Company Quick10K Filing
Quick10K
Modine Manufacturing
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$16.22 51 $821
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 2019-01-31 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
DAR Darling Ingredients 3,630
MDR McDermott 1,870
PBPB Potbelly 212
LPCN Lipocine 41
CVV CVD Equipment 24
NRBT Novus Robotics 0
IMMY Imprimis Pharmaceuticals 0
HWH HWH 0
FCE Forest City Realty Trust 0
SFRX Seafarer Exploration 0
MOD 2018-12-31
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: Indebtedness
Note 16: Contingencies and Litigation
Note 17: Accumulated Other Comprehensive Loss
Note 18: 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 6. Exhibits.
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 2018-12-31

MOD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 1-1373

MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically 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 50,628,421 at January 25, 2019.



MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION  
     
Item 1.
Financial Statements.
1
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
24
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
32
     
Item 4.
Controls and Procedures. 33
     
PART II.
OTHER INFORMATION  
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
33
     
Item 6.
Exhibits.
34
     
35

PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 2018 and 2017
(In millions, except per share amounts)
(Unaudited)

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Net sales
 
$
541.0
   
$
512.7
   
$
1,656.0
   
$
1,536.5
 
Cost of sales
   
449.3
     
427.3
     
1,382.1
     
1,276.5
 
Gross profit
   
91.7
     
85.4
     
273.9
     
260.0
 
Selling, general and administrative expenses
   
57.2
     
60.8
     
179.9
     
182.2
 
Restructuring expenses
   
0.5
     
9.4
     
0.7
     
11.5
 
Impairment charges
   
0.4
     
1.3
     
0.4
     
1.3
 
Loss on sale of assets
   
-
     
-
     
1.7
     
-
 
Operating income
   
33.6
     
13.9
     
91.2
     
65.0
 
Interest expense
   
(6.2
)
   
(6.3
)
   
(18.9
)
   
(19.5
)
Other expense – net
   
(0.5
)
   
(0.3
)
   
(2.1
)
   
(2.3
)
Earnings before income taxes
   
26.9
     
7.3
     
70.2
     
43.2
 
(Provision) benefit for income taxes
   
(8.6
)
   
(35.2
)
   
9.3
     
(37.4
)
Net earnings (loss)
   
18.3
     
(27.9
)
   
79.5
     
5.8
 
Net earnings attributable to noncontrolling interest
   
(0.3
)
   
(0.4
)
   
(1.0
)
   
(1.2
)
Net earnings (loss) attributable to Modine
 
$
18.0
   
$
(28.3
)
 
$
78.5
   
$
4.6
 
                                 
Net earnings (loss) per share attributable to Modine shareholders:
                               
Basic
 
$
0.36
   
$
(0.57
)
 
$
1.55
   
$
0.09
 
Diluted
 
$
0.35
   
$
(0.57
)
 
$
1.53
   
$
0.09
 
                                 
Weighted-average shares outstanding:
                               
Basic
   
50.5
     
50.0
     
50.4
     
49.8
 
Diluted
   
51.2
     
50.0
     
51.2
     
50.6
 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended December 31, 2018 and 2017
(In millions)
(Unaudited)

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Net earnings (loss)
 
$
18.3
   
$
(27.9
)
 
$
79.5
   
$
5.8
 
Other comprehensive income (loss):
                               
Foreign currency translation
   
(2.1
)
   
5.0
     
(32.6
)
   
32.8
 
Defined benefit plans, net of income taxes of $0.3, $0.4, $0.9 and $1.3 million
   
1.0
     
0.9
     
3.0
     
2.6
 
Cash flow hedges, net of income taxes of ($0.2), $0.2, ($0.3) and $0.2 million
   
(0.9
)
   
0.4
     
(1.0
)
   
0.4
 
Total other comprehensive income (loss)
   
(2.0
)
   
6.3
     
(30.6
)
   
35.8
 
                                 
Comprehensive income (loss)
   
16.3
     
(21.6
)
   
48.9
     
41.6
 
Comprehensive income attributable to noncontrolling interest
   
(0.3
)
   
(0.8
)
   
(0.5
)
   
(1.6
)
Comprehensive income (loss) attributable to Modine
 
$
16.0
   
$
(22.4
)
 
$
48.4
   
$
40.0
 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and March 31, 2018
(In millions, except per share amounts)
(Unaudited)

   
December 31, 2018
   
March 31, 2018
 
ASSETS
           
Cash and cash equivalents
 
$
30.7
   
$
39.3
 
Trade accounts receivable – net
   
301.5
     
342.4
 
Inventories
   
211.0
     
191.3
 
Other current assets
   
71.7
     
70.1
 
Total current assets
   
614.9
     
643.1
 
Property, plant and equipment – net
   
489.1
     
504.3
 
Intangible assets – net
   
119.5
     
129.9
 
Goodwill
   
169.0
     
173.8
 
Deferred income taxes
   
96.5
     
96.9
 
Other noncurrent assets
   
23.7
     
25.4
 
Total assets
 
$
1,512.7
   
$
1,573.4
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Short-term debt
 
$
67.5
   
$
53.2
 
Long-term debt – current portion
   
45.7
     
39.9
 
Accounts payable
   
245.7
     
277.9
 
Accrued compensation and employee benefits
   
73.7
     
97.3
 
Other current liabilities
   
41.9
     
47.2
 
Total current liabilities
   
474.5
     
515.5
 
Long-term debt
   
354.2
     
386.3
 
Deferred income taxes
   
9.1
     
9.9
 
Pensions
   
99.1
     
109.6
 
Other noncurrent liabilities
   
35.1
     
53.6
 
Total liabilities
   
972.0
     
1,074.9
 
Commitments and contingencies (see Note 16)
               
Shareholders’ equity:
               
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none
   
-
     
-
 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 52.7 million and 52.3 million shares
   
32.9
     
32.7
 
Additional paid-in capital
   
236.7
     
229.9
 
Retained earnings
   
465.8
     
394.9
 
Accumulated other comprehensive loss
   
(170.4
)
   
(140.3
)
Treasury stock, at cost, 2.1 million and 1.8 million shares
   
(31.4
)
   
(27.1
)
Total Modine shareholders’ equity
   
533.6
     
490.1
 
Noncontrolling interest
   
7.1
     
8.4
 
Total equity
   
540.7
     
498.5
 
Total liabilities and equity
 
$
1,512.7
   
$
1,573.4
 

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

MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 2018 and 2017
(In millions)
(Unaudited)

   
Nine months ended December 31,
 

 
2018
   
2017
 
Cash flows from operating activities:
           
Net earnings
 
$
79.5
   
$
5.8
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
   
57.6
     
56.8
 
Loss on sale of assets
   
1.7
     
-
 
Impairment charges
   
0.4
     
1.3
 
Stock-based compensation expense
   
6.8
     
7.6
 
Deferred income taxes
   
(2.9
)
   
10.1
 
Other – net
   
2.4
     
6.6
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
23.8
     
22.3
 
Inventories
   
(31.2
)
   
(10.5
)
Accounts payable
   
(11.8
)
   
2.2
 
Other assets and liabilities
   
(58.9
)
   
3.8
 
Net cash provided by operating activities
   
67.4
     
106.0
 
                 
Cash flows from investing activities:
               
Expenditures for property, plant and equipment
   
(58.7
)
   
(55.0
)
Other – net
   
1.0
     
(0.8
)
Net cash used for investing activities
   
(57.7
)
   
(55.8
)
                 
Cash flows from financing activities:
               
Borrowings of debt
   
189.2
     
121.5
 
Repayments of debt
   
(199.3
)
   
(162.5
)
Dividend paid to noncontrolling interest
   
(1.8
)
   
(0.9
)
Other – net
   
(4.4
)
   
2.7
 
Net cash used for financing activities
   
(16.3
)
   
(39.2
)
                 
Effect of exchange rate changes on cash
   
(2.3
)
   
3.0
 
Net (decrease) increase in cash, cash equivalents and restricted cash
   
(8.9
)
   
14.0
 
                 
Cash, cash equivalents and restricted cash – beginning of period
   
40.3
     
34.8
 
Cash, cash equivalents and restricted cash – end of period
 
$
31.4
   
$
48.8
 

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

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 1: General

The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States applied on a basis consistent with those principles used in the preparation of the annual consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) for the fiscal year ended March 31, 2018, except in regard to the new accounting guidance adopted, as described below.  The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.  Results for the first nine months of fiscal 2019 are not necessarily indicative of the results to be expected for the full year.  These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10-K for the year ended March 31, 2018.

Sale of AIAC Air Conditioning South Africa (Pty) Ltd.
During the second quarter of fiscal 2019, the Company completed the sale of its AIAC Air Conditioning South Africa (Pty) Ltd. business, which was reported within the Building HVAC Systems segment, for a selling price of $0.5 million.  As a result of this transaction, the Company recorded a loss of $1.7 million, which included the write-off of accumulated foreign currency translation losses of $0.8 million.  The Company reported this loss on sale of assets as a separate line within the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

New Accounting Guidance

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

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

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

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

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. This guidance is effective for the Company’s first quarter of fiscal 2020. The Company will apply a modified-retrospective transition method, under which it expects to elect not to adjust comparative periods. Upon adoption of this new guidance, the Company will recognize right-of-use assets and corresponding lease liabilities on its balance sheet. The Company has completed an initial assessment of its lease portfolio and is in the process of collecting data, testing a new lease accounting software solution, and implementing new processes and internal controls to adopt the new guidance. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

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

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

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

Note 2: Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s condensed consolidated financial statements for the three and nine months ended December 31, 2018 reflect the adoption of this new guidance; however, the comparable prior-year periods have not been restated.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
Significant Accounting Policy
The Company generates revenue from selling innovative thermal management products and solutions to diversified global markets and customers.  The Company recognizes revenue based upon consideration specified in a contract and as it satisfies performance obligations by transferring control over its products to its customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.

The Company records an allowance for doubtful accounts for estimated uncollectible receivables and accrues for estimated warranty costs at the time of sale.  These estimates are based upon historical experience, current business trends, and current economic conditions.

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

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

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

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

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

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

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

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

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

At times, the Company makes up-front incentive payments to certain customers related to future sales under multi-year programs.  The Company capitalizes these incentive payments, which it expects to recover through future sales, and amortizes the assets as a reduction to revenue when the related products are sold to customers.

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

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

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

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

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

Ventilation and air conditioning products are highly-specified to a customer’s needs; however, the underlying sales contracts do not provide the Company with an enforceable right to payment for performance completed to date.  As a result, the BHVAC segment recognizes revenue for these products at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

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

   
Three months ended December 31, 2018
 
   
VTS
   
CIS
   
BHVAC
   
Segment
Total
 
Primary end market:
                       
Automotive
 
$
130.4
   
$
-
   
$
-
   
$
130.4
 
Commercial vehicle
   
92.0
     
-
     
-
     
92.0
 
Off-highway
   
74.2
     
-
     
-
     
74.2
 
Commercial HVAC
   
-
     
72.2
     
53.2
     
125.4
 
Commercial refrigeration
   
-
     
42.4
     
-
     
42.4
 
Data center cooling
   
-
     
40.2
     
11.0
     
51.2
 
Industrial cooling
   
-
     
11.8
     
-
     
11.8
 
Other
   
26.7
     
0.4
     
-
     
27.1
 
Net sales
 
$
323.3
   
$
167.0
   
$
64.2
   
$
554.5
 
                                 
Geographic location:
                               
Americas
 
$
150.7
   
$
96.0
   
$
40.9
   
$
287.6
 
Europe
   
124.9
     
59.8
     
23.3
     
208.0
 
Asia
   
47.7
     
11.2
     
-
     
58.9
 
Net sales
 
$
323.3
   
$
167.0
   
$
64.2
   
$
554.5
 
                                 
Timing of revenue recognition:
                               
Products transferred at a point in time
 
$
309.4
   
$
128.7
   
$
64.2
   
$
502.3
 
Products transferred over time
   
13.9
     
38.3
     
-
     
52.2
 
Net sales
 
$
323.3
   
$
167.0
   
$
64.2
   
$
554.5
 

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

   
Nine months ended December 31, 2018
 
   
VTS
   
CIS
   
BHVAC
   
Segment
Total
 
Primary end market:
                       
Automotive
 
$
411.9
   
$
-
   
$
-
   
$
411.9
 
Commercial vehicle
   
287.5
     
-
     
-
     
287.5
 
Off-highway
   
234.9
     
-
     
-
     
234.9
 
Commercial HVAC
   
-
     
237.4
     
130.6
     
368.0
 
Commercial refrigeration
   
-
     
140.1
     
-
     
140.1
 
Data center cooling
   
-
     
110.3
     
29.3
     
139.6
 
Industrial cooling
   
-
     
36.4
     
-
     
36.4
 
Other
   
77.4
     
4.9
     
-
     
82.3
 
Net sales
 
$
1,011.7
   
$
529.1
   
$
159.9
   
$
1,700.7
 
                                 
Geographic location:
                               
Americas
 
$
460.8
   
$
304.0
   
$
98.0
   
$
862.8
 
Europe
   
400.6
     
187.0
     
61.9
     
649.5
 
Asia
   
150.3
     
38.1
     
-
     
188.4
 
Net sales
 
$
1,011.7
   
$
529.1
   
$
159.9
   
$
1,700.7
 
                                 
Timing of revenue recognition:
                               
Products transferred at a point in time
 
$
974.7
   
$
426.2
   
$
159.9
   
$
1,560.8
 
Products transferred over time
   
37.0
     
102.9
     
-
     
139.9
 
Net sales
 
$
1,011.7
   
$
529.1
   
$
159.9
   
$
1,700.7
 

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

   
December 31, 2018
   
March 31, 2018
 
Contract assets
 
$
25.5
   
$
13.5
 
Contract liabilities
   
5.6
     
6.8
 

Contract assets, included within other current assets in the consolidated balance sheet, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed.  The $12.0 million increase in contract assets during the first nine months of fiscal 2019 was primarily related to contract assets totaling $8.2 million as of December 31, 2018 for revenue recognized over time, which were recorded as a result of the Company’s adoption of the new revenue recognition accounting guidance, and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

Contract liabilities, included within other current liabilities in the consolidated balance sheet, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. The $1.2 million decrease in contract liabilities during fiscal 2019 was primarily due to the Company’s satisfaction of performance obligations under customer contracts for which payment had been received in advance.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Impacts of Adopting New Accounting Guidance
The impacts from the adoption of the new revenue recognition guidance to the Company’s consolidated statements of operations for the three and nine months ended December 31, 2018 and its consolidated balance sheet as of December 31, 2018 were as follows:

   
Three months ended December 31, 2018
 
   
As Reported
   
Impact of New
Accounting Guidance
   
Results Without
Impact of New
Accounting Guidance
 
Net sales
 
$
541.0
   
$
(5.6
)
 
$
535.4
 
Net earnings attributable to Modine
   
18.0
     
(2.1
)
   
15.9
 
                         
Net earnings per share attributable to Modine shareholders:
                       
Basic
 
$
0.36
   
$
(0.04
)
 
$
0.32
 
Diluted
   
0.35
     
(0.04
)
   
0.31
 

   
Nine months ended December 31, 2018
 
   
As Reported
   
Impact of New
Accounting Guidance
   
Results Without
Impact of New
Accounting Guidance
 
Net sales
 
$
1,656.0
   
$
(5.2
)
 
$
1,650.8
 
Net earnings attributable to Modine
   
78.5
     
(2.0
)
   
76.5
 
                         
Net earnings per share attributable to Modine shareholders:
                       
Basic
 
$
1.55
   
$
(0.04
)
 
$
1.51
 
Diluted
   
1.53
     
(0.04
)
   
1.49
 

   
December 31, 2018
 
   
As Reported
   
Impact of New
Accounting Guidance
   
Balances Without
Impact of New
Accounting Guidance
 
ASSETS
                 
Inventories
 
$
211.0
   
$
4.3
   
$
215.3
 
Other current assets
   
71.7
     
(8.2
)
   
63.5
 
Deferred income taxes
   
96.5
     
0.1
     
96.6
 
                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Deferred income taxes
 
$
9.1
   
$
(0.9
)
 
$
8.2
 
Retained earnings
   
465.8
     
(2.9
)
   
462.9
 

Note 3: Fair Value Measurements

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


·
Level 1 – Quoted prices for identical instruments in active markets.

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

·
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

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

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans. The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy. The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.5 million and $5.8 million as of December 31, 2018 and March 31, 2018, respectively.  The fair value of the Company’s long-term debt is disclosed in Note 15.

Note 4: Pensions

Pension cost included the following components:

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Service cost
 
$
0.2
   
$
0.1
   
$
0.4
   
$
0.4
 
Interest cost
   
2.4
     
2.5
     
7.2
     
7.4
 
Expected return on plan assets
   
(3.1
)
   
(2.9
)
   
(9.2
)
   
(8.9
)
Amortization of unrecognized net loss
   
1.4
     
1.4
     
4.2
     
4.2
 
Curtailment gain (a)
   
-
     
(0.3
)
   
-
     
(0.3
)
Net periodic benefit cost
 
$
0.9
   
$
0.8
   
$
2.6
   
$
2.8
 




(a)
During the third quarter of fiscal 2018, the Company recorded a curtailment gain as a result of the closure of a manufacturing facility in Austria (CIS segment). See Note 6 for additional information regarding the closure of this facility.

During the nine months ended December 31, 2018 and 2017, the Company contributed $4.6 million and $11.1 million, respectively to its U.S. pension plans.

Note 5: Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and other executives that consists of stock awards, stock options, and performance-based stock awards granted for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.

The Company calculates compensation expense based upon the fair value of the instruments at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards.  The Company recognized stock-based compensation expense of $1.6 million and $2.2 million for the three months ended December 31, 2018 and 2017, respectively. The Company recognized stock-based compensation expense of $6.8 million and $7.6 million for the nine months ended December 31, 2018 and 2017, respectively. The performance component of awards granted under the Company’s long-term incentive plan during the first quarter of fiscal 2019 is based upon both a target three-year average cash flow return on invested capital and a target three-year average revenue growth at the end of the three-year performance period.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The fair value of stock-based compensation awards granted during the nine months ended December 31, 2018 and 2017 were as follows:

   
Nine months ended December 31,
 
   
2018
   
2017
 
     
 
Shares
     
Fair Value
Per Award
       
Shares
     
Fair Value
Per Award
  
Stock options
   
0.2
   
$
7.81
     
0.2
   
$
7.30
 
Restricted stock awards
   
0.2
   
$
17.90
     
0.2
   
$
15.90
 
Performance stock awards
   
0.2
   
$
17.90
     
0.2
   
$
15.90
 
Unrestricted stock awards
   
0.1
   
$
17.60
     
0.1
   
$
16.95
 

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

   
Nine months ended December 31,
 
   
2018
   
2017
 
Expected life of awards in years
   
6.3
     
6.4
 
Risk-free interest rate
   
2.8
%
   
1.9
%
Expected volatility of the Company’s stock
   
39.7
%
   
44.3
%
Expected dividend yield on the Company’s stock
   
0.0
%
   
0.0
%

As of December 31, 2018, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be amortized over the remaining service periods, was as follows:

   
Unrecognized
Compensation
Expense
   
Weighted-Average
Remaining Service
Period in Years
 
Stock options
 
$
2.5
     
2.7
 
Restricted stock awards
   
5.9
     
2.7
 
Performance stock awards
   
4.2
     
1.7
 
Total
 
$
12.6
     
2.4
 

Note 6: Restructuring Activities

Restructuring and repositioning expenses for the first nine months of fiscal 2019 primarily resulted from restructuring activities within the VTS and CIS segments, including targeted headcount reductions.

During fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.2 million of restructuring expenses and a $1.3 million asset impairment charge during the third quarter of fiscal 2018 within the CIS segment.  Fiscal 2018 restructuring activities also included plant consolidation activities, targeted headcount reductions, and certain product line transfers in Europe within the VTS segment.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

During the third quarter of fiscal 2019, the Company recorded an additional $0.4 million asset impairment charge related to the closed CIS Austrian facility to reduce its carrying value to its current estimated fair value, less costs to sell.

Restructuring and repositioning expenses were as follows:

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Employee severance and related benefits
 
$
0.2
   
$
8.6
   
$
0.3
   
$
9.2
 
Other restructuring and repositioning expenses
   
0.3
     
0.8
     
0.4
     
2.3
 
Total
 
$
0.5
   
$
9.4
   
$
0.7
   
$
11.5
 

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 December 31,
 
   
2018
   
2017
 
Beginning balance
 
$
3.4
   
$
3.0
 
Additions
   
0.2
     
8.6
 
Payments
   
(0.9
)
   
(0.6
)
Effect of exchange rate changes
   
(0.1
)
   
0.2
 
Ending balance
 
$
2.6
   
$
11.2
 

   
Nine months ended December 31,
 
   
2018
   
2017
 
Beginning balance
 
$
11.0
   
$
6.5
 
Additions
   
0.3
     
9.2
 
Payments
   
(8.1
)
   
(5.1
)
Effect of exchange rate changes
   
(0.6
)
   
0.6
 
Ending balance
 
$
2.6
   
$
11.2
 


MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
Note 7: Other Income and Expense

Other income and expense consisted of the following:

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Equity in earnings of non-consolidated affiliate
 
$
0.3
   
$
0.1
   
$
0.7
   
$
-
 
Interest income
   
-
     
0.1
     
0.3
     
0.3
 
Foreign currency transactions (a)
   
(0.2
)
   
0.1
     
(1.1
)
   
(0.4
)
Net periodic benefit cost (b)
   
(0.6
)
   
(0.6
)
   
(2.0
)
   
(2.2
)
Total other expense - net
 
$
(0.5
)
 
$
(0.3
)
 
$
(2.1
)
 
$
(2.3
)




(a)
Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.

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

Note 8: Income Taxes

The Company’s effective tax rate for the three months ended December 31, 2018 and 2017 was 32.0 percent and 482.2 percent, respectively.  The Company’s effective tax rate for the nine months ended December 31, 2018 and 2017 was (13.2) percent and 86.6 percent, respectively.  The effective tax rates for the fiscal 2019 periods are lower than in the prior year, primarily due to $35.7 million of income tax charges recorded during the third quarter of fiscal 2018 related to the Company’s accounting for the Tax Cuts and Jobs Act (the “Tax Act”).  The Company completed its accounting for the Tax Act during fiscal 2019 and, as a result, recorded adjustments to the provisional amounts that were recorded in prior periods.  These adjustments resulted in income tax charges totaling $3.1 million during the third quarter of fiscal 2019 and tax benefits totaling $7.7 million during the first nine months of fiscal 2019.  Other factors that impacted the Company’s effective tax rate for the three and nine months ended December 31, 2018, as compared with the prior-year periods, included fiscal 2019 income tax benefits from the recognition of tax assets for both foreign tax credits and a manufacturing deduction in the United States, fiscal 2018 income tax benefits from the recognition of a development tax credit in Hungary, changes in the valuation allowances related to certain foreign jurisdictions, and changes in the mix of foreign and domestic earnings.  The recognition of tax assets resulted in tax benefits of $2.5 million and $17.0 million in the three and nine months ended December 31, 2018, respectively.  The Hungarian development tax credit resulted in tax benefits of $2.2 million and $7.9 million in the three and nine months ended December 31, 2017, respectively.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  Shortly after the Tax Act was enacted, the SEC issued accounting guidance which provided a one-year measurement period during which a company could complete its accounting for the impacts of the Tax Act.  To the extent a company’s accounting for certain income tax effects of the Tax Act was incomplete, the company could determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company could not determine a provisional estimate to be included in the financial statements, it was to continue applying the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.  The Company completed its accounting for the Tax Act during the third quarter of fiscal 2019.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under the Tax Act.

During fiscal 2019, the Company completed its accounting for the Tax Act, which resulted in an income tax benefit totaling $7.7 million.  The Company determined it will utilize its deferred tax attributes against the transition tax and finalized its fiscal 2018 U.S. federal income tax return.  As a result, the Company decreased the provisional charge recorded for the reduction in the U.S. federal corporate tax rate by $9.3 million, since more deferred tax assets were utilized to offset taxable income at a higher fiscal 2018 U.S. federal corporate tax rate.  The Company also decreased the transition tax liability to $18.9 million, a reduction of $0.1 million.  In addition, the Company recorded a charge of $1.7 million for a reduction to state deferred tax assets.

Also during fiscal 2019, the Company amended its tax returns from previous fiscal years to recognize foreign tax credits that are expected to be realized based on future sources of income.  As a result, the Company recorded income tax benefits totaling $0.9 million and $14.5 million in the three and nine months ended December 31, 2018, respectively.

The Company has elected to record the tax effects of the global intangible low taxed income (“GILTI”) provision as a period expense in the applicable tax year.

Previously, the Company’s practice and intention was to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S.  As a result, the Company did not record U.S. deferred income taxes or foreign withholding taxes for these earnings.  The Company has not changed its practices or intentions with respect to these earnings.

As of December 31, 2018, valuation allowances against deferred tax assets in certain foreign jurisdictions totaled $33.9 million and valuation allowances against certain U.S. deferred tax assets totaled $7.0 million, as it is more likely than not these assets will not be realized based upon historical financial results.  During the first quarter of fiscal 2019, the Company recorded a benefit of $2.0 million related to the reversal of a valuation allowance for deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized in the future.  During the second quarter of fiscal 2019, the Company recorded a valuation allowance of $1.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized.  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 does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2019.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 9: Earnings Per Share

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

   
Three months ended
December 31,
   
Nine months ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Net earnings (loss) attributable to Modine
 
$
18.0
   
$
(28.3
)
 
$
78.5
   
$
4.6
 
Less: Undistributed earnings attributable to unvested shares
   
(0.1
)
   
-
     
(0.3
)
   
-
 
Net earnings (loss) available to Modine shareholders
 
$
17.9
   
$
(28.3
)
 
$
78.2
   
$
4.6
 
                                 
Weighted-average shares outstanding - basic
   
50.5
     
50.0
     
50.4
     
49.8
 
Effect of dilutive securities
   
0.7
     
-
     
0.8
     
0.8
 
Weighted-average shares outstanding - diluted
   
51.2
     
50.0
     
51.2
     
50.6
 
                                 
Earnings per share:
                               
Net earnings (loss) per share - basic
 
$
0.36
   
$
(0.57
)
 
$
1.55
   
$
0.09
 
Net earnings (loss) per share - diluted
 
$
0.35
   
$
(0.57
)
 
$
1.53
   
$
0.09
 

For the three and nine months ended December 31, 2018, the calculation of diluted earnings per share excluded 0.5 million and 0.4 million stock options, respectively, because they were anti-dilutive.  For both the three and nine months ended December 31, 2017, the calculation of diluted earnings per share excluded 0.2 million stock options because they were anti-dilutive.  For the three months ended December 31, 2017, the total number of potentially dilutive securities was 1.1 million. However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.

Note 10: Cash, Cash Equivalents and Restricted Cash

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

   
December 31, 2018
   
March 31, 2018
 
Cash and cash equivalents
 
$
30.7
   
$
39.3
 
Restricted cash
   
0.7
     
1.0
 
   
$
31.4
   
$
40.3
 

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

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 11: Inventories

Inventories consisted of the following:

   
December 31, 2018
   
March 31, 2018
 
Raw materials
 
$
125.7
   
$
114.4
 
Work in process
   
34.8
     
34.8
 
Finished goods
   
50.5
     
42.1
 
Total inventories
 
$
211.0
   
$
191.3
 

Note 12: Property, Plant and Equipment

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

   
December 31, 2018
   
March 31, 2018
 
Land
 
$
21.1
   
$
22.6
 
Buildings and improvements (10-40 years)
   
288.3
     
295.6
 
Machinery and equipment (3-12 years)
   
838.8
     
840.8
 
Office equipment (3-10 years)
   
91.8
     
93.0
 
Construction in progress
   
61.9
     
50.2
 
     
1,301.9
     
1,302.2
 
Less: accumulated depreciation
   
(812.8
)
   
(797.9
)
Net property, plant and equipment
 
$
489.1
   
$
504.3
 

Note 13: Goodwill and Intangible Assets

Changes in the carrying amount of goodwill were as follows:

   
VTS
   
Building
HVAC
   
CIS
   
Total
 
Goodwill, March 31, 2018
 
$
0.5
   
$
15.0
   
$
158.3
   
$
173.8
 
Effect of exchange rate changes
   
-
     
(1.2
)
   
(3.6
)
   
(4.8
)
Goodwill, December 31, 2018
 
$
0.5
   
$
13.8
   
$
154.7
   
$
169.0
 

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
Intangible assets consisted of the following:

   
December 31, 2018
   
March 31, 2018
 
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Intangible
Assets
   
Gross
Carrying
Value
   
Accumulated
Amortization
   
Net
Intangible
Assets
 
 
 
Customer relationships
 
$
62.1
   
$
(8.3
)
 
$
53.8
   
$
64.2
   
$
(5.7
)
 
$
58.5
 
Trade names
   
59.1
     
(12.6
)
   
46.5
     
60.6
     
(10.8
)
   
49.8
 
Acquired technology
   
24.2
     
(5.0
)
   
19.2
     
25.2
     
(3.6
)
   
21.6
 
Total intangible assets
 
$
145.4
   
$
(25.9
)
 
$
119.5
   
$
150.0
   
$
(20.1
)
 
$
129.9
 

The Company recorded amortization expense of $2.2 million and $2.5 million for the three months ended December 31, 2018 and 2017, respectively. The Company recorded amortization expense of $6.8 million and $7.3 million for the nine months ended December 31, 2018 and 2017, respectively. The Company estimates that it will record $2.3 million of amortization expense during the remainder of fiscal 2019, $9.0 million of amortization expense in fiscal 2020 and approximately $8.0 million of annual amortization expense in fiscal 2021 through 2024.

Note 14: Product Warranties

Changes in accrued warranty costs were as follows:

   
Three months ended December 31,
 
   
2018
   
2017
 
Beginning balance
 
$
8.3
   
$
9.4
 
Warranties recorded at time of sale
   
1.3
     
2.0
 
Adjustments to pre-existing warranties
   
0.1
     
0.2
 
Settlements
   
(1.5
)
   
(2.1
)
Effect of exchange rate changes
   
-
     
0.1
 
Ending balance
 
$
8.2
   
$
9.6
 

   
Nine months ended December 31,
 
   
2018
   
2017
 
Beginning balance
 
$
9.3
   
$
10.0
 
Warranties recorded at time of sale
   
4.0
     
4.7
 
Adjustments to pre-existing warranties
   
(0.1
)
   
-
 
Settlements
   
(4.6
)
   
(4.6
)
Adjustments due to acquisition (a)
   
-
     
(1.0
)
Effect of exchange rate changes
   
(0.4
)
   
0.5
 
Ending balance
 
$
8.2
   
$
9.6
 




(a)
During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement period adjustments made in connection with purchase accounting for the November 2016 acquisition of the Luvata Heat Transfer Solutions business.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 15: Indebtedness

Long-term debt consisted of the following:


Fiscal year
of maturity
 
December 31, 2018
   
March 31, 2018
 
Term loans
2022
 
$
244.8
   
$
267.8
 
6.8% Senior Notes
2021
   
89.0
     
101.0
 
5.8% Senior Notes
2027
   
50.0
     
50.0
 
Other (a)
2034
   
20.4
     
12.8
 
       
404.2
     
431.6
 
Less: current portion
     
(45.7
)
   
(39.9
)
Less: unamortized debt issuance costs
     
(4.3
)
   
(5.4
)
Total long-term debt
   
$
354.2
   
$
386.3
 




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

As of December 31, 2018 and March 31, 2018, the Company had $43.9 million and $21.3 million, respectively, of short-term borrowings under its $175.0 million multi-currency revolving credit facility, which expires in November 2021.  As of December 31, 2018, domestic letters of credit totaled $4.3 million, resulting in available capacity under the Company’s revolving credit facility of $126.8 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings as of December 31, 2018 and March 31, 2018 of $23.6 million and $31.9 million, respectively.  As of December 31, 2018, the Company’s foreign unused lines of credit totaled $1.1 million.  In aggregate, the Company had total available lines of credit of $127.9 million as of December 31, 2018.

Provisions in the Company’s amended and restated credit agreement, Senior Note agreements, and various foreign credit agreements require the Company to maintain compliance with various covenants and include certain cross-default clauses. Under its primary debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as defined in the credit agreement, in the event the Company’s annual excess cash flow exceeds defined levels or in the event of certain asset sales.  The Company is also subject to leverage ratio covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its cash balance, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.  The Company was in compliance with its debt covenants as of December 31, 2018.

The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable maturities.  As of December 31, 2018 and March 31, 2018, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $139.9 million and $153.1 million, respectively.  The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 3 for the definition of a Level 2 fair value measurement.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 16: Contingencies and Litigation

Environmental
The Company has recorded environmental investigation and remediation accruals related to soil and groundwater contamination at manufacturing facilities in the United States, one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, along with accruals for lesser environmental matters at certain other facilities in the United States and Brazil.  These accruals generally relate to facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.  The accruals for these environmental matters totaled $18.1 million and $16.7 million as of December 31, 2018 and March 31, 2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon currently available information, the Company believes the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.  However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.

Other Litigation
In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted against Modine.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s financial position.

Note 17: Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:

   
Three months ended December 31, 2018
   
Nine months ended December 31, 2018
 
   
Foreign
Currency
Translation
   
Defined
Benefit Plans
   
Cash Flow
Hedges
   
Total
   
Foreign
Currency
Translation
   
Defined
Benefit
Plans
   
Cash Flow
Hedges
   
Total
 
Beginning balance
 
$
(35.5
)
 
$
(132.9
)
 
$
-
   
$
(168.4
)
 
$
(5.5
)
 
$
(134.9
)
 
$
0.1
   
$
(140.3
)
                                                                 
Other comprehensive loss before reclassifications
   
(2.1
)
   
-
     
(1.1
)
   
(3.2
)
   
(32.9
)
   
-
     
(1.3
)
   
(34.2
)
Reclassifications:
                                                               
Amortization of unrecognized net loss (a)
   
-
     
1.3
     
-
     
1.3
     
-
     
3.9
     
-
     
3.9
 
Foreign currency translation losses (b)
   
-
     
-
     
-
     
-
     
0.8
     
-
     
-
     
0.8
 
Income taxes
   
-
     
(0.3
)
   
0.2
     
(0.1
)
   
-
     
(0.9
)
   
0.3
     
(0.6
)
Total other comprehensive income (loss)
   
(2.1
)
   
1.0
     
(0.9
)
   
(2.0
)
   
(32.1
)
   
3.0
     
(1.0
)
   
(30.1
)
                                                                 
Ending balance
 
$
(37.6
)
 
$
(131.9
)
 
$
(0.9
)
 
$
(170.4
)
 
$
(37.6
)
 
$
(131.9
)
 
$
(0.9
)
 
$
(170.4
)

   
Three months ended December 31, 2017
   
Nine months ended December 31, 2017
 
   
Foreign
Currency
Translation
   
Defined
Benefit Plans
   
Cash Flow
Hedges
   
Total
   
Foreign
Currency
Translation
   
Defined
Benefit Plans
   
Cash Flow
Hedges
   
Total
 
Beginning balance
 
$
(19.0
)
 
$
(133.3
)
 
$
-
   
$
(152.3
)
 
$
(46.8
)
 
$
(135.0
)
 
$
-
   
$
(181.8
)
                                                                 
Other comprehensive income before reclassifications
   
4.6
     
-
     
0.6
     
5.2
     
32.4
     
-
     
0.6
     
33.0
 
Reclassifications for amortization of unrecognized net loss (a)
   
-
     
1.3
     
-
     
1.3
     
-
     
3.9
     
-
     
3.9
 
Income taxes
   
-
     
(0.4
)
   
(0.2
)
   
(0.6
)
   
-