three (3) months after a termination of employment or within one (1) year after a termination of employment due to Disability.
 
6.    Transfer of Option.  The Option shall be nontransferable and shall, except in the case of death or Disability, be exercisable only by you during your lifetime.  Notwithstanding the foregoing, you shall have the right to transfer the Option upon your death, either by the terms of your will or under the laws of descent and distribution.  In the case of your Disability, the Option shall be exercisable by your personal representative.  Upon your death, the Option shall be exercisable by your personal representative, administrator, or other representative of your estate, or the person or persons to whom this Option shall pass by will or under the laws of descent and distribution.
 
7.    Transfer of Stock.  If you dispose of any of the Common Stock acquired upon exercise of the Option within twenty-four (24) months after the date the Option was granted or within twelve (12) months after exercise of the Option, then, you shall promptly notify the Company of the number of shares so disposed of, the dates of disposition, and the consideration, if any, received for such shares.  In order to comply with federal income tax law, the Company may take such action as it deems appropriate to ensure notice to the Company of any disposition of the Common Stock with the time periods described.
 
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8.    No Unlawful Issue of Shares.  If, in the opinion of its counsel, the issue or sale of any shares of its stock hereunder pursuant to the Option shall not be lawful for any reason, including the inability of the Company to obtain, from any regulatory body having jurisdiction, authority deemed by such counsel to be necessary to such issuance or sale, the Company shall not be obligated to issue or sell any such shares pursuant to the exercise of the Option.
 
9.    No Obligation of Employment.  The Option shall not impose any obligation on the Company to continue your employment with the Company or a Subsidiary.
 
10.  Controlling Provisions; Plan Controls.  In the event of a conflict between the terms of this Award Agreement and any employment agreement or change in control agreement between you and the Company, this Award Agreement shall control.  This Option is qualified in its entirety by reference to the terms and conditions of the Plan under which it is granted, a copy of which you may request from the Company.  The Plan empowers the Committee to make interpretations, rules and regulations thereunder and, in general, provides that the determinations of such Committee with respect to the Plan shall be binding upon you.  The Plan is hereby incorporated herein by reference.
 
11.  Change in Control.  The vesting of the Option in the event of a Change in Control is governed by Section 12.02 of the Plan.
 
12.  Forfeiture Under Recoupment Policy.  The Company shall have the power and the right to require you to forfeit this Option, return the shares of Common Stock issued pursuant to an exercise of this Option or any proceeds therefrom consistent with any recoupment policy maintained by the Company under applicable law, as such policy is amended from time to time.
 
13.  Use of Words.  The use of words of the masculine gender in this Award Agreement is intended to include, wherever appropriate, the feminine or neuter gender and vice versa.

14.  Successors.  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company.

15.  Taxes.  The Company may require payment of or withhold any tax that it believes is required as a result of the grant or exercise of the Option, and the Company may defer making delivery with respect to shares issuable hereunder until arrangements satisfactory to the Company have been made with respect to such tax withholding obligations.

16.  Personal Information.  Solium Capital LLC and Equiniti Trust Company assist the Company in the operation of the Plan and the administration of the Option granted pursuant to this Award Agreement.  If you choose to participate in the Plan, you acknowledge and consent to the Company sharing your name, email, and information regarding the grant of the Option under this Award Agreement with both Solium Capital LLC and Equiniti Trust Company.

By your electronic agreement and the signature of the Company’s representative below, you and the Company agree that the Option which has been awarded to you under this Award Agreement is subject to the terms and conditions of the Plan, a copy of which is available to you upon request.  As provided in the Plan, you hereby agree to accept as binding any decision of the Committee with respect to the interpretation of the Plan and this Award Agreement, or any other matters associated therewith.
 
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed as of May 30, 2018.

 
MODINE MANUFACTURING COMPANY
   
 
By:
/s/ Thomas A. Burke
   
Thomas A. Burke
   
President and Chief Executive Officer
 
 
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EX-10.3 4 ex10_3.htm EXHIBIT 10.3

Exhibit 10.3
 
MODINE MANUFACTURING COMPANY
2017 INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT AWARD
AWARD AGREEMENT

We are pleased to inform you that you have been granted a Restricted Stock Unit Award subject to the terms and conditions of the Modine Manufacturing Company 2017 Incentive Compensation Plan (the “Plan”) and of this Award Agreement.  Unless otherwise defined herein, all terms used in this Award Agreement shall have the same meanings as set forth in the Plan.
 
Full name of Grantee:
 
   
Date of Award:
May 30, 2018
   
Total number of
 
Restricted Stock Units:
 

1.    Restricted Stock Unit Award.  Pursuant to the Plan, you are hereby granted a Restricted Stock Unit Award (“Award”), subject to the terms and conditions of this Award Agreement and the Plan.  Accordingly, you are hereby granted the aggregate number of Restricted Stock Units (“RSUs”) set forth above, subject to the restrictions and conditions set forth in this Award Agreement.

2.    Restricted Period.  Upon the expiration of the Restricted Period (as described in the chart below) applicable to the number of RSUs specified in the chart below, you shall receive one share of Common Stock for each RSU for which the Restricted Period has expired.  For purposes of this Award Agreement, the Restricted Period shall mean the period beginning on the date of this Award set forth above and ending as set forth below:
 
Number of RSUs that Vest
Restricted Period Expiration
25% of the total number of RSUs
May 30, 2019
25% of the total number of RSUs
May 30, 2020
25% of the total number of RSUs
May 30, 2021
25% of the total number of RSUs
May 30, 2022

Except as otherwise provided in Section 8.02(f) or Section 12.02 of the Plan, in the event of your termination of employment with the Company or a Subsidiary for any reason (other than due to Disability (as defined below), death, or (with Committee approval) your retirement) prior to the expiration of the Restricted Period for any RSUs, you shall forfeit to the Company all RSUs for which the Restricted Period has not expired and the right to receive any Common Stock with respect to such RSUs.  If you separate from service with the Company or a Subsidiary due to Disability, death, or (with Committee approval) your retirement prior to the end of the Restricted Period for any RSUs, your Restricted Stock Unit Award shall vest in full.  For purposes of this Award Agreement, “Disability” shall mean “permanent and total disability” as defined in Section 22 (e)(3) of the Code.
 

3.    Shareholder Status.  You shall not have any voting or other ownership rights in the Company arising from the grant of RSUs under this Agreement, unless and until such RSUs are settled pursuant to Section 4, below.  Further, you shall not be entitled to dividend equivalents during the period you hold RSUs.
 
4.    Settlement and Delivery.  As soon as administratively practicable after the expiration of the Restricted Period, the Company shall ascribe to you (or, in the event of your death, your beneficiary) a share of Common Stock for each RSU that vests as a result of the expiration of the Restricted Period in a book entry on the records kept by the Company’s transfer agent or such other method of delivering shares of Common Stock subject to this Award, as determined by the Committee.
 
5.    Transfer.  This Restricted Stock Unit Award shall not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by you other than in the event of your death.  Except for the designation of your beneficiary in the event of your death, the purported assignment, alienation, pledge, attachment, transfer or encumbrance of the Award or this Award Agreement shall be void and unenforceable against the Company.  This provision shall not prevent you from transferring the shares of Common Stock issued hereunder after the expiration of the Restricted Period.

6.    No Obligation of Employment.  This Restricted Stock Unit Award shall not impose any obligation on the Company to continue your employment with the Company or any Subsidiary.

7.    Controlling Provisions; Plan Controls. In the event of a conflict between the terms of this Award Agreement and any employment agreement or change in control agreement between you and the Company, this Award Agreement shall control.   This Award Agreement is qualified in its entirety by reference to the terms and conditions of the Plan under which it is granted, a copy of which you may request from the Company.  The Plan empowers the Committee to make interpretations, rules and regulations thereunder and, in general, provides that the determinations of such Committee with respect to the Plan shall be binding upon you.  The Plan is incorporated herein by reference.

8.    Change in Control.  The vesting of the Award in the event of a Change in Control is governed by Section 12.02 of the Plan.

9.  Forfeiture Under Recoupment Policy.  The Company shall have the power and the right to require you to forfeit and return the shares of Common Stock issued as a result of the vesting of any Award or any proceeds therefrom consistent with any recoupment policy maintained by the Company under applicable law, as such policy is amended from time to time.

10.  Use of Words.  The use of words of the masculine gender in this Award Agreement is intended to include, wherever appropriate, the feminine or neuter gender and vice versa.

11.  Successors.  This Award Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company.

12.  Taxes.  The Company may require payment of or withhold any tax which it believes is required as a result of the Award and/or the issuance of Common Stock resulting from the vesting of the RSUs that are the subject of this Award, and the Company may defer making delivery with respect to shares issuable hereunder until arrangements satisfactory to the Company have been made with respect to such tax withholding obligations.
 
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13.  Personal Information.  Solium Capital LLC and Equiniti Trust Company assist the Company in the operation of the Plan and the administration of the Restricted Stock Unit Award granted pursuant to this Award Agreement.  If you choose to participate in the Plan, you acknowledge and consent to the Company sharing your name, email, and information regarding the grant of the Restricted Stock Unit Award under this Award Agreement with both Solium Capital LLC and Equiniti Trust Company.

By your electronic agreement and the signature of the Company’s representative below, you and the Company agree that the Restricted Stock Unit Award awarded to you under this Award Agreement are subject to the terms and conditions of the Plan, a copy of which is available to you upon request.  As provided in the Plan, you hereby agree to accept as binding any decision of the Committee with respect to the interpretation of the Plan and this Award Agreement, or any other matters associated therewith.

IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed as of May 30, 2018.

 
MODINE MANUFACTURING COMPANY
     
 
By:
/s/ Thomas A. Burke
   
Thomas A. Burke
   
President and Chief Executive Officer
 
 
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EX-10.4 5 ex10_4.htm EXHIBIT 10.4

Exhibit 10.4
 
MODINE MANUFACTURING COMPANY
2017 INCENTIVE COMPENSATION PLAN
NON-QUALIFIED STOCK OPTION
AWARD AGREEMENT

We are pleased to inform you that you have been granted an Option to purchase shares of Common Stock of Modine Manufacturing Company (the “Company”), subject to the terms and conditions of the Modine Manufacturing Company 2017 Incentive Compensation Plan (the “Plan”) and of this Award Agreement.  Unless otherwise defined herein, all terms used in this Award Agreement shall have the same meanings as set forth in the Plan.
 
Full name of Grantee:
 
   
Date of Award:
May 30, 2018
   
Exercise price per share:
 
   
Total number of shares:
 
   
Total exercise price:
 

1.    Option.  Pursuant to the Plan, you are hereby granted the option to purchase shares of Common Stock on the terms and conditions set forth in this Award Agreement.  The Option granted hereunder shall be a Non-Qualified Stock Option.

2.    Vesting Schedule.  The Option granted pursuant to this Award will vest according to the following schedule, provided, however, that, except as otherwise provided in Section 12.02 of the Plan or in this Award Agreement, you must be employed by the Company or a Subsidiary on each vesting date for that portion of the Option to vest.  If you separate from service due to Disability (as defined below), death, or your retirement (with Committee approval) prior to any Vesting Date, any unvested portion of the Option shall become fully and immediately exercisable.  For purposes of this Award Agreement, “Disability” shall mean “permanent and total disability” as defined in Section 22 (e)(3) of the Code.

    Number of Shares of Common Stock
Vesting Date
25% of the total number of shares
May 30, 2019
25% of the total number of shares
May 30, 2020
25% of the total number of shares
May 30, 2021
25% of the total number of shares
May 30, 2022

3.    Time of Exercise; Exercise Limitation.  Vested Options may be exercised (in the manner provided in paragraph 4 hereof) in whole or in part, from time to time after the Vesting Date, subject to the following limitations:
 

(a)
Because you are an executive officer of the Company subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, the Option may not be exercised by you within six (6) months after the Grant Date; and

(b)
The Option may only be exercised, at any one time, exclusively in multiples of twenty‑five (25) shares with a one hundred (100) share exercise minimum, except for the purchase of all shares then remaining subject to these options.

4.    Method of Exercising Option.  Subject to the limitations stated elsewhere in this Award Agreement or in the Plan, this Option will be exercisable as to all or a portion of the Common Stock in accordance with the vesting schedule above in Paragraph 2.  In no event will the Option be exercisable if it would result in a violation of federal or state securities laws or would occur later than ten (10) years from the date of grant.  The Option may be exercised in whole or in part by delivery to the Company or its designee of (a) written notice identifying the Option and stating the number of shares with respect to which it is being exercised, and (b) payment in full of the exercise price of the shares then being acquired; provided, however, that you may pay the exercise price either in cash, by transferring to the Company shares of stock of the Company at their Fair Market Value as of the date of exercise of the Option ("Delivered Stock"), a combination of cash and Delivered Stock, or such other forms or means that the Company determines are consistent with the Plan's purpose and applicable law.  Notwithstanding the foregoing, the Company may arrange for or cooperate in permitting broker-assisted cashless exercise procedures.  No person shall acquire any rights or privileges of a shareholder of the Company with respect to any shares of Common Stock until such shares have been duly issued.  The Company shall have the right to delay the issue or delivery of any shares to be delivered hereunder until (a) the completion of such registration or qualification of such shares under federal, state or foreign law, ruling or regulation as the Company shall deem to be necessary or advisable, and (b) receipt from you of such documents and information as the Company may deem necessary or appropriate in connection with such registration or qualification or the issuance of shares hereunder.
 
5.    Expiration Date.  Upon a termination of your employment for any reason (except termination of employment for Cause), this Option shall expire one (1) year from the date of termination of your employment.  Upon your termination of employment for Cause, this Option shall immediately expire. Notwithstanding anything herein contained to the contrary, this Option shall not be exercisable subsequent to ten (10) years after the date of grant.
 
6.    Transfer.  The Option shall be nontransferable and shall, except in the case of death or Disability, be exercisable only by you during your lifetime.  Notwithstanding the foregoing, you shall have the right to transfer the Option upon your death, either by the terms of your will or under the laws of descent and distribution.  In the case of your Disability, the Option shall be exercisable by your personal representative.  Upon your death, the Option shall be exercisable by your personal representative, administrator, or other representative of your estate, or the person or persons to whom this Option shall pass by will or under the laws of descent and distribution.
 
7.    No Unlawful Issue of Shares.  If, in the opinion of its counsel, the issue or sale of any shares of its stock hereunder pursuant to the Option shall not be lawful for any reason, including the inability of the Company to obtain, from any regulatory body having jurisdiction, authority deemed by such counsel to be necessary to such issuance or sale, the Company shall not be obligated to issue or sell any such shares pursuant to the exercise of the Option.
 
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8.    No Obligation of Employment.  The Option shall not impose any obligation on the Company to continue your employment with the Company or a Subsidiary.
 
9.    Controlling Provisions; Plan Controls.  In the event of a conflict between the terms of this Award Agreement and any employment agreement or change in control agreement between you and the Company, this Award Agreement shall control.  This Option is qualified in its entirety by reference to the terms and conditions of the Plan under which it is granted, a copy of which you may request from the Company.  The Plan empowers the Committee to make interpretations, rules and regulations thereunder and, in general, provides that the determinations of such Committee with respect to the Plan shall be binding upon you.  The Plan is hereby incorporated herein by reference.
 
10.  Change in Control.  The vesting of the Option in the event of a Change in Control is governed by Section 12.02 of the Plan.  Involuntary termination of your employment by the Company would be termination of your employment by the Company without Cause and termination by you of your employment for Good Reason.   “Good Reason” means a material diminution in your base salary; material diminution in your annual target bonus opportunity; material diminution in your authority, duties or responsibilities; material diminution in authority, duties or responsibilities of the supervisor to whom you report; material diminution in the budget over which you retain authority; or material change in the geographic location at which you must perform services.
 
11.  Forfeiture Under Recoupment Policy.  The Company shall have the power and the right to require you to forfeit this Option, return the shares of Common Stock issued pursuant to an exercise of this Option or any proceeds therefrom consistent with any recoupment policy maintained by the Company under applicable law, as such policy is amended from time to time.
 
12.  Use of Words.  The use of words of the masculine gender in this Award Agreement is intended to include, wherever appropriate, the feminine or neuter gender and vice versa.

13.  Successors.  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company.

14.  Taxes.  The Company may require payment of or withhold any tax that it believes is required as a result of the grant or exercise of the Option, and the Company may defer making delivery with respect to shares issuable hereunder until arrangements satisfactory to the Company have been made with respect to such tax withholding obligations.

15.  Personal Information.  Solium Capital LLC and Equiniti Trust Company assist the Company in the operation of the Plan and the administration of the Option granted pursuant to this Award Agreement.  If you choose to participate in the Plan, you acknowledge and consent to the Company sharing your name, email, and information regarding the grant of the Option under this Award Agreement with both Solium Capital LLC and Equiniti Trust Company.

By your electronic agreement and the signature of the Company’s representative below, you and the Company agree that the Option which has been awarded to you under this Award Agreement is subject to the terms and conditions of the Plan, a copy of which is available to you upon request.  As provided in the Plan, you hereby agree to accept as binding any decision of the Committee with respect to the interpretation of the Plan and this Award Agreement, or any other matters associated therewith.
 
3

IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed as of May 30, 2018.

 
MODINE MANUFACTURING COMPANY
     
 
By:
/s/ Thomas A. Burke
   
Thomas A. Burke
   
President and Chief Executive Officer
 
 
4

EX-31.1 6 ex31_1.htm EXHIBIT 31.1

Exhibit 31.1

Certification

I, Thomas A. Burke, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Modine Manufacturing Company for the quarter ended June 30, 2018;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 

d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
August 2, 2018

/s/ Thomas A. Burke
 
Thomas A. Burke
President and Chief Executive Officer
 
 

EX-31.2 7 ex31_2.htm EXHIBIT 31.2

Exhibit 31.2

Certification

I, Michael B. Lucareli, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Modine Manufacturing Company for the quarter ended June 30, 2018;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
August 2, 2018

/s/ Michael B. Lucareli
 
Michael B. Lucareli
Vice President, Finance and Chief Financial Officer
 
 

EX-32.1 8 ex32_1.htm EXHIBIT 32.1

Exhibit 32.1

Certification
Pursuant to 18 United States Code § 1350

In connection with the quarterly report of Modine Manufacturing Company (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Burke, President and Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. § 1350, that, to the best of my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
August 2, 2018

/s/ Thomas A. Burke
 
Thomas A. Burke
President and Chief Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
 

EX-32.2 9 ex32_2.htm EXHIBIT 32.2

Exhibit 32.2

Certification
Pursuant to 18 United States Code § 1350

In connection with the quarterly report of Modine Manufacturing Company (the “Company”) on Form 10-Q for the fiscal quarter ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael B. Lucareli, Vice President, Finance and Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. § 1350, that, to the best of my knowledge:

1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
August 2, 2018

/s/ Michael B. Lucareli
 
Michael B. Lucareli
Vice President, Finance and Chief Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
 

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