Company Quick10K Filing
Quick10K
Modine Manufacturing
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$9.99 51 $507
10-Q 2019-06-30 Quarter: 2019-06-30
10-K 2019-03-31 Annual: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-K 2018-03-31 Annual: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2015-03-31 Annual: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2014-03-31 Annual: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-09-26 Officers
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-07-25 Shareholder Vote
8-K 2019-06-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-22 Earnings, Exhibits
8-K 2019-02-20 Officers, Amend Bylaw, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-29 Other Events, Exhibits
8-K 2018-10-30 Earnings, Other Events, Exhibits
8-K 2018-09-21 Officers, Other Events, Exhibits
8-K 2018-08-01 Earnings, Exhibits
8-K 2018-07-19 Shareholder Vote
8-K 2018-05-23 Earnings, Exhibits
ALSN Allison Transmission 5,378
LCII LCI Industries 2,040
DAN Dana 1,767
VNE Veoneer 1,289
APOG Apogee Enterprises 978
GTX Garrett Motion 745
LDL Lydall 340
MPAA Motorcar Parts America 270
SUP Superior Industries International 67
SORL Sorl Auto Parts 63
MOD 2019-06-30
Part I. Financial Information
Item 1. Financial Statements.
Note 1: General
Note 2: Revenue Recognition
Note 3: Fair Value Measurements
Note 4: Pensions
Note 5: Stock-Based Compensation
Note 6: Restructuring Activities
Note 7: Other Income and Expense
Note 8: Income Taxes
Note 9: Earnings per Share
Note 10: Cash, Cash Equivalents and Restricted Cash
Note 11: Inventories
Note 12: Property, Plant and Equipment
Note 13: Goodwill and Intangible Assets
Note 14: Product Warranties
Note 15: Leases
Note 16: Indebtedness
Note 17: Contingencies and Litigation
Note 18: Accumulated Other Comprehensive Loss
Note 19: Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 ex10_1.htm
EX-10.2 ex10_2.htm
EX-10.3 ex10_3.htm
EX-10.4 ex10_4.htm
EX-10.5 ex10_5.htm
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Modine Manufacturing Earnings 2019-06-30

MOD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow



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, 2019

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 001-01373

MODINE MANUFACTURING COMPANY

(Exact name of registrant as specified in its charter)

Wisconsin
 
39-0482000
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1500 DeKoven Avenue, Racine, Wisconsin
 
53403
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code (262) 636-1200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
 
 
 
Common Stock, $0.625 par value
MOD
New York Stock Exchange LLC

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 every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 
Accelerated Filer
 
 
Non-accelerated Filer
Smaller reporting company
 
 
 
Emerging growth company

If an emerging growth company, indicate by 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 50,746,949 at July 26, 2019.






MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
 
 
 
 
1
 
 
 
22
 
 
 
28
 
 
 
28
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
29
 
 
 
29
     
31
 
 
 
32


Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 2019 and 2018
(In millions, except per share amounts)
(Unaudited)

 
 
Three months ended
June 30,
 
 
 
2019
   
2018
 
Net sales
 
$
529.0
   
$
566.1
 
Cost of sales
   
445.6
     
471.8
 
Gross profit
   
83.4
     
94.3
 
Selling, general and administrative expenses
   
63.5
     
59.3
 
Restructuring expenses
   
1.8
     
0.2
 
Operating income
   
18.1
     
34.8
 
Interest expense
   
(5.9
)
   
(6.2
)
Other expense – net
   
(1.1
)
   
(1.1
)
Earnings before income taxes
   
11.1
     
27.5
 
Provision for income taxes
   
(2.9
)
   
(5.0
)
Net earnings
   
8.2
     
22.5
 
Net earnings attributable to noncontrolling interest
   
(0.2
)
   
(0.5
)
Net earnings attributable to Modine
 
$
8.0
   
$
22.0
 
 
               
Net earnings per share attributable to Modine shareholders:
               
Basic
 
$
0.16
   
$
0.43
 
Diluted
 
$
0.16
   
$
0.43
 
 
               
Weighted-average shares outstanding:
               
Basic
   
50.7
     
50.3
 
Diluted
   
51.1
     
51.2
 

The notes to condensed consolidated financial statements are an integral part of these statements.

1

Table of Contents


MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended June 30, 2019 and 2018
(In millions)
(Unaudited)

 
 
Three months ended
June 30,
 
 
 
2019
   
2018
 
Net earnings
 
$
8.2
   
$
22.5
 
Other comprehensive income (loss):
               
Foreign currency translation
   
1.8
     
(25.1
)
Defined benefit plans, net of income taxes of $0.3 and $0.3 million
   
1.1
     
1.0
 
Cash flow hedges, net of income taxes of $(0.3) and $0.1 million
   
(0.8
)
   
0.4
 
Total other comprehensive income (loss)
   
2.1
     
(23.7
)
 
               
Comprehensive income (loss)
   
10.3
     
(1.2
)
Comprehensive income attributable to noncontrolling interest
   
(0.1
)
   
(0.1
)
Comprehensive income (loss) attributable to Modine
 
$
10.2
   
$
(1.3
)

The notes to condensed consolidated financial statements are an integral part of these statements.

2

Table of Contents

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, 2019 and March 31, 2019
(In millions, except per share amounts)
(Unaudited)

 
 
June 30, 2019
   
March 31, 2019
 
ASSETS
           
Cash and cash equivalents
 
$
29.1
   
$
41.7
 
Trade accounts receivable – net
   
336.9
     
338.6
 
Inventories
   
216.2
     
200.7
 
Other current assets
   
69.7
     
65.8
 
Total current assets
   
651.9
     
646.8
 
Property, plant and equipment – net
   
479.1
     
484.7
 
Intangible assets – net
   
114.4
     
116.2
 
Goodwill
   
168.5
     
168.5
 
Deferred income taxes
   
98.2
     
97.1
 
Other noncurrent assets
   
89.2
     
24.7
 
Total assets
 
$
1,601.3
   
$
1,538.0
 
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Short-term debt
 
$
121.5
   
$
66.0
 
Long-term debt – current portion
   
33.5
     
48.6
 
Accounts payable
   
272.9
     
280.9
 
Accrued compensation and employee benefits
   
77.5
     
81.7
 
Other current liabilities
   
52.8
     
39.9
 
Total current liabilities
   
558.2
     
517.1
 
Long-term debt
   
302.2
     
335.1
 
Deferred income taxes
   
8.6
     
8.2
 
Pensions
   
100.2
     
101.7
 
Other noncurrent liabilities
   
85.8
     
34.8
 
Total liabilities
   
1,055.0
     
996.9
 
Commitments and contingencies (see Note 17)
               
Shareholders’ equity:
               
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none
   
-
     
-
 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 53.3 million and 52.8 million shares
   
33.2
     
33.0
 
Additional paid-in capital
   
240.2
     
238.6
 
Retained earnings
   
480.1
     
472.1
 
Accumulated other comprehensive loss
   
(176.2
)
   
(178.4
)
Treasury stock, at cost, 2.5 million and 2.1 million shares
   
(37.0
)
   
(31.4
)
Total Modine shareholders’ equity
   
540.3
     
533.9
 
Noncontrolling interest
   
6.0
     
7.2
 
Total equity
   
546.3
     
541.1
 
Total liabilities and equity
 
$
1,601.3
   
$
1,538.0
 

The notes to condensed consolidated financial statements are an integral part of these statements.

3

Table of Contents

MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 2019 and 2018
(In millions)
(Unaudited)

 
 
Three months ended June 30,
 
   
2019
   
2018
 
Cash flows from operating activities:
           
Net earnings
 
$
8.2
   
$
22.5
 
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
               
Depreciation and amortization
   
18.9
     
19.4
 
Stock-based compensation expense
   
1.7
     
2.0
 
Deferred income taxes
   
(0.5
)
   
1.0
 
Other – net
   
0.9
     
0.6
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
1.6
     
(18.6
)
Inventories
   
(15.0
)
   
(21.7
)
Accounts payable
   
(3.8
)
   
15.4
 
Other assets and liabilities
   
(11.5
)
   
(24.7
)
Net cash provided by (used for) operating activities
   
0.5
     
(4.1
)
 
               
Cash flows from investing activities:
               
Expenditures for property, plant and equipment
   
(20.3
)
   
(22.6
)
Other – net
   
1.8
     
2.9
 
Net cash used for investing activities
   
(18.5
)
   
(19.7
)
 
               
Cash flows from financing activities:
               
Borrowings of debt
   
342.1
     
105.9
 
Repayments of debt
   
(329.1
)
   
(72.7
)
Dividend paid to noncontrolling interest
   
(1.3
)
   
(1.8
)
Purchases of treasury stock under share repurchase program
   
(2.4
)
   
-
 
Financing fees paid
   
(1.1
)
   
-
 
Other – net
   
(2.7
)
   
(3.8
)
Net cash provided by financing activities
   
5.5
     
27.6
 
 
               
Effect of exchange rate changes on cash
   
(0.1
)
   
(1.8
)
Net (decrease) increase in cash, cash equivalents and restricted cash
   
(12.6
)
   
2.0
 
 
               
Cash, cash equivalents and restricted cash – beginning of period
   
42.2
     
40.3
 
Cash, cash equivalents and restricted cash – end of period
 
$
29.6
   
$
42.3
 

The notes to condensed consolidated financial statements are an integral part of these statements.

4

Table of Contents

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three months ended June 30, 2019 and 2018
(In millions)
(Unaudited)

 
Common stock
   
Additional
paid-in
   
Retained
   
Accumulated
other
comprehensive
   
Treasury
stock, at
   
Non-
controlling
       
   
Shares
   
Amount
   
capital
   
earnings
   
loss
   
cost
   
interest
   
Total
 
Balance, March 31, 2018
   
52.3
   
$
32.7
   
$
229.9
   
$
394.9
   
$
(140.3
)
 
$
(27.1
)
 
$
8.4
   
$
498.5
 
Adoption of new accounting guidance (Note 1)
   
-
     
-
     
-
     
(7.6
)
   
-
     
-
     
-
     
(7.6
)
Net earnings attributable to Modine
   
-
     
-
     
-
     
22.0
     
-
     
-
     
-
     
22.0
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
(23.3
)
   
-
     
(0.4
)
   
(23.7
)
Stock options and awards 
   
0.4
     
0.2
     
(0.2
)
   
-
     
-
     
-
     
-
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(3.7
)
   
-
     
(3.7
)
Stock-based compensation expense
   
-
     
-
     
2.0
     
-
     
-
     
-
     
-
     
2.0
 
Dividend paid to noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
(1.8
)
   
(1.8
)
Net earnings attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
0.5
     
0.5
 
Balance, June 30, 2018
   
52.7
   
$
32.9
   
$
231.7
   
$
409.3
   
$
(163.6
)
 
$
(30.8
)
 
$
6.7
   
$
486.2
 
                                                                 
Balance, March 31, 2019
   
52.8
   
$
33.0
   
$
238.6
   
$
472.1
   
$
(178.4
)
 
$
(31.4
)
 
$
7.2
   
$
541.1
 
Net earnings attributable to Modine
   
-
     
-
     
-
     
8.0
     
-
     
-
     
-
     
8.0
 
Other comprehensive income (loss)
   
-
     
-
     
-
     
-
     
2.2
     
-
     
(0.1
)
   
2.1
 
Stock options and awards 
   
0.5
     
0.2
     
(0.1
)
   
-
     
-
     
-
     
-
     
0.1
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(5.6
)
   
-
     
(5.6
)
Stock-based compensation expense
   
-
     
-
     
1.7
     
-
     
-
     
-
     
-
     
1.7
 
Dividend paid to noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
(1.3
)
   
(1.3
)
Net earnings attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
-
     
-
     
0.2
     
0.2
 
Balance, June 30, 2019
   
53.3
   
$
33.2
   
$
240.2
   
$
480.1
   
$
(176.2
)
 
$
(37.0
)
 
$
6.0
   
$
546.3
 

The notes to condensed consolidated financial statements are an integral part of these statements.


5

Table of Contents
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, 2019, 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 2020 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, 2019.

New Accounting Guidance Adopted in Fiscal 2020

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance and requires balance sheet recognition for most leases. The Company adopted this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it elected not to adjust comparative periods. The Company elected the package of practical expedients permitted under the new guidance, and, as a result, the Company did not reassess the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases. In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components. The Company did not elect the hindsight practical expedient.

The Company assessed its global lease portfolio and implemented a new lease accounting software solution and new processes and controls to account for leases in accordance with the new guidance. The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings. The Company also leases certain manufacturing and IT equipment and vehicles. Upon adoption of this new guidance on April 1, 2019, the Company recognized right-of-use assets for operating leases totaling $61.3 million and corresponding current and noncurrent operating lease liabilities of $12.4 million and $48.9 million, respectively. In addition, the Company assessed two existing build-to-suit arrangements, for which it had recorded property, plant and equipment and long-term debt on its consolidated balance sheet as of March 31, 2019. The Company determined these arrangements represent operating leases under the new accounting guidance. As a result, the Company derecognized the previously-recorded balances and recorded $5.2 million of operating lease right-of-use assets and corresponding lease liabilities. As a result of adopting the new guidance, there was not a significant impact on the Company’s accounting for its previously-recorded capital leases, which are now classified as finance leases under the new guidance.  In addition, there was no impact to retained earnings. Also, the adoption did not have a material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows. See Note 15 for additional information regarding the Company’s leases.

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 provided companies the option to reclassify stranded income tax effects to retained earnings.  The Company adopted this guidance as of April 1, 2019 and chose not to reclassify stranded income tax effects; therefore, the adoption of this guidance did not impact the Company’s consolidated financial statements.

6

Table of Contents
New Accounting Guidance Adopted in Fiscal 2019

Revenue Recognition
In May 2014, the 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 Company adopted this new guidance as of April 1, 2018, and, as a result, recorded an increase of $0.7 million to retained earnings.

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 as of April 1, 2018, and, as a result, recorded a decrease to retained earnings of $8.3 million.

Note 2: Revenue Recognition

Disaggregation of Revenue
The table below presents revenue for each of the Company’s business segments, Vehicular Thermal Solutions (“VTS”), Commercial and Industrial Solutions (“CIS”) and Building HVAC Systems (“BHVAC”).  Each segment’s revenue is disaggregated by primary end market, by geographic location and based upon the timing of revenue recognition.

 
 
Three months ended June 30, 2019
 
 
 
VTS
   
CIS
   
BHVAC
   
Segment
Total
 
Primary end market:
                       
Automotive
 
$
129.2
   
$
-
   
$
-
   
$
129.2
 
Commercial vehicle
   
98.7
     
-
     
-
     
98.7
 
Off-highway
   
73.9
     
-
     
-
     
73.9
 
Commercial HVAC&R
   
-
     
130.9
     
38.0
     
168.9
 
Data center cooling
   
-
     
24.2
     
10.6
     
34.8
 
Industrial cooling
   
-
     
11.4
     
-
     
11.4
 
Other
   
24.7
     
2.3
     
0.4
     
27.4
 
Net sales
 
$
326.5
   
$
168.8
   
$
49.0
   
$
544.3
 
 
                               
Geographic location:
                               
Americas
 
$
153.3
   
$
97.1
   
$
29.1
   
$
279.5
 
Europe
   
126.1
     
58.6
     
19.9
     
204.6
 
Asia
   
47.1
     
13.1
     
-
     
60.2
 
Net sales
 
$
326.5
   
$
168.8
   
$
49.0
   
$
544.3
 
 
                               
Timing of revenue recognition:
                               
Products transferred at a point in time
 
$
319.1
   
$
143.9
   
$
49.0
   
$
512.0
 
Products transferred over time
   
7.4
     
24.9
     
-
     
32.3
 
Net sales
 
$
326.5
   
$
168.8
   
$
49.0
   
$
544.3
 

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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&R
   
-
     
135.3
     
32.0
     
167.3
 
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, 2019
   
March 31, 2019
 
Contract assets
 
$
24.2
   
$
22.6
 
Contract liabilities
   
4.9
     
4.0
 

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed. The $1.6 million increase in contract assets during the first three months of fiscal 2020 primarily resulted from an increase in contract assets for revenue recognized over time and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. The $0.9 million increase in contract liabilities during the first three months of fiscal 2020 was primarily related to customer contracts for which payment had been received in advance of the Company’s satisfaction of performance obligations.

8

Table of Contents
Note 3: Fair Value Measurements

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

Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value based upon valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates.  These measurements are classified as Level 3.

The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. The 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 $6.2 million and $6.0 million as of June 30, 2019 and March 31, 2019, respectively.  The fair value of the Company’s long-term debt is disclosed in Note 16.

Note 4: Pensions

Pension cost included the following components:

 
 
Three months ended
June 30,
 
 
 
2019
   
2018
 
Service cost
 
$
0.1
   
$
0.1
 
Interest cost
   
2.3
     
2.4
 
Expected return on plan assets
   
(3.0
)
   
(3.0
)
Amortization of unrecognized net loss
   
1.5
     
1.4
 
Net periodic benefit cost
 
$
0.9
   
$
0.9
 

During the three months ended June 30, 2019 and 2018, the Company contributed $0.9 million and $1.9 million, respectively, to its U.S. pension plans.

9

Table of Contents
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 $1.7 million and $2.0 million for the three months ended June 30, 2019 and 2018, respectively. The performance component of awards granted under the Company’s long-term incentive plan during the first quarter of fiscal 2020 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, 2019 and 2018 were as follows:


 
Three months ended June 30,
 
   
2019
   
2018
 
   
Shares
   
Fair Value
Per Award
   
Shares
   
Fair Value
Per Award
 
Stock options
   
0.3
   
$
5.56
     
0.2
   
$
7.81
 
Restricted stock awards
   
0.3
   
$
13.26
     
0.2
   
$
17.90
 
Performance stock awards
   
0.3
   
$
13.26
     
0.2
   
$
17.90
 

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


 
Three months ended June 30,
 
   
2019
   
2018
 
Expected life of awards in years
   
6.3
     
6.3
 
Risk-free interest rate
   
2.2
%
   
2.8
%
Expected volatility of the Company’s stock
   
39.2
%
   
39.7
%
Expected dividend yield on the Company’s stock
   
0.0
%
   
0.0
%

As of  June 30, 2019, 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
     
3.0
 
Performance stock awards
   
4.8
     
2.2
 
Total
 
$
16.8
     
2.8
 

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Table of Contents
Note 6: Restructuring Activities

The Company’s restructuring actions during the first quarter of fiscal 2020 and 2019 consisted primarily of targeted headcount reductions in Europe and the Americas within the VTS segment and plant consolidation activities.  The headcount reductions support the Company’s objective to reduce operational and selling, general and administrative (“SG&A”) cost structures at certain locations.  In addition, the Company is in process of transferring product lines associated with the merger of its North American coils business into the CIS segment in order to accelerate operational improvements and organizational efficiencies.

Restructuring and repositioning expenses were as follows:

 
 
Three months ended June 30,
 
 
 
2019
   
2018
 
Employee severance and related benefits
 
$
1.5
   
$
0.1
 
Other restructuring and repositioning expenses
   
0.3
     
0.1
 
Total
 
$
1.8
   
$
0.2
 

Other restructuring and repositioning expenses primarily consist of equipment transfers 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,
 
 
 
2019
   
2018
 
Beginning balance
 
$
10.0
   
$
11.0
 
Additions
   
1.5
     
0.1
 
Payments
   
(3.7
)
   
(5.8
)
Effect of exchange rate changes
   
-
     
(0.5
)
Ending balance
 
$
7.8
   
$
4.8
 

11

Table of Contents
Note 7: Other Income and Expense

Other income and expense consisted of the following:

 
 
Three months ended
June 30,
 
 
 
2019
   
2018
 
Equity in earnings of non-consolidated affiliate
 
$
0.1
   
$
0.2
 
Interest income
   
0.1
     
0.2
 
Foreign currency transactions (a)
   
(0.6
)
   
(0.8
)
Net periodic benefit cost (b)
   
(0.7
)
   
(0.7
)
Total other expense - net
 
$
(1.1
)
 
$
(1.1
)

(a)
Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on certain foreign currency exchange contracts.
(b)
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, 2019 and 2018 was 26.1 percent and 18.2 percent, respectively.  The effective tax rate for the first quarter of fiscal 2020 is higher than the first quarter of the prior year, primarily due to the absence of a $2.0 million reversal of a valuation allowance on deferred tax assets in a foreign jurisdiction recorded during the first quarter of fiscal 2019 and changes in the mix and amount of foreign and domestic earnings.

As of June 30, 2019, valuation allowances against deferred tax assets in certain foreign jurisdictions totaled $38.1 million and valuation allowances against certain U.S. deferred tax assets totaled $6.8 million, as it is more likely than not these assets will not be realized based upon historical financial results.  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 2020 will total $2.8 million, primarily due to lapses in statutes of limitations, which, if recognized, would have a $2.2 million favorable impact on its effective tax rate.

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Table of Contents
Note 9: Earnings Per Share

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

 
 
Three months ended
June 30,
 
 
 
2019
   
2018
 
Net earnings attributable to Modine
 
$
8.0
   
$
22.0
 
Less: Undistributed earnings attributable to unvested shares
   
-
     
(0.1
)
Net earnings available to Modine shareholders
 
$
8.0
   
$
21.9
 
 
               
Weighted-average shares outstanding - basic
   
50.7
     
50.3
 
Effect of dilutive securities
   
0.4
     
0.9
 
Weighted-average shares outstanding - diluted
   
51.1
     
51.2
 
 
               
Earnings per share:
               
Net earnings per share - basic
 
$
0.16
   
$
0.43
 
Net earnings per share - diluted
 
$
0.16
   
$
0.43
 

For the three months ended June 30, 2019 and 2018, the calculation of diluted earnings per share excluded 0.8 million and 0.4 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, 2019
   
March 31, 2019
 
Cash and cash equivalents
 
$
29.1
   
$
41.7
 
Restricted cash
   
0.5
     
0.5
 
 Total cash, cash equivalents and restricted cash
 
$
29.6
   
$
42.2
 

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, 2019
   
March 31, 2019
 
Raw materials
 
$
134.1
   
$
122.8
 
Work in process
   
35.6
     
32.2
 
Finished goods
   
46.5
     
45.7
 
Total inventories
 
$
216.2
   
$
200.7
 

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Note 12: Property, Plant and Equipment

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

 
 
June 30, 2019
   
March 31, 2019
 
Land
 
$
20.9
   
$
20.7
 
Buildings and improvements (10-40 years)
   
281.0
     
285.9
 
Machinery and equipment (3-15 years)
   
858.7
     
848.7
 
Office equipment (3-10 years)
   
93.6
     
92.0
 
Construction in progress
   
62.6
     
57.4
 
 
   
1,316.8
     
1,304.7
 
Less: accumulated depreciation
   
(837.7
)
   
(820.0
)
Net property, plant and equipment
 
$
479.1
   
$
484.7
 

Note 13: Goodwill and Intangible Assets

Changes in the carrying amount of goodwill were as follows:

 
 
VTS
   
CIS
   
BHVAC
   
Total
 
Goodwill, March 31, 2019
 
$
0.5