|
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 September 30, 2021 was the second quarter of fiscal 2022.
Recent Announcement
On October 25, 2021, we announced that we have agreed with Dana Incorporated (“Dana”) to terminate the definitive sale agreement for our liquid-cooled automotive business. We have been actively engaged with Dana in the regulatory review
process in Germany for many months and mutually decided that it is no longer in the best interest of either party to pursue the transaction further.
As a result of terminating the sale agreement, we expect that the liquid-cooled automotive business will no longer meet the requirements to be classified as held for sale during the third quarter of fiscal 2022. Accordingly, we expect to
adjust the underlying asset groups to the lower of their (i) carrying value, as if held for sale classification had not been met, or (ii) fair value. At this time, we are unable to quantify or predict any adjustments to the carrying value of the
liquid-cooled automotive business’s long-lived assets to be recorded during the third quarter of fiscal 2022.
Air-cooled Automotive Business
On April 30, 2021, we sold our air-cooled automotive business to Schmid Metall GmbH. As a result of this transaction, we recorded a loss of $6.6 million during the first quarter of fiscal 2022. The finalization of and payment for the
purchase price adjustment for net working capital and certain other items, as defined by the sale agreement, is pending. While we do not expect a material adjustment, it is possible that the loss on sale may increase when the purchase price
adjustment is finalized.
COVID-19
As the COVID-19 pandemic continues, both the health and overall well-being of our employees and delivering quality products and services to our customers remain our top priorities.
The COVID-19 pandemic has broadly impacted the global economy and our key end markets, which were most severely impacted during the first quarter of fiscal 2021. In an effort to mitigate the negative impacts of COVID-19 on our financial
results, we implemented cost-saving actions starting in the first quarter of fiscal 2021 that primarily impacted selling, general and administrative (“SG&A”) expenses and capital expenditures. While we remain focused on controlling expenses,
we withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered. As a result and as anticipated, compensation-related expenses, particularly SG&A expenses,
were higher in the first half of fiscal 2022 compared with the prior year.
The full extent of the impacts of COVID-19, which will largely depend on the length and severity of the pandemic and the resulting impact on the global economy, could have a material adverse effect on our business, results of operations, and
cash flows.
Second Quarter Highlights
Net sales in the second quarter of fiscal 2022 increased $17.5 million, or 4 percent, from the second quarter of fiscal 2021, primarily due to higher sales volume in our Heavy Duty Equipment (“HDE”), Commercial Industrial Solutions (“CIS”),
and Building HVAC (“BHVAC”) segments, partially offset by lower sales in our Automotive segment. Cost of sales increased $32.0 million, or 8 percent, compared with the second quarter of fiscal 2021, primarily due to higher sales volume and
higher raw material prices, including underlying metal prices and related premiums, fabrication, freight, tariff and packaging costs. Gross profit decreased $14.5 million and gross margin declined 370 basis points to 13.8 percent. SG&A
expenses increased $1.1 million. Higher compensation-related expenses were partially offset by lower severance expenses for executive management positions compared with the second quarter of fiscal 2021. Operating income of $10.5 million during
the second quarter of fiscal 2022 decreased $18.0 million from the prior-year, primarily due to lower earnings in our Automotive and HDE segments.
Year-to-date Highlights
Net sales in the first six months of fiscal 2022 increased $164.3 million, or 20 percent, from the same period last year, primarily due to higher sales in our HDE, CIS and BHVAC segments, partially offset by lower sales in our Automotive
segment. Cost of sales increased $151.7 million, or 22 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices. Gross profit increased $12.6 million and gross margin declined 140 basis points
to 14.3 percent. SG&A expenses increased $15.8 million, primarily due to higher compensation-related expenses, as the prior-year benefitted from cost-saving measures implemented in response to COVID-19. Operating income of $19.2 million
during the first six months of fiscal 2022 decreased $6.1 million from the same period in the prior-year, primarily due to the $6.6 million loss from the sale of the air-cooled automotive business and lower earnings in our Automotive and BHVAC
segments, partially offset by the higher earnings in our CIS and HDE segments.
CONSOLIDATED RESULTS OF OPERATIONS
The following table presents our consolidated financial results on a comparative basis for the three and six months ended September 30, 2021 and 2020:
| |
|
Three months ended September 30,
|
|
|
Six months ended September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in millions)
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
Net sales
|
|
$
|
478.9
|
|
|
|
100.0
|
%
|
|
$
|
461.4
|
|
|
|
100.0
|
%
|
|
$
|
973.5
|
|
|
|
100.0
|
%
|
|
$
|
809.2
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
412.6
|
|
|
|
86.2
|
%
|
|
|
380.6
|
|
|
|
82.5
|
%
|
|
|
834.0
|
|
|
|
85.7
|
%
|
|
|
682.3
|
|
|
|
84.3
|
%
|
|
Gross profit
|
|
|
66.3
|
|
|
|
13.8
|
%
|
|
|
80.8
|
|
|
|
17.5
|
%
|
|
|
139.5
|
|
|
|
14.3
|
%
|
|
|
126.9
|
|
|
|
15.7
|
%
|
|
Selling, general and administrative expenses
|
|
|
51.9
|
|
|
|
10.8
|
%
|
|
|
50.8
|
|
|
|
11.0
|
%
|
|
|
111.3
|
|
|
|
11.4
|
%
|
|
|
95.5
|
|
|
|
11.8
|
%
|
|
Restructuring expenses
|
|
|
0.6
|
|
|
|
0.1
|
%
|
|
|
1.5
|
|
|
|
0.3
|
%
|
|
|
0.9
|
|
|
|
0.1
|
%
|
|
|
6.1
|
|
|
|
0.8
|
%
|
|
Impairment charges – net
|
|
|
3.3
|
|
|
|
0.7
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
1.5
|
|
|
|
0.1
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Loss on sale of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.6
|
|
|
|
0.7
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Operating income
|
|
|
10.5
|
|
|
|
2.2
|
%
|
|
|
28.5
|
|
|
|
6.2
|
%
|
|
|
19.2
|
|
|
|
2.0
|
%
|
|
|
25.3
|
|
|
|
3.1
|
%
|
|
Interest expense
|
|
|
(3.8
|
)
|
|
|
-0.8
|
%
|
|
|
(5.2
|
)
|
|
|
-1.1
|
%
|
|
|
(8.0
|
)
|
|
|
-0.8
|
%
|
|
|
(10.6
|
)
|
|
|
-1.3
|
%
|
|
Other expense – net
|
|
|
(0.7
|
)
|
|
|
-0.1
|
%
|
|
|
(0.5
|
)
|
|
|
-0.1
|
%
|
|
|
(0.5
|
)
|
|
|
-0.1
|
%
|
|
|
(0.5
|
)
|
|
|
-0.1
|
%
|
|
Earnings before income taxes
|
|
|
6.0
|
|
|
|
1.3
|
%
|
|
|
22.8
|
|
|
|
4.9
|
%
|
|
|
10.7
|
|
|
|
1.1
|
%
|
|
|
14.2
|
|
|
|
1.8
|
%
|
|
Provision for income taxes
|
|
|
(5.4
|
)
|
|
|
-1.1
|
%
|
|
|
(13.9
|
)
|
|
|
-3.0
|
%
|
|
|
(7.3
|
)
|
|
|
-0.8
|
%
|
|
|
(13.7
|
)
|
|
|
-1.7
|
%
|
|
Net earnings
|
|
$
|
0.6
|
|
|
|
0.1
|
%
|
|
$
|
8.9
|
|
|
|
1.9
|
%
|
|
$
|
3.4
|
|
|
|
0.3
|
%
|
|
$
|
0.5
|
|
|
|
0.1
|
%
|
Comparison of Three Months ended September 30, 2021 and 2020
Second quarter net sales of $478.9 million were $17.5 million, or 4 percent, higher than the second quarter of the prior year, primarily due to higher sales volume and favorable pricing adjustments in response to raw material price increases
in our HDE, CIS, and BHVAC segments, partially offset by lower sales volume in our Automotive segment. Sales in the HDE, CIS, and BHVAC segments increased $30.2 million, $25.3 million, and $9.0 million, respectively. Sales in the Automotive
segment decreased $44.5 million.
Second quarter cost of sales increased $32.0 million, or 8 percent, primarily due to higher sales volume and higher raw material prices, which increased approximately $43.0 million. In addition, cost of sales in
the second quarter of fiscal 2021 was favorably impacted by cost-saving actions taken in response to the COVID-19 pandemic. These factors, which caused an increase in cost of sales compared with the second quarter of the prior year, were
partially offset by lower depreciation expense in the Automotive segment and improved operating efficiencies. As a percentage of sales, cost of sales increased 370 basis points to 86.2 percent.
As a result of higher sales and higher cost of sales as a percentage of sales, second quarter gross profit decreased $14.5 million and gross margin declined 370 basis points to 13.8 percent.
Second quarter SG&A expenses increased $1.1 million. Higher compensation-related expenses in the second quarter of fiscal 2022, as expenses in the second quarter of fiscal 2021 were favorably impacted by cost-saving actions including
furloughs, shortened work weeks and temporary salary reductions that were implemented to mitigate the negative impacts of COVID-19, were partially offset by lower expenses at Corporate related to severance costs for executive management
positions, which decreased $3.9 million.
Restructuring expenses of $0.6 million in the second quarter of fiscal 2022 decreased $0.9 million compared with the second quarter of fiscal 2021, primarily due to lower severance expenses.
The impairment charges of $3.3 million in the second quarter of fiscal 2022 related to assets held for sale within the Automotive segment.
Operating income of $10.5 million in the second quarter of fiscal 2022 decreased $18.0 million compared with the second quarter of fiscal 2021 and was primarily due to lower earnings in our Automotive and HDE segments.
Interest expense in the second quarter of fiscal 2022 decreased $1.4 million compared with the second quarter of fiscal 2021, primarily due to lower long-term debt outstanding during the period and favorable changes in interest rates.
The provision for income taxes was $5.4 million and $13.9 million in the second quarter of fiscal 2022 and 2021, respectively. The $8.5 million decrease was primarily due to the absence of a $6.6 million income tax charge for a valuation
allowance on certain U.S. deferred tax assets recorded in the prior year and lower operating earnings in the current year, partially offset by a $1.6 million income tax charge recorded during the second quarter of fiscal 2022 for a valuation
allowance in a foreign jurisdiction.
Comparison of Six Months ended September 30, 2021 and 2020
Fiscal 2022 year-to-date net sales of $973.5 million were $164.3 million, or 20 percent, higher than the same period last year, primarily due to higher sales volumes and favorable pricing adjustments in response to raw material price increases
in our HDE, CIS and BHVAC segments. Sales in these segments increased $108.5 million, $62.9 million, and $21.5 million, respectively. Automotive segment sales decreased $20.4 million.
Fiscal 2022 year-to-date cost of sales of $834.0 million increased $151.7 million, or 22 percent, primarily due to higher sales volume and higher raw material prices, which increased approximately $78.0 million. In
addition, cost of sales in the first six months of fiscal 2021 was favorably impacted by cost-saving actions taken in response to the COVID-19 pandemic. These factors, which caused an increase in cost of sales compared with the same period in
the prior year, were partially offset by lower depreciation expense in the Automotive segment and improved operating efficiencies. As a percentage of sales, cost of sales increased 140 basis points to 85.7 percent.
As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $12.6 million and gross margin declined 140 basis points to 14.3 percent.
Fiscal 2022 year-to-date SG&A expenses increased $15.8 million. The increase in SG&A expenses was primarily due to higher compensation-related expenses, as the prior year was favorably impacted by cost-saving actions implemented to
mitigate the negative impacts of COVID-19. In addition, we recorded $3.6 million of environmental charges at Corporate related to a previously-owned manufacturing facility in the U.S. We also incurred $1.3 million of higher costs at Corporate
related to our review of strategic alternatives for the Automotive segment businesses. These increases were partially offset by lower severance expenses for executive management positions, which decreased $3.9 million.
Restructuring expenses of $0.9 million in the first six months of fiscal 2022 decreased $5.2 million compared with the same period last year, primarily due to lower severance expenses in the CIS and HDE segments.
The net impairment charges of $1.5 million during the first six months of fiscal 2022 primarily related to assets held for sale in the Automotive segment.
We sold our air-cooled automotive business on April 30, 2021. As a result of the sale, we recorded a $6.6 million loss on sale at Corporate during the first quarter of fiscal 2022.
Operating income of $19.2 million during the first six months of fiscal 2022 decreased $6.1 million compared with the same period last year and was primarily due to the $6.6 million loss on sale of the air-cooled automotive business and lower
earnings in our Automotive and BHVAC segments, partially offset by higher earnings in our CIS and HDE segments.
Interest expense during the first six months of fiscal 2022 decreased $2.6 million compared with the same period last year, primarily due to lower long-term debt outstanding during the period and favorable changes in interest rates.
The provision for income taxes was $7.3 million and $13.7 million during the first six months of fiscal 2022 and 2021, respectively. The $6.4 million decrease was primarily due to the absence of a $6.6 million income tax charge for a
valuation allowance on certain U.S. deferred tax assets recorded in the prior year, a net $3.2 million income tax benefit related to valuation allowances on deferred tax assets in foreign jurisdictions recorded during the first six months of
fiscal 2022, partially offset by changes in the mix and amount of foreign and U.S. earnings.
SEGMENT RESULTS OF OPERATIONS
Effective July 1, 2021, we aligned the data center businesses previously managed by and reported within the CIS segment under the BHVAC segment. The BHVAC segment assumed management of our business in Guadalajara, Spain and a portion of our
business in Grenada, Mississippi. Through this segment change, we have aligned our data center businesses under the BHVAC leadership team in order to accelerate commercial excellence, operational improvements, and organizational efficiencies.
As a result, we revised our reporting segments and are reporting the financial results of the transferred businesses within the BHVAC segment. The segment realignment had no impact on the HDE and Automotive segments or on our consolidated
financial position, results of operations, and cash flows. Segment financial information for the prior periods has been recast to conform to the current presentation.
As further described in Note 14 of the Notes to Condensed Consolidated Financial Statements and in connection with the segment realignment during the second quarter of fiscal 2022, we
reassigned $32.5 million of goodwill from the CIS segment to the BHVAC segment. In addition, we tested our reporting units for potential impairment and concluded that goodwill was not impaired. However, we identified that the Coils and Coolers
reporting unit within the CIS segment now exhibits a heightened risk of impairment since its excess estimated fair value over carrying value is relatively low, approximately 8.0 percent. The goodwill attributable to the Coils and Coolers
reporting unit was $61.0 million as of September 30, 2021. Key estimates and assumptions used in estimating the reporting unit’s fair value include forecasted financial results, primarily future revenue and operating income margins, a 3.0
percent terminal growth rate and a 12.4 percent discount rate. Future events or circumstances, including lower than forecasted revenues or earnings, market trends that fall below our current expectations, actions of key customers, or increases
in the discount rate could negatively affect the reporting unit’s fair value and could trigger an impairment charge. An approximately 100-basis point increase in the discount rate or an approximately 150-basis point decrease in the terminal
growth assumption could trigger an impairment charge. The estimated fair values for our other reporting units substantially exceeded their carrying value.
The following is a discussion of our segment results of operations for the three months and six months ended September 30, 2021 and 2020:
| |
|
Three months ended September 30,
|
|
|
Six months ended September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in millions)
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
Net sales
|
|
$
|
77.5
|
|
|
|
100.0
|
%
|
|
$
|
68.5
|
|
|
|
100.0
|
%
|
|
$
|
144.1
|
|
|
|
100.0
|
%
|
|
$
|
122.6
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
55.9
|
|
|
|
72.2
|
%
|
|
|
45.2
|
|
|
|
65.9
|
%
|
|
|
106.3
|
|
|
|
73.8
|
%
|
|
|
83.5
|
|
|
|
68.1
|
%
|
|
Gross profit
|
|
|
21.6
|
|
|
|
27.8
|
%
|
|
|
23.3
|
|
|
|
34.1
|
%
|
|
|
37.8
|
|
|
|
26.2
|
%
|
|
|
39.1
|
|
|
|
31.9
|
%
|
|
Selling, general and administrative expenses
|
|
|
11.6
|
|
|
|
14.9
|
%
|
|
|
9.8
|
|
|
|
14.4
|
%
|
|
|
22.1
|
|
|
|
15.3
|
%
|
|
|
18.4
|
|
|
|
15.0
|
%
|
|
Operating income
|
|
$
|
10.0
|
|
|
|
13.0
|
%
|
|
$
|
13.5
|
|
|
|
19.7
|
%
|
|
$
|
15.7
|
|
|
|
10.9
|
%
|
|
$
|
20.7
|
|
|
|
16.9
|
%
|
Comparison of Three Months ended September 30, 2021 and 2020
BHVAC net sales increased $9.0 million, or 13 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser extent, favorable pricing adjustments in response to raw
material price increases and a $1.6 million favorable impact of foreign currency exchange rates. Compared with the second quarter of the prior year, BHVAC sales to commercial HVAC&R customers increased $7.6 million, primarily due to higher
sales of heating and ventilation products. In addition, sales to data center customers increased $1.6 million.
BHVAC cost of sales increased $10.7 million, or 24 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased by approximately $4.0
million. In addition, cost of sales was unfavorably impacted by $1.4 million from foreign currency exchange rate changes. As a percentage of sales, cost of sales increased 630 basis points to 72.2 percent, primarily due to the higher material
costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $1.7 million and gross margin declined 630 basis points to 27.8 percent. While we have been
focused on adjusting selling prices in response to higher material costs, gross margin was unfavorably impacted due to the timing lag of such price adjustments as compared with material prices at the purchase date.
SG&A expenses increased $1.8 million, or 50 basis points as a percentage of sales, from the prior year. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $1.3 million.
Operating income of $10.0 million decreased $3.5 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher SG&A expenses and lower gross profit.
Comparison of Six Months ended September 30, 2021 and 2020
BHVAC year-to-date sales increased $21.5 million, or 18 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, a $5.4 million favorable impact of foreign currency exchange rates and pricing
adjustments in response to increasing raw material costs. Sales to commercial HVAC&R customers increased $19.3 million, primarily due to higher sales of heating and air conditioning products.
BHVAC year-to-date cost of sales increased $22.8 million, or 27 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased by approximately $8.0 million. In addition, cost of
sales was unfavorably impacted by $4.6 million from foreign currency exchange rate changes. As a percentage of sales, cost of sales increased 570 basis points to 73.8 percent, primarily due to the higher material costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $1.3 million and gross margin declined 570 basis points to 26.2 percent.
BHVAC year-to-date SG&A expenses increased $3.7 million, or 30 basis points as a percentage of sales, compared with the prior year. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which
increased $2.8 million.
Operating income of $15.7 million decreased $5.0 million from the same period last year, primarily due to higher SG&A expenses and lower gross profit.
Commercial and Industrial Solutions
| |
|
Three months ended September 30,
|
|
|
Six months ended September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in millions)
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
Net sales
|
|
$
|
153.5
|
|
|
|
100.0
|
%
|
|
$
|
128.2
|
|
|
|
100.0
|
%
|
|
$
|
307.6
|
|
|
|
100.0
|
%
|
|
$
|
244.7
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
135.2
|
|
|
|
88.1
|
%
|
|
|
110.5
|
|
|
|
86.2
|
%
|
|
|
268.5
|
|
|
|
87.3
|
%
|
|
|
212.8
|
|
|
|
87.0
|
%
|
|
Gross profit
|
|
|
18.3
|
|
|
|
11.9
|
%
|
|
|
17.7
|
|
|
|
13.8
|
%
|
|
|
39.1
|
|
|
|
12.7
|
%
|
|
|
31.9
|
|
|
|
13.0
|
%
|
|
Selling, general and administrative expenses
|
|
|
12.3
|
|
|
|
8.0
|
%
|
|
|
11.0
|
|
|
|
8.5
|
%
|
|
|
25.3
|
|
|
|
8.2
|
%
|
|
|
22.9
|
|
|
|
9.3
|
%
|
|
Restructuring expenses
|
|
|
0.2
|
|
|
|
0.1
|
%
|
|
|
1.5
|
|
|
|
1.2
|
%
|
|
|
0.2
|
|
|
|
0.1
|
%
|
|
|
3.9
|
|
|
|
1.6
|
%
|
|
Impairment charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.3
|
|
|
|
0.1
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Operating income
|
|
$
|
5.8
|
|
|
|
3.8
|
%
|
|
$
|
5.2
|
|
|
|
4.1
|
%
|
|
$
|
13.3
|
|
|
|
4.3
|
%
|
|
$
|
5.1
|
|
|
|
2.1
|
%
|
Comparison of Three Months ended September 30, 2021 and 2020
CIS net sales increased $25.3 million, or 20 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and favorable product pricing adjustments in response to raw material price
increases. CIS sales in the second quarter of fiscal 2021 were negatively impacted by the COVID-19 pandemic. Compared with the second quarter of the prior year, sales to commercial HVAC&R customers increased $26.3 million.
CIS cost of sales increased $24.7 million, or 22 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased by approximately $16.0
million. As a percentage of sales, cost of sales increased 190 basis points to 88.1 percent, as the favorable impacts of the higher sales volume and improved operating efficiencies were more than offset by the impact of the higher material
costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $0.6 million and gross margin declined 190 basis points to 11.9 percent.
SG&A expenses increased $1.3 million, yet decreased 50 basis points as a percentage of sales, compared with the second quarter of the prior year. The increase in SG&A expenses was primarily due to higher compensation-related expenses,
which increased approximately $1.0 million.
Restructuring expenses decreased $1.3 million compared with the second quarter of fiscal 2021, primarily due to lower severance expenses. The severance-related expenses in the second quarter of fiscal 2021 related to plant consolidation
activities in China.
Operating income increased $0.6 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower restructuring expenses and higher gross profit, partially offset by higher SG&A expenses.
Comparison of Six Months ended September 30, 2021 and 2020
CIS year-to-date net sales increased $62.9 million, or 26 percent, from the same period last year, primarily due to higher sales volume and favorable product pricing adjustments in response to raw material price increases. In addition, sales
were favorably impacted by $7.9 million from foreign currency exchange rates. CIS sales during the first six months of fiscal 2021 were negatively impacted by the COVID-19 pandemic. Sales to commercial HVAC&R customers increased $63.0
million during the first six months of fiscal 2022, compared with the same period in the prior year.
CIS year-to-date cost of sales increased $55.7 million, or 26 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased by approximately $31.0 million. In addition, cost of
sales was unfavorably impacted by $7.0 million from foreign currency exchange rate changes. As a percentage of sales, cost of sales increased 30 basis points to 87.3 percent, as the favorable impacts of the higher sales volume and improved
operating efficiencies were more than offset by the impact of the higher material costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $7.2 million and gross margin declined 30 basis points to 12.7 percent.
CIS year-to-date SG&A expenses increased $2.4 million, yet decreased 110 basis points as a percentage of sales, from the same period last year. The increase in SG&A expenses was primarily due to higher compensation-related expenses,
which increased approximately $2.0 million.
Restructuring expenses during the first six months of fiscal 2022 decreased $3.7 million, from the same period last year, primarily due to lower severance expenses. The severance-related expenses during the first six months of fiscal 2021
primarily related to plant consolidation activities in China and targeted headcount reductions in North America.
During the first quarter of fiscal 2022, we recorded an impairment charge of $0.3 million to write-down a previously-closed manufacturing facility in the U.S to fair value less costs to sell. We sold the facility and received net cash
proceeds of $0.7 million during July 2021.
Operating income during the first six months of fiscal 2022 increased $8.2 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.
| |
|
Three months ended September 30,
|
|
|
Six months ended September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in millions)
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
Net sales
|
|
$
|
195.8
|
|
|
|
100.0
|
%
|
|
$
|
165.6
|
|
|
|
100.0
|
%
|
|
$
|
397.6
|
|
|
|
100.0
|
%
|
|
$
|
289.1
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
177.5
|
|
|
|
90.6
|
%
|
|
|
142.0
|
|
|
|
85.8
|
%
|
|
|
356.7
|
|
|
|
89.7
|
%
|
|
|
254.2
|
|
|
|
87.9
|
%
|
|
Gross profit
|
|
|
18.3
|
|
|
|
9.4
|
%
|
|
|
23.6
|
|
|
|
14.2
|
%
|
|
|
40.9
|
|
|
|
10.3
|
%
|
|
|
34.9
|
|
|
|
12.1
|
%
|
|
Selling, general and administrative expenses
|
|
|
12.2
|
|
|
|
6.2
|
%
|
|
|
10.3
|
|
|
|
6.2
|
%
|
|
|
25.7
|
|
|
|
6.5
|
%
|
|
|
22.2
|
|
|
|
7.7
|
%
|
|
Restructuring expenses
|
|
|
0.3
|
|
|
|
0.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.5
|
|
|
|
0.1
|
%
|
|
|
1.9
|
|
|
|
0.6
|
%
|
|
Operating income
|
|
$
|
5.8
|
|
|
|
3.0
|
%
|
|
$
|
13.3
|
|
|
|
8.1
|
%
|
|
$
|
14.7
|
|
|
|
3.7
|
%
|
|
$
|
10.8
|
|
|
|
3.8
|
%
|
Comparison of Three Months ended September 30, 2021 and 2020
HDE net sales increased $30.2 million, or 18 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and pricing adjustments associated with raw material price increases.
Sales to off-highway and commercial vehicle customers increased $18.9 million and $15.4 million, respectively.
HDE cost of sales increased $35.5 million, or 25 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased approximately $19.0
million. While we have provisions within many of our long-term customer contracts that provide for prospective selling price adjustments based upon changes in raw material costs, there is often a three-month to one-year lag until the time the
price adjustments take effect, and the contract provisions are typically limited to the underlying cost of the material and do not include related premiums or fabrication costs. As a percentage of sales, cost of sales increased 480 basis points
to 90.6 percent, primarily due to the higher material prices.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $5.3 million and gross margin declined 480 basis points to 9.4 percent.
SG&A expenses increased $1.9 million, yet remained consistent at 6.2 percent of sales, compared with the second quarter of the prior year. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which
increased approximately $2.0 million.
Restructuring expenses during the second quarter of fiscal 2022 were $0.3 million, and primarily consisted of equipment transfer costs in North America.
Operating income decreased $7.5 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower gross profit and higher SG&A expenses.
Comparison of Six Months ended September 30, 2021 and 2020
HDE year-to-date net sales increased $108.5 million, or 38 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, pricing adjustments associated with raw material price increases. HDE sales in
fiscal 2021, primarily in the first quarter, were negatively impacted by the COVID-19 pandemic. Sales to commercial vehicle and off-highway customers increased $48.3 million and $45.4 million, respectively.
HDE year-to-date cost of sales increased $102.5 million, or 40 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased approximately $34.0 million. As a percentage of
sales, cost of sales increased 180 basis points to 89.7 percent, primarily due to the higher material prices.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $6.0 million and gross margin declined 180 basis points to 10.3 percent.
HDE year-to-date SG&A expenses increased $3.5 million, but decreased 120 basis points as a percentage of sales, compared with the same period in the prior year. The increase in SG&A expenses was primarily due to higher
compensation-related expenses, which increased approximately $4.0 million.
Restructuring expenses decreased $1.4 million from the same period last year and primarily consisted of equipment transfer costs.
Operating income during the first six months of fiscal 2022 increased $3.9 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.
| |
|
Three months ended September 30,
|
|
|
Six months ended September 30,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
(in millions)
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
$'s
|
|
|
% of sales
|
|
|
Net sales
|
|
$
|
65.4
|
|
|
|
100.0
|
%
|
|
$
|
109.9
|
|
|
|
100.0
|
%
|
|
$
|
151.6
|
|
|
|
100.0
|
%
|
|
$
|
172.0
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
58.2
|
|
|
|
89.0
|
%
|
|
|
93.3
|
|
|
|
84.8
|
%
|
|
|
131.2
|
|
|
|
86.6
|
%
|
|
|
150.6
|
|
|
|
87.5
|
%
|
|
Gross profit
|
|
|
7.2
|
|
|
|
11.0
|
%
|
|
|
16.6
|
|
|
|
15.2
|
%
|
|
|
20.4
|
|
|
|
13.4
|
%
|
|
|
21.4
|
|
|
|
12.5
|
%
|
|
Selling, general and administrative expenses
|
|
|
9.4
|
|
|
|
14.4
|
%
|
|
|
8.6
|
|
|
|
7.9
|
%
|
|
|
20.4
|
|
|
|
13.4
|
%
|
|
|
17.0
|
|
|
|
9.9
|
%
|
|
Restructuring expenses
|
|
|
0.1
|
|
|
|
0.2
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
0.1
|
%
|
|
|
0.2
|
|
|
|
0.1
|
%
|
|
Impairment charges – net
|
|
|
3.3
|
|
|
|
5.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
1.2
|
|
|
|
0.8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
Operating (loss) income
|
|
$
|
(5.6
|
)
|
|
|
-8.6
|
%
|
|
$
|
8.0
|
|
|
|
7.3
|
%
|
|
$
|
(1.4
|
)
|
|
|
-0.9
|
%
|
|
$
|
4.2
|
|
|
|
2.4
|
%
|
Comparison of Three Months ended September 30, 2021 and 2020
Automotive net sales decreased $44.5 million, or 40 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to the disposition of the air-cooled automotive business, which closed on April 30, 2021,
and lower sales volume, largely associated
with the negative impacts of the global semiconductor chip shortage on the automotive market. The air-cooled automotive business’s sales were $18.0 million during the second
quarter of fiscal 2021. Sales in Europe, North America, and Asia decreased $30.0 million, $9.2 million, and $5.3 million, respectively.
Automotive cost of sales decreased $35.1 million, or 38 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower sales volume and, to a lesser extent, lower depreciation expenses, which
decreased $4.5 million. We ceased depreciating the long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021. These decreases were partially offset
by higher raw material prices, which increased approximately $4.0 million. As a percentage of sales, cost of sales increased 420 basis points to 89.0 percent.
As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $9.4 million and gross margin declined 420 basis points to 11.0 percent.
SG&A expenses increased $0.8 million compared with the second quarter of the prior year. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $1.0 million.
The impairment charges of $3.3 million in the second quarter of fiscal 2022 related to assets in our liquid-cooled automotive business, which was held for sale during the quarter.
The operating loss of $5.6 million during the second quarter of fiscal 2022 represents a $13.6 million decline from the prior-year operating income of $8.0 million and was primarily due to lower gross profit and higher impairment charges.
Comparison of Six Months ended September 30, 2021 and 2020
Automotive year-to-date net sales decreased $20.4 million, or 12 percent, from the same period last year, primarily due to $22.0 million of lower sales from the air-cooled automotive business that we sold earlier this fiscal year and lower
sales volume, partially offset by a $7.9 million favorable impact of foreign currency exchange rate changes. Fiscal 2021 year-to-date sales were negatively impacted by the COVID-19 pandemic. Fiscal 2022 year-to-date sales have been negatively
impacted by the impact of the global semiconductor chip shortage on the automotive market. Sales in North America, Asia, and Europe decreased $7.4 million, $6.9 million and $6.1 million, respectively.
Automotive year-to-date cost of sales decreased $19.4 million, or 13 percent, from the same period last year, primarily due to lower sales volume and lower depreciation expenses, which decreased $9.0 million. We ceased depreciating the
long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021. These decreases were partially offset by a $6.7 million unfavorable impact of foreign
currency exchange rate changes and higher raw material prices, which increased approximately $5.0 million. As a percentage of sales, cost of sales decreased 90 basis points to 86.6 percent.
As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit decreased $1.0 million and gross margin improved 90 basis points to 13.4 percent.
Automotive year-to-date SG&A expenses increased $3.4 million compared with the same period last year. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $2.0 million,
and a $1.0 million unfavorable impact of foreign currency exchange rate changes.
The year-to-date net impairment charges of $1.2 million primarily related to assets in our liquid-cooled automotive business. During the first two quarters of fiscal 2022, we recorded a total of $8.6 million of non-cash impairment charges
related to the Automotive segment’s held for sale assets. These impairment charges were partially offset by a $7.4 million impairment reversal recorded during the first quarter of fiscal 2022 related to certain manufacturing operations that no
longer met the requirements to be classified as held for sale due to a modification to the transaction perimeter.
The operating loss of $1.4 million during the first six months of fiscal 2022 represents a $5.6 million decline from the operating income of $4.2 million in the same period last year and was primarily due to higher SG&A expenses and
impairment charges.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents of $56.0 million as of September 30, 2021 and an available borrowing capacity of $177.1 million under our revolving credit facility. Given
our extensive international operations, approximately $54.0 million of our cash and cash equivalents is held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be
subject to foreign withholding taxes if repatriated. We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.
Net Cash Provided by Operating Activities
Net cash used for operating activities for the six months ended September 30, 2021 was $19.0 million, which represents a $106.3 million decrease compared with net cash provided by operating activities in the same period in the prior year.
This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, including higher inventory levels and higher payments for incentive compensation and employee benefits as compared with the same period in the
prior year. The higher inventory levels in fiscal 2022 have largely resulted from both increased raw material prices and strategic safety stock builds in connection with global supply chain constraints and challenges.
Capital Expenditures
Capital expenditures of $20.4 million during the first six months of fiscal 2022 increased $5.8 million compared with the same period in the prior year. In fiscal 2021, we delayed certain projects and the purchase of certain program-related
equipment and tooling to preserve our financial liquidity in response to the COVID-19 pandemic.
Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below. Also, as specified in the credit agreement, the term
loans may require prepayments in the event of certain asset sales. In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as
defined in the credit agreement, on our business, property, or results of operations.
The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreements, to no more than three and one-quarter times
consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”). We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of
at least three times consolidated interest expense. As of September 30, 2021, our leverage ratio and interest coverage ratio were 2.5 and 10.1, respectively. We expect to remain in compliance with our debt covenants during fiscal 2022 and
beyond.
Forward-Looking Statements
This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance,
accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results,
performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the
Company’s Annual Report on Form 10-K for the year ended March 31, 2021. Other risks and uncertainties include, but are not limited to, the following:
Market Risks:
|
• |
The impact of the COVID-19 pandemic on the national and global economy, our business, suppliers, customers, and employees;
|
|
• |
Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency
exchange rate fluctuations; tariffs (and any potential trade war resulting from tariffs or retaliatory actions); inflation; changes in interest rates; recession and recovery therefrom; restrictions and uncertainty associated with
cross-border trade or public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and
trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S. or abroad, as well as continuing uncertainty regarding the short- and long-term implications of “Brexit”;
|
|
• |
The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying
material cost based upon the London Metal Exchange and related premiums, fabrication, or freight costs. These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and
significant fluctuations in demand. This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through our quotation process or through contract
provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions; and
|
|
• |
The impact of current and future environmental laws and regulations on our business and the businesses of our customers, including our ability to take advantage of opportunities to supply alternative new technologies to meet
environmental and/or energy standards and objectives.
|
Operational Risks:
|
• |
The overall health and continually increasing price-down focus of our vehicular customers in light of economic and market-specific factors, and the potential impact on us from any deterioration in the stability or performance of any of
our major customers;
|
|
• |
The impact of any problems, including logistic and transportation challenges, associated with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and
willingness to supply our volume demands if their production capacity becomes constrained;
|
|
• |
Our ability to maintain current customer relationships and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service
pressures from customers, particularly in the face of macro-economic instability;
|
|
• |
The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in
response to the COVID-19 pandemic;
|
|
• |
The impact of any delays or modifications initiated by major customers with respect to the timing of projects, program launches, product applications or volume requirements, including order volume changes associated with supply chain
challenges, such as the global semiconductor chip shortage;
|
|
• |
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 modify our cost structure in response to sales volume increases or decreases and to complete restructuring activities and realize the anticipated benefits of those activities;
|
|
• |
Costs and other effects of the investigation and remediation of environmental contamination; particularly when related to the actions or inactions of others and/or facilities over which we have no control;
|
|
• |
Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions, in light of tight global labor markets;
|
|
• |
Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;
|
|
• |
The impact of any substantial disruption or material breach of our information technology systems, and any related delays, problems or costs;
|
|
• |
Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith;
|
|
• |
Work stoppages or interference at our facilities or those of our major customers and/or suppliers;
|
|
• |
The constant and increasing pressures associated with healthcare and associated insurance costs; and
|
|
• |
Costs and other effects of litigation, claims, or other obligations.
|
|
• |
Our ability to successfully realize anticipated benefits from strategic initiatives and the implementation of our 80/20 strategy, through which we are focused on growing businesses with strong market drivers;
|
|
• |
Our ability to identify and execute strategies in our automotive businesses to reduce costs and improve operating margins;
|
|
• |
Our ability to identify and execute growth and diversification opportunities in order to position us for long-term success; and
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The potential impacts from any actions by activist shareholders, including disruption of our business and related costs.
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Financial Risks:
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• |
Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions
in the global economy;
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• |
The impact of potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to our variable-rate debt obligations, and of the continued uncertainty around the utilization of
LIBOR or alternative reference rates;
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• |
The impact of changes in federal, state or local tax regulations that could have the effect of increasing our income tax expense;
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Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA
divided by interest expense, as defined in our credit agreements);
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• |
The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and
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Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.
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Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk.
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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, 2021. The Company’s market risks have not
materially changed since the fiscal 2021 Form 10-K was filed.
| Item 4. |
Controls and Procedures.
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Evaluation Regarding Disclosure
Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, management of the Company, under the supervision, and with the participation, of the Company’s President and Chief Executive Officer
and Executive Vice President, Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, at a reasonable assurance level, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based
upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective, at a
reasonable assurance level, as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
PART II. OTHER INFORMATION
|
Item 5.
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Other Information.
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As previously announced, effective August 10, 2021, Matthew J. McBurney no longer served in the role of Vice President, Building HVAC
of the Company, and effective September 29, 2021, Joel T. Casterton no longer served in the role of Vice President, Heavy Duty Equipment of the Company. The official date of separation for both Mr. McBurney and Mr. Casterton was October 29,
2021. The information in this section is being provided to set forth the material terms of the Company’s separation arrangements with Mr. McBurney and Mr. Casterton, which were definitively determined as of October 31, 2021 and October 29,
2021, respectively.
Under the separation arrangement with Mr. McBurney, he is eligible to receive, without limitation, the following benefits:
|
• |
52 weeks of severance pay, paid on a bi-weekly basis at the same rate as his annual base salary at the time of his termination (and subject to
applicable wage and tax deductions) under the Company’s Supplemental Severance Plan;
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• |
A lump-sum cash payment equivalent to 40% of his annual salary and 45% of his prevailing Long-term Incentive Plan (“LTIP”) target, under the
terms of the CEO Transition Retention Agreement to which Mr. McBurney was a party; and
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• |
The Company will permit Mr. McBurney’s unvested Restricted Stock
Units (“RSUs”) granted under the Company’s fiscal year 2019, 2020 and 2021 LTIP and scheduled to vest in 2022 and 2023, unvested Options granted under the fiscal year 2019, 2020 and 2021 LTIP and scheduled to vest in 2022,
and a pro-rata portion of his unvested Performance Shares applicable to the fiscal 2020 through 2022 period to continue to vest on their normal vesting schedules, and he will be eligible to receive a pro-rated Management Incentive
Plan (“MIP”) payment for fiscal 2022 (if and to the extent approved by the Human Capital and Compensation Committee in the ordinary course).
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Under the separation arrangement with Mr. Casterton, he is eligible to receive, without limitation, the following:
|
• |
52 weeks of severance pay, paid on a bi-weekly basis, at the same rate as his annual base salary at the time of his termination (and subject to
applicable wage and tax deductions) under the Company’s Supplemental Severance Plan; and
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• |
The Company will permit Mr. Casterton’s unvested RSUs granted under
the Company’s fiscal year 2019, 2020 and 2021 LTIP and scheduled to vest in 2022 and 2023, unvested Options granted under the fiscal year 2019, 2020 and 2021 LTIP and scheduled to vest in 2022, and a pro-rata portion of his
unvested Performance Shares applicable to the fiscal 2020 through 2022 period to continue to vest on their normal vesting schedule, and he will be eligible to receive a pro-rated MIP payment for fiscal 2022 (if and to the extent approved by the Human Capital and Compensation Committee in the ordinary course).
|
The separation benefits described above are subject to the execution of customary restrictive covenant agreements between the Company
and each of Mr. McBurney and Mr. Casterton, respectively, and other customary conditions. The separation arrangements with each of Mr. McBurney and Mr. Casterton are subject to the respective individual’s execution and non-revocation of a
general release of claims against the Company, and are qualified in their entirety by the respective terms of the Separation Letter Agreement between the Company and Mr. McBurney, effective as of October 31, 2021, and the Separation Letter
Agreement between the Company and Mr. Casterton, effective as of October 29, 2021.
|
Exhibit No.
|
Description
|
Incorporated Herein By
Reference To
|
Filed
Herewith
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| |
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Offer Letter dated as of July 2, 2021, by and between the Company and Adrian Peace.
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X
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Offer Letter dated as of July 16, 2021, by and between the Company and Eric McGinnis.
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X
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First Amendment to Eric S. McGinnis Offer Letter
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X
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Form of Fiscal 2022 Modine Non-Employee Director Restricted Stock Unit Award.
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X
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Form of Make-Whole ISO Award Agreement with Eric McGinnis.
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X
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Rule 13a-14(a)/15d-14(a) Certification of Neil D. Brinker, President and Chief Executive Officer.
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X
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Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.
|
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X
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Section 1350 Certification of Neil D. Brinker, President and Chief Executive Officer.
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X
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Section 1350 Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.
|
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X
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101.INS
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
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X
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101.SCH
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Inline XBRL Taxonomy Extension Schema
|
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X
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101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
X
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101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
X
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10.1.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
X
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10.1.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
X
|
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|
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104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
|
X
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MODINE MANUFACTURING COMPANY
(Registrant)
By: /s/ Michael B. Lucareli
Michael B. Lucareli, Executive Vice President, Chief Financial Officer*
Date: November 3, 2021
* Executing as both the principal financial officer and a duly authorized officer of the Company
