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, 2017~~September 30, 2020

☐	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~~COMPANY

(Exact name of registrant as specified in its charter)

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes ☑ No ☐

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

Large Accelerated Filer ☐☑		Accelerated Filer ☑☐

Non-accelerated Filer ☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares outstanding of the ~~registrant's~~registrant’s common stock, $0.625 par value, was ~~50,461,190~~51,147,640 at ~~January 26, 2018.~~October 30, 2020.

~~Table of Contents~~

MODINE MANUFACTURING COMPANY

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements.	1

Item 2.	~~Management's~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2123

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	3034

Item 4.	Controls and Procedures.	30
		34
PART II.		OTHER INFORMATION

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds.~~	31

Item 6.	Exhibits.	32
		35
SIGNATURE		3336

Table of Contents

~~PART I.~~

~~FINANCIAL INFORMATION~~

~~Item 1.~~

~~Financial Statements.~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019

(In millions, except per share amounts)

(Unaudited)

	Three months ended December 31,						Nine months ended December 31,						Three months ended September 30,						Six months ended September 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Net sales	$	512.7		$	349.8		$	1,536.5		$	1,014.7		$	461.4		$	500.2		$	809.2		$	1,029.2
Cost of sales		427.3			290.8			1,276.5			845.4			380.6			424.5			682.3			870.1
Gross profit		85.4			59.0			260.0			169.3			80.8			75.7			126.9			159.1
Selling, general and administrative expenses		60.8			50.7			182.2			143.1			50.8			67.4			95.5			130.9
Restructuring expenses		9.4			1.6			11.5			6.0			1.5			2.3			6.1			4.1
Impairment charge		1.3			-			1.3			-
Gain on sale of facility		-			-			-			(1.2	)
Operating income		13.9			6.7			65.0			21.4			28.5			6.0			25.3			24.1
Interest expense		(6.3	)		(4.5	)		(19.5	)		(10.5	)		(5.2	)		(5.8	)		(10.6	)		(11.7	)
Other expense – net		(0.3	)		(1.0	)		(2.3	)		(2.8	)		(0.5	)		(1.3	)		(0.5	)		(2.4	)
Earnings before income taxes		7.3			1.2			43.2			8.1
(Provision) benefit for income taxes		(35.2	)		0.7			(37.4	)		(1.3	)
Net (loss) earnings		(27.9	)		1.9			5.8			6.8
Net earnings attributable to noncontrolling interest		(0.4	)		(0.2	)		(1.2	)		(0.6	)
Net (loss) earnings attributable to Modine	$	(28.3	)	$	1.7		$	4.6		$	6.2
Earnings (loss) before income taxes														22.8			(1.1	)		14.2			10.0
Provision for income taxes														(13.9	)		(3.7	)		(13.7	)		(6.6	)
Net earnings (loss)														8.9			(4.8	)		0.5			3.4
Net (earnings) loss attributable to noncontrolling interest														(0.3	)		0.1			(0.5	)		(0.1	)
Net earnings (loss) attributable to Modine													$	8.6		$	(4.7	)	$	0		$	3.3

Net (loss) earnings per share attributable to Modine shareholders:
Net earnings (loss) per share attributable to Modine shareholders:
Basic	$	(0.57	)	$	0.04		$	0.09		$	0.13		$	0.17		$	(0.09	)	$	0		$	0.07
Diluted	$	(0.57	)	$	0.04		$	0.09		$	0.13		$	0.17		$	(0.09	)	$	0		$	0.06

Weighted-average shares outstanding:
Basic		50.0			47.9			49.8			47.3			51.3			50.8			51.1			50.8
Diluted		50.0			48.5			50.6			47.7			51.3			50.8			51.1			51.1

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019

(In millions)

(Unaudited)

	Three months ended December 31,						Nine months ended December 31,						Three months ended September 30,						Six months ended September 30,
	2017			2016			2017			2016			2020			2019			2020			2019
Net (loss) earnings	$	(27.9	)	$	1.9		$	5.8		$	6.8
Net earnings (loss)													$	8.9		$	(4.8	)	$	0.5		$	3.4
Other comprehensive income (loss):
Foreign currency translation		5.0			(14.8	)		32.8			(17.7	)		17.4			(19.5	)		22.8			(17.7	)
Defined benefit plans, net of income taxes of $0.4, $0.4, $1.3 and $1.3 million		0.9			0.9			2.6			2.6
Cash flow hedges, net of income taxes of $0.2, $0, $0.2 and $0 million		0.4			-			0.4			-
Defined benefit plans, net of income taxes of $0.4, $0.3, $0.8 and $0.6 million														1.3			1.1			2.5			2.2
Cash flow hedges, net of income taxes of $0.2, $0.1, $0.5 and $0.4 million														0.4			(0.2	)		1.4			(1.0	)
Total other comprehensive income (loss)		6.3			(13.9	)		35.8			(15.1	)		19.1			(18.6	)		26.7			(16.5	)

Comprehensive income (loss)		(21.6	)		(12.0	)		41.6			(8.3	)		28.0			(23.4	)		27.2			(13.1	)
Comprehensive (income) loss attributable to noncontrolling interest		(0.8	)		0.4			(1.6	)		(0.1	)		(0.4	)		0.3			(0.7	)		0.2
Comprehensive income (loss) attributable to Modine	$	(22.4	)	$	(11.6	)	$	40.0		$	(8.4	)	$	27.6		$	(23.1	)	$	26.5		$	(12.9	)

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED BALANCE SHEETS

~~December 31, 2017~~September 30, 2020 and March 31, ~~2017~~2020

(In millions, except per share amounts)

(Unaudited)

	December 31, 2017			March 31, 2017			September 30, 2020			March 31, 2020
ASSETS
Cash and cash equivalents	$	47.8		$	34.2		$	62.5		$	70.9
Trade accounts receivable – net		289.0			295.2			297.2			292.5
Inventories		186.8			168.5			201.7			207.4
Other current assets		60.0			55.4			55.0			62.5
Total current assets		583.6			553.3			616.4			633.3
Property, plant and equipment – net		491.3			459.0			439.1			448.0
Intangible assets – net		132.5			134.1			104.6			106.3
Goodwill		172.2			165.1			169.4			166.1
Deferred income taxes		95.6			108.4			102.8			104.8
Other noncurrent assets		27.0			29.6			78.6			77.6
Total assets	$	1,502.2		$	1,449.5		$	1,510.9		$	1,536.1

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt	$	53.5		$	73.4		$	17.1		$	14.8
Long-term debt – current portion		37.9			31.8			13.5			15.6
Accounts payable		243.7			230.3			224.5			227.4
Accrued compensation and employee benefits		89.0			74.8			75.1			65.0
Other current liabilities		44.9			45.1			61.3			49.2
Total current liabilities		469.0			455.4			391.5			372.0
Long-term debt		394.5			405.7			373.8			452.0
Deferred income taxes		9.4			9.7			7.1			8.1
Pensions		105.7			119.4			130.2			130.9
Other noncurrent liabilities		52.0			38.1			86.1			79.5
Total liabilities		1,030.6			1,028.3			988.7			1,042.5
Commitments and contingencies (see Note 15)
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 52.3 million and 51.8 million shares		32.7			32.4
Commitments and contingencies (see Note 17)
Shareholders’ equity:
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - NaN								0			0
Common stock, $0.625 par value, authorized 80.0 million shares, issued 53.8 million and 53.4 million shares								33.6			33.3
Additional paid-in capital		227.2			216.4			247.0			245.1
Retained earnings		377.3			372.4			469.9			469.9
Accumulated other comprehensive loss		(146.4	)		(181.8	)		(196.8	)		(223.3	)
Treasury stock, at cost, 1.8 million and 1.7 million shares		(27.1	)		(25.4	)
Total Modine shareholders' equity		463.7			414.0
Treasury stock, at cost, 2.7 million and 2.5 million shares								(37.9	)		(37.1	)
Total Modine shareholders’ equity								515.8			487.9
Noncontrolling interest		7.9			7.2			6.4			5.7
Total equity		471.6			421.2			522.2			493.6
Total liabilities and equity	$	1,502.2		$	1,449.5		$	1,510.9		$	1,536.1

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

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MODINE MANUFACTURING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019

(In millions)

(Unaudited)

	Nine months ended December 31,						Six months ended September 30,
	2017			2016			2020			2019
Cash flows from operating activities:
Net earnings	$	5.8		$	6.8		$	0.5		$	3.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		56.8			39.9			37.9			38.3
Stock-based compensation expense		7.6			6.1			2.1			4.4
Impairment charge		1.3			-
Gain on sale of facility		-			(1.2	)
Deferred income taxes		10.1			(9.1	)		1.0			(0.5	)
Other – net		6.6			1.5			2.5			2.0
Changes in operating assets and liabilities:
Trade accounts receivable		22.3			33.2			4.4			19.9
Inventories		(10.5	)		-			11.0			(26.2	)
Accounts payable		2.2			(21.1	)		(5.7	)		(5.6	)
Other assets and liabilities		3.4			(21.1	)		33.6			(18.2	)
Net cash provided by operating activities		105.6			35.0			87.3			17.5

Cash flows from investing activities:
Expenditures for property, plant and equipment		(55.0	)		(46.0	)		(14.6	)		(41.4	)
Acquisition of Luvata HTS – net of cash acquired		-			(363.9	)
Proceeds from dispositions of assets		0.1			4.3
Proceeds from disposition of assets								0.6			0
Proceeds from sale of investment in affiliate								0			3.8
Other – net		(0.9	)		0.4			0.7			1.0
Net cash used for investing activities		(55.8	)		(405.2	)		(13.3	)		(36.6	)

Cash flows from financing activities:
Borrowings of debt		121.5			475.4			8.2			425.0
Repayments of debt		(162.5	)		(113.2	)		(103.0	)		(413.1	)
Borrowings on bank overdraft facilities – net								12.5			12.4
Financing fees paid								(0.8	)		(1.1	)
Purchases of treasury stock under share repurchase program								0			(2.4	)
Dividend paid to noncontrolling interest		(0.9	)		-			0			(1.3	)
Financing fees paid		-			(8.5	)
Other – net		2.7			(0.3	)		(0.8	)		(3.0	)
Net cash (used for) provided by financing activities		(39.2	)		353.4			(83.9	)		16.5

Effect of exchange rate changes on cash		3.0			(2.1	)		1.3			(0.9	)
Net increase (decrease) in cash and cash equivalents		13.6			(18.9	)
Net decrease in cash, cash equivalents and restricted cash								(8.6	)		(3.5	)

Cash and cash equivalents – beginning of period		34.2			68.9
Cash and cash equivalents – end of period	$	47.8		$	50.0
Cash, cash equivalents and restricted cash – beginning of period								71.3			42.2
Cash, cash equivalents and restricted cash – end of period							$	62.7		$	38.7

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three and six months ended September 30, 2020 and 2019

(In millions)

(Unaudited)

	Common stock				Additional paid-in			Retained			Accumulated other			Treasury stock, at			Non- controlling
	Shares		Amount		capital			earnings			comprehensive loss			cost			interest		Total
Balance, March 31, 2020		53.4	$	33.3	$	245.1		$	469.9		$	(223.3	)	$	(37.1	)	$	5.7	$	493.6
Net loss attributable to Modine		-		0		0			(8.6	)		0			0			0		(8.6	)
Other comprehensive income		-		0		0			0			7.5			0			0.1		7.6
Stock options and awards		0.3		0.2		(0.2	)		0			0			0			0		0
Purchase of treasury stock		-		0		0			0			0			(0.8	)		0		(0.8	)
Stock-based compensation expense		-		0		0.7			0			0			0			0		0.7
Net earnings attributable to noncontrolling interest		-		0		0			0			0			0			0.2		0.2
Balance, June 30, 2020		53.7	$	33.5	$	245.6		$	461.3		$	(215.8	)	$	(37.9	)	$	6.0	$	492.7
Net earnings attributable to Modine		-		0		0			8.6			0			0			0		8.6
Other comprehensive income		-		0		0			0			19.0			0			0.1		19.1
Stock options and awards		0.1		0.1		0			0			0			0			0		0.1
Stock-based compensation expense		-		0		1.4			0			0			0			0		1.4
Net earnings attributable to noncontrolling interest		-		0		0			0			0			0			0.3		0.3
Balance, September 30, 2020		53.8	$	33.6	$	247.0		$	469.9		$	(196.8	)	$	(37.9	)	$	6.4	$	522.2

	Common stock				Additional paid-in			Retained			Accumulated other			Treasury stock, at			Non-controlling
	Shares		Amount		capital			earnings			comprehensive loss			cost			interest			Total
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		-		0		0			8.0			0			0			0			8.0
Other comprehensive income (loss)		-		0		0			0			2.2			0			(0.1	)		2.1
Stock options and awards		0.5		0.2		(0.1	)		0			0			0			0			0.1
Purchase of treasury stock		-		0		0			0			0			(5.6	)		0			(5.6	)
Stock-based compensation expense		-		0		1.7			0			0			0			0			1.7
Dividend paid to noncontrolling interest		-		0		0			0			0			0			(1.3	)		(1.3	)
Net earnings attributable to noncontrolling interest		-		0		0			0			0			0			0.2			0.2
Balance, June 30, 2019		53.3	$	33.2	$	240.2		$	480.1		$	(176.2	)	$	(37.0	)	$	6.0		$	546.3
Net loss attributable to Modine		-		0		0			(4.7	)		0			0			0			(4.7	)
Other comprehensive loss		-		0		0			0			(18.4	)		0			(0.2	)		(18.6	)
Stock-based compensation expense		-		0		2.7			0			0			0			0			2.7
Net loss attributable to noncontrolling interest		-		0		0			0			0			0			(0.1	)		(0.1	)
Balance, September 30, 2019		53.3	$	33.2	$	242.9		$	475.4		$	(194.6	)	$	(37.0	)	$	5.7		$	525.6

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Note 1:~~

~~General~~

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”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the ~~fiscal year ended March 31, 2017, except in regards~~instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the ~~new accounting guidance adopted, as described below.~~information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements. The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods. Results for the first ~~nine~~six months of fiscal ~~2018~~2021 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~~Modine’s Annual Report on Form 10-K for the year ended March 31, ~~2017.~~2020.

~~United States Tax Reform~~COVID-19

In ~~December 2017, U.S. tax reform legislation was enacted and included various changes to existing U.S. tax regulations. As~~March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a ~~result of these changes, the Company recorded income tax charges totaling $35.7 million during the third quarter of fiscal 2018.~~pandemic. See Note 817 for additional information regarding the ~~recently-enacted tax reform legislation.~~risks and uncertainties to our business resulting from this global pandemic.

~~Acquisition~~

Chief Executive Officer (“CEO”) Transition

In August 2020, Thomas A. Burke stepped down from his position as President and CEO. The Board of ~~Luvata HTS~~Directors launched a search for a new CEO and named Michael B. Lucareli, the Company’s Vice President, Finance and Chief Financial Officer, as Interim President and CEO. As a result of Mr. Burke's departure and in connection with the search for his successor, the Company recorded costs totaling $5.5 million during the second quarter of fiscal 2021. These costs, which were recorded as selling, general and administrative (“SG&A”) expenses at Corporate, primarily consisted of severance and benefit-related expenses based upon the terms of Mr. Burke's transition and separation agreement and costs directly associated with the CEO search, partially offset by the impact of Mr. Burke's forfeited stock-based compensation awards.

~~On November 30, 2016,~~

Sale of Nikkei Heat Exchanger Company, Ltd. (“NEX”)

During the second quarter of fiscal 2020, the Company completed the ~~acquisition~~sale of ~~100~~its 50 percent ownership interest in NEX for a selling price of $3.8 million. Prior to the ~~shares~~sale, the Company accounted for its investment in this non-consolidated affiliate using the equity method. As a result of ~~multiple companies held by Luvata Heat Transfer Solutions II AB,~~this sale, the Company recorded a ~~company incorporated in Sweden. Combined, these acquired companies represented~~gain of $0.1 million, which included the ~~Luvata Heat Transfer Solutions (“Luvata HTS”) business. See Note 2 for additional information.~~write-off of accumulated foreign currency translation gains of $0.6 million, within other income and expense on the consolidated statements of operations.

New Accounting Guidance

~~Derivatives and Hedging~~

In ~~August 2017,~~June 2016, the Financial Accounting Standards Board ~~(“FASB”)~~ issued new guidance related to ~~hedge accounting.~~the accounting for credit losses for certain financial assets, including trade accounts receivable and contract assets. The ~~main objectives of the~~ new guidance ~~include aligning hedge accounting with companies’ risk management strategies~~modifies the credit loss model to measure and ~~increasing disclosure transparency regarding both the scope and results of hedging programs.~~recognize credit losses based upon expected losses rather than incurred losses. The Company ~~early~~ adopted ~~the new~~this guidance ~~in the third quarter~~as of ~~fiscal 2018. This new guidance~~April 1, 2020. The adoption did not have a material impact on the Company’s consolidated ~~financial statements.~~balance sheets, statements of operations or statements of cash flows.

~~Pension Costs~~

In March 2017, the FASB issued new guidance related to the income statement presentation of pension and postretirement costs. This guidance requires companies to continue to present the service cost component of net periodic benefit cost within the same financial statement line item as other employee compensation costs; however, other components of net benefit cost are required to be presented outside of results from operations. The Company adopted this guidance, on a retrospective basis, beginning in its first quarter of fiscal 2018. As a result, the Company recorded $0.6 million and $2.2 million of net periodic benefit cost within other income and expense for the three and nine months ended December 31, 2017, respectively, and reclassified the net periodic benefit cost, exclusive of service cost, to other income and expense for the comparative periods in fiscal 2017. For the three and nine months ended December 31, 2016, the Company reclassified net periodic benefit cost totaling $0.7 million ($0.3 million from cost of sales and $0.4 million from selling, general and administrative (“SG&A”) expenses) and $2.2 million ($0.9 million from cost of sales and $1.3 million from SG&A expenses), respectively, to other income and expense.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Share-based Compensation~~

~~In March 2016, the FASB issued new guidance to simplify several aspects~~

Note 2: Revenue Recognition

Disaggregation of ~~accounting~~Revenue

The table below presents revenue for ~~share-based payment transactions. The Company adopted this guidance beginning in its first quarter~~each of fiscal 2018. The Company elected to account for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to equity. In addition, the Company prospectively adopted the guidance requiring all excess tax benefits or deficiencies to be recognized as income tax expense or benefit when share-based awards are settled. The provisions of this guidance did not have a material impact on the Company's consolidated financial statements. As a result of adopting this new guidance, the Company recorded a $0.4 million increase to both deferred tax assets and equity as of April 1, 2017.

~~Leases~~

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

~~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 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. This new guidance will be effective for the Company’s first quarter of fiscal 2019, and the Company plans to adopt it using a modified-retrospective transition method.

The Company is currently in the process of assessing customer contracts and evaluating contractual provisions that may result in a change in the timing of revenue recognized in comparison with current guidance. Under current guidance, the Company generally recognizes revenue when products are shipped and risk of loss has transferred to the customer. The Company is evaluating whether provisions in certain customer contracts may provide an enforceable right to payment for customized products, which may require revenue recognition prior to the product being shipped to the customer. In addition, the Company is evaluating pricing provisions contained in certain of its customer contracts to determine the appropriate timing of revenue recognition based upon the new guidance. The Company continues to evaluate the impact this new guidance will have on its consolidated financial statements and its revenue recognition policies.

~~Note 2:~~

~~Acquisition of Luvata HTS~~

~~On November 30, 2016, the Company completed its acquisition of a 100 percent ownership interest in the Luvata HTS~~ business ~~for consideration totaling $415.6 million ($388.2 million, net of cash acquired). Operating as Modine’s~~segments, Commercial and Industrial Solutions (“CIS”), Building HVAC Systems (“BHVAC”), Heavy Duty Equipment (“HDE”) and Automotive. Each segment’s revenue is disaggregated by primary end market, by geographic location and based upon the timing of revenue recognition, and includes inter-segment sales.

Effective April 1, 2020, the Company realigned its segment ~~this business is a leading global supplier of coils, coolers and coatings~~structure. The segment revenue information presented in the table below for fiscal 2020 has been recast to conform to the ~~heating, ventilation, air conditioning, and refrigeration industry. For~~fiscal 2021 presentation. See Note 19 for additional information regarding the ~~nine months ended December 31, 2017, the Company included $451.6 million of net sales and~~Company’s operating income of $14.3 million within its consolidated statement of operations attributable to CIS operations. For the nine months ended December 31, 2016, the Company included $34.7 million of net sales and an operating loss of $0.3 million attributable to one month of CIS operations.segments.

	Three months ended September 30, 2020										Three months ended September 30, 2019
	CIS		BHVAC		HDE		Automotive		Segment Total		CIS		BHVAC		HDE		Automotive		Segment Total
Primary end market:
Commercial HVAC&R	$	105.3	$	48.1	$	0	$	0	$	153.4	$	115.9	$	46.1	$	0	$	0	$	162.0
Data center cooling		14.4		13.6		0		0		28.0		26.7		9.5		0		0		36.2
Industrial cooling		12.7		0		0		0		12.7		11.7		0		0		0		11.7
Commercial vehicle		0		0		61.5		3.8		65.3		0		0		76.1		5.7		81.8
Off-highway		0		0		58.1		0.8		58.9		0		0		56.7		2.9		59.6
Automotive and light vehicle		0		0		28.0		97.6		125.6		0		0		30.4		104.7		135.1
Other		1.7		0.2		18.0		7.7		27.6		2.4		0.4		24.0		2.4		29.2
Net sales	$	134.1	$	61.9	$	165.6	$	109.9	$	471.5	$	156.7	$	56.0	$	187.2	$	115.7	$	515.6

Geographic location:
Americas	$	67.6	$	38.5	$	98.6	$	16.9	$	221.6	$	86.0	$	38.1	$	127.5	$	17.6	$	269.2
Europe		53.0		23.4		32.1		75.4		183.9		57.5		17.9		31.7		82.6		189.7
Asia		13.5		0		34.9		17.6		66.0		13.2		0		28.0		15.5		56.7
Net sales	$	134.1	$	61.9	$	165.6	$	109.9	$	471.5	$	156.7	$	56.0	$	187.2	$	115.7	$	515.6

Timing of revenue recognition:
Products transferred at a point in time	$	122.9	$	61.9	$	157.4	$	109.9	$	452.1	$	132.4	$	56.0	$	178.6	$	115.7	$	482.7
Products transferred over time		11.2		0		8.2		0		19.4		24.3		0		8.6		0		32.9
Net sales	$	134.1	$	61.9	$	165.6	$	109.9	$	471.5	$	156.7	$	56.0	$	187.2	$	115.7	$	515.6

	Six months ended September 30, 2020										Six months ended September 30, 2019
	CIS		BHVAC		HDE		Automotive		Segment Total		CIS		BHVAC		HDE		Automotive		Segment Total
Primary end market:
Commercial HVAC&R	$	199.2	$	80.6	$	0	$	0	$	279.8	$	246.8	$	84.1	$	0	$	0	$	330.9
Data center cooling		28.2		28.6		0		0		56.8		50.9		20.1		0		0		71.0
Industrial cooling		24.6		0		0		0		24.6		23.1		0		0		0		23.1
Commercial vehicle		0		0		107.8		5.9		113.7		0		0		168.8		11.7		180.5
Off-highway		0		0		111.5		1.5		113.0		0		0		126.9		6.6		133.5
Automotive and light vehicle		0		0		41.0		152.0		193.0		0		0		57.2		207.1		264.3
Other		4.6		0.3		28.8		12.6		46.3		4.7		0.8		50.7		3.9		60.1
Net sales	$	256.6	$	109.5	$	289.1	$	172.0	$	827.2	$	325.5	$	105.0	$	403.6	$	229.3	$	1,063.4

Geographic location:
Americas	$	127.5	$	64.5	$	166.5	$	24.4	$	382.9	$	183.1	$	67.2	$	263.5	$	35.0	$	548.8
Europe		103.9		45.0		56.2		115.0		320.1		116.1		37.8		78.1		165.6		397.6
Asia		25.2		0		66.4		32.6		124.2		26.3		0		62.0		28.7		117.0
Net sales	$	256.6	$	109.5	$	289.1	$	172.0	$	827.2	$	325.5	$	105.0	$	403.6	$	229.3	$	1,063.4

Timing of revenue recognition:
Products transferred at a point in time	$	232.2	$	109.5	$	278.7	$	172.0	$	792.4	$	276.3	$	105.0	$	387.6	$	229.3	$	998.2
Products transferred over time		24.4		0		10.4		0		34.8		49.2		0		16.0		0		65.2
Net sales	$	256.6	$	109.5	$	289.1	$	172.0	$	827.2	$	325.5	$	105.0	$	403.6	$	229.3	$	1,063.4

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Contract Balances

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

	September 30, 2020		March 31, 2020
Contract assets	$	14.6	$	21.7
Contract liabilities		8.4		5.6

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 ~~Company has completed the purchase price allocation for its acquisition of Luvata HTS. During~~$7.1 million decrease in contract assets during the first ~~and second quarters~~six months of fiscal ~~2018,~~2021 primarily resulted from a decrease in contract assets for revenue recognized over time.

Contract liabilities, included within other current liabilities in the ~~Company recorded measurement-period adjustments which resulted~~consolidated balance sheets, consist of payments received in anadvance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. The $2.8 million increase in ~~goodwill totaling $1.3 million,~~contract liabilities during the first six months of fiscal 2021 was primarily ~~due~~related to ~~increases to income tax reserves and changes~~customer contracts for which payment was received in ~~liabilities for product warranties.~~

~~The Company’s allocation~~advance of the ~~purchase price for its acquisition~~Company’s satisfaction of ~~Luvata HTS is as follows:~~

Cash and cash equivalents $ 27.4
Trade accounts receivable 86.1
Inventories 55.0
Property, plant and equipment 120.4
Intangible assets 130.2
Goodwill 151.9
Other assets 39.1
Accounts payable (73.7 )
Accrued compensation and employee benefits (24.3 )
Deferred income taxes (39.5 )
Pensions (14.3 )
Other liabilities (42.7 )
Purchase price $ 415.6

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016. This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated.

Three months ended
December 31, 2016

Nine months ended
December 31, 2016

Net sales $ 439.5 $ 1,393.3
Net earnings attributable to Modine 8.5 26.8
Net earnings per share attributable to Modine shareholders:
Basic $ 0.17 $ 0.54
Diluted 0.17 0.53

The supplemental pro forma financial information includes adjustments for: (i) quarterly amortization and depreciation expense totaling $3.2 million for acquired tangible and intangible assets, (ii) estimated quarterly interest expense of $3.5 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions. In addition, the pro forma financial information assumes that both $8.6 million of fiscal 2017 acquisition-related transaction costs and a $2.9 million inventory purchase accounting adjustment recorded in the third quarter of fiscal 2017 were incurred during fiscal 2016. The pro forma financial information does not reflect achieved or expected cost and revenue synergies.

~~Table of Contents~~

performance obligations.

~~MODINE MANUFACTURING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In millions, except per share amounts)~~

~~(unaudited)~~

~~Note 3:~~

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, ~~and~~ 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~~investments in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans. The ~~securities’~~Company records the fair ~~values, which are recorded as~~value of these investments within other noncurrent assets ~~are determined based upon quoted prices from active markets and classified~~on its consolidated balance sheets. The Company classifies money market investments held by the trusts within Level 2 of the valuation hierarchy. The Company classifies all other investments held by the trusts within Level 1 of the valuation ~~hierarchy.~~hierarchy, as it uses quoted market prices to determine the investments’ fair value. 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 ~~trusts.~~trust. The fair values of the investments and obligations for the Company’s ~~trading securities and~~ deferred compensation ~~obligations~~plans each totaled ~~$5.7~~$3.5 and $3.8 million ~~and $5.0 million at December 31, 2017~~ as of September 30,2020 and March 31, ~~2017,~~2020, respectively. The fair value of the Company’s long-term debt is disclosed in Note ~~14.~~16.

~~Note 4:~~

~~Pensions~~

~~Pension cost included the following components:~~

Nine months ended
December 31,

~~(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.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 4: Pensions

Pension cost included the following components:

	Three months ended September 30,						Six months ended September 30,
	2020			2019			2020			2019
Service cost	$	0.1		$	0.1		$	0.2		$	0.2
Interest cost		1.9			2.2			3.9			4.5
Expected return on plan assets		(2.8	)		(2.9	)		(5.7	)		(5.9	)
Amortization of unrecognized net loss		1.8			1.5			3.5			3.0
Net periodic benefit cost	$	1.0		$	0.9		$	1.9		$	1.8

During the ~~nine~~six months ended ~~December 31, 2017 and 2016,~~September 30, 2019, the Company contributed ~~$11.1~~$1.7 million ~~and $6.3 million, respectively,~~ to its U.S. pension plans. The Company has 0t yet made contributions to its U.S. pension plans during fiscal 2021, as permitted by the Coronavirus Aid, Relief and Economic Security Act. The Company expects to contribute approximately $20.0 million to its U.S. pension plans during the second half of fiscal 2021.

~~Note 5:~~

Note 5: Stock-Based Compensation

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

The Company calculates compensation expense based upon the fair value of the instruments at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards. The Company recognized stock-based compensation expense of ~~$2.2~~$1.4 million and ~~$2.6~~$2.7 million for the three months ended ~~December 31, 2017~~September 30,2020 and ~~2016,~~2019, respectively. The Company recognized stock-based compensation expense of ~~$7.6~~$2.1 million and ~~$6.1~~$4.4 million for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016,~~2019, respectively. The performance component of awards granted under the Company’s long-term incentive plan during the first quarter of fiscal 2018 is based upon both a target three-year average return on average capital employed 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 nine months ended December 31, 2017 and 2016 were as follows:~~

Nine months ended December 31,
2017 2016
Shares
Fair Value
Per Award
Shares
Fair Value
Per Award

Stock options 0.2 $ 7.30 0.3 $ 4.60
Restricted stock awards 0.2 $ 15.90 0.3 $ 10.03
Performance stock awards 0.2 $ 15.90 0.3 $ 10.00
Unrestricted stock awards 0.1 $ 16.95 0.1 $ 9.38

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

Nine months ended December 31,
2017 2016
Expected life of awards in years 6.4 6.4
Risk-free interest rate 1.9 % 1.4 %
Expected volatility of the Company's stock 44.3 % 45.5 %
Expected dividend yield on the Company's stock 0.0 % 0.0 %

~~MODINE MANUFACTURING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In millions, except per share amounts)~~

~~(unaudited)~~

As of ~~December 31, 2017,~~September 30, 2020, 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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

In October 2020, the Company granted stock-based awards to officers and other executives under the LTIP. The Company granted 0.4 million each of restricted stock awards and stock options, with fair values of $6.62 and $3.32 per award, respectively. In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants. The performance metrics for the cash awards are based upon 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 ending March 31, 2023. These performance metrics are the same as those contained within the fiscal 2020 and 2019 performance-based stock awards.

~~Note 6:~~

Note 6: Restructuring Activities

~~During the third quarter of fiscal 2018, the~~The Company ~~ceased~~is currently transferring production atfrom its ~~Gailtal, Austria~~ manufacturing facility ~~primarily~~in Zhongshan, China 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, within the~~another CIS segment ~~during the third quarter of fiscal 2018. These restructuring expenses primarily related~~manufacturing facility in China, which it expects to ~~employee severance and related benefits. Also~~complete in the third quarter of fiscal ~~2018,~~2021. As a result of the plant consolidation activities in China, the Company recorded a $1.3 million ~~asset impairment charge to reduce~~and $3.0 million of severance expenses during the ~~carrying value~~three and six months ended September 30, 2020, respectively. In addition, the Company is in the process of ~~the Austrian facility~~transferring product lines to its ~~estimated fair value, less costs~~CIS manufacturing facility in Mexico.

During the first quarter of fiscal 2021, the Company implemented targeted headcount reductions, the most significant of which were in North America in the HDE and CIS segments. The headcount reductions were in response to ~~sell.~~lower market demand and support the Company’s objective of reducing operational and SG&A cost structures.

The Company’s restructuring actions during the first ~~nine~~six months of fiscal ~~2018 also included~~2020 consisted primarily of targeted headcount reductions and plant consolidation ~~activities~~activities. The fiscal 2020 headcount reductions were primarily in Europe within the Automotive segment and in the Americas ~~segment and targeted headcount reductions in the Americas and Europe segments. In addition, the Company transferred production of certain product lines to Hungary from other manufacturing facilities~~ within the ~~Europe segment, primarily to expand its low-cost country footprint in Europe and to ensure continued competitiveness in the region.~~HDE segment.

~~The Company’s restructuring actions during the first nine months of fiscal 2017 primarily consisted of plant consolidation activities and targeted headcount reductions in the Americas segment.~~

Restructuring and repositioning expenses were as follows:

Three months ended
December 31,

Nine months ended
December 31,

2017 2016 2017 2016
Employee severance and related benefits $ 8.6 $ 0.1 $ 9.2 $ 2.2
Other restructuring and repositioning expenses 0.8 1.5 2.3 3.8
Total $ 9.4 $ 1.6 $ 11.5 $ 6.0

Other restructuring and repositioning expenses primarily consist of equipment ~~transfer~~transfers and plant consolidation costs.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

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,
2017 2016
Beginning balance $ 3.0 $ 9.2
Additions 8.6 0.1
Payments (0.6 ) (1.3 )
Effect of exchange rate changes 0.2 (0.5 )
Ending balance $ 11.2 $ 7.5

Nine months ended December 31,
2017 2016
Beginning balance $ 6.5 $ 14.7
Additions 9.2 2.2
Payments (5.1 ) (8.5 )
Effect of exchange rate changes 0.6 (0.9 )
Ending balance $ 11.2 $ 7.5

~~During the second quarter of fiscal 2017, the Company sold a manufacturing facility in its Europe segment for cash proceeds of $4.3 million and recognized a gain of $1.2 million as a result.~~

~~Note 7:~~

Note 7: Other Income and Expense

Other income and expense consisted of the following:

Three months ended
December 31,

Nine months ended
December 31,

2017 2016 2017 2016
Equity in earnings of non-consolidated affiliate $ 0.1 $ - $ - $ 0.1
Interest income 0.1 0.1 0.3 0.3
Foreign currency transactions (a) 0.1 (0.4 ) (0.4 ) (1.0 )
Net periodic benefit cost (b) (0.6 ) (0.7 ) (2.2 ) (2.2 )
Total other expense - net $ (0.3 ) $ (1.0 ) $ (2.3 ) $ (2.8 )

(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.~~contracts.

(b)

~~Represents net~~Net periodic benefit ~~cost, exclusive of service~~ cost for the Company’s pension and postretirement ~~plans.~~plans is exclusive of service cost.

(c)	The Company sold its ownership interest in NEX during the second quarter of fiscal 2020. See Note 1 for additional information.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Note 8:~~

~~Income Taxes~~

Note 8: Income Taxes

The Company’s effective tax rate for the three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019 was ~~482.2~~ 61.0percent and ~~(58.3)~~(336.4) percent, respectively. The Company’s effective tax rate for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019 was ~~86.6~~96.5 percent and ~~16.0~~66.0 percent, respectively. The effective tax rates for the fiscal ~~2018~~2021 periods ~~are higher than~~were negatively impacted by an income tax charge related to a valuation allowance on deferred tax assets in the ~~prior year, primarily due to third quarter charges totaling $35.7 million related to~~U.S., as further described below, and favorably impacted by the recently-enacted tax reform legislation in the U.S. Other factors that impacted the Company’s effective tax rate for the three and nine months ended December 31, 2017, as compared with the prior-year periods, wereglobal intangible low taxed income ~~tax benefits resulting from a development tax credit in Hungary, changes in the valuation allowances related to certain foreign jurisdictions, and changes in the mix~~(“GILTI”) provision of foreign and domestic earnings. In addition, the effective tax rate for the nine months ended December 31, 2017 benefitted from a $1.8 million reduction in unrecognized tax benefits during the second quarter of fiscal 2018 that resulted from a lapse in statutes of limitations. The development tax credit in Hungary resulted in a tax benefit 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 Cuts and Jobs Act, ~~(the “Tax Act”). The Tax Act includes broad and complex changes to the U.S. tax code, including (i) a reduction~~as finalized regulations were enacted in the ~~U.S. federal corporate tax rate from 35 percent to 21 percent~~second quarter. In the fiscal 2020 periods, the effective January 1, 2018, and (ii) a transition tax on certain unrepatriated earnings of foreign subsidiaries. For fiscal 2018, the Company will record its income tax provision based on a blended U.S. statutory tax rate of 31.5 percent, which is based on a proration of the applicable tax rates ~~before and after~~were favorably impacted by the ~~effective date~~release of ~~the Tax Act. The statutory~~an unrecognized tax ~~rate of 21 percent will apply for fiscal 2019 and beyond.~~benefit.

The Tax Act also puts in place new tax laws that may impact the Company’s taxable income beginning in fiscal 2019, which include, but are not limited to (i) creating a base erosion anti-abuse tax (BEAT), which is a new minimum tax, (ii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (iii) adding a new provision designed to tax global intangible low taxed income (GILTI), (iv) adding a provision that could limit the amount of deductible interest expense, and (v) limiting the deductibility of certain executive compensation.

Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During the ~~third~~second quarter of fiscal ~~2018,~~2021, the Company recorded ~~provisional discrete~~an income tax ~~charges~~charge of ~~$35.7~~$6.6 million ~~related~~ to ~~the Tax Act. The Company adjusted~~increase its valuation allowance on certain U.S. deferred tax assets ~~by $20.7 million due to~~after determining it was more likely than not the ~~reduction in the U.S. federal corporate tax rate. This net reduction in~~ deferred tax assets ~~also included~~would not be realized based upon finalized foreign tax credit regulations enacted during the estimated impact on the Company’s net state deferred tax assets. In addition, the Company recorded a $15.0 million charge for the transition tax. The Company expects to pay this estimated $15.0 million tax liability over the next eight years, beginning with a paymentquarter. As of ~~approximately $1.0 million in fiscal 2019.~~

The Company is also analyzing other provisions of the Tax Act to determine if they will impact the Company’s effective tax rate in fiscal 2018 or in the future. These provisions include BEAT, as described above, the elimination of U.S. federal income taxes on dividends from foreign subsidiaries, the new limits on the deductibility of interest expense and executive compensation, and the state tax implications of the Tax Act, including the impact of the transition tax and the impact on the realizability of tax attributes and valuation allowances.

The Tax Act includes a provision designed to tax GILTI, as described above, starting in fiscal 2019. The Company has elected to record the tax effects of the GILTI provision as a period expense in the applicable tax year. As a result, the Company does not expect GILTI to impact its fiscal 2018 income tax provision.

~~Table of Contents~~

~~MODINE MANUFACTURING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In millions, except per share amounts)~~

~~(unaudited)~~

For various reasons, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act. In regards to the reduction in the U.S. corporate tax rate, the Company is continuing to analyze the temporary differences that existed on the date of enactment, and the temporary differences originating in the current fiscal year. In regards to the transition tax, the Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of this tax. Previously, the Company’s practice and intention was to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S. As a result, the Company did not record U.S. deferred income taxes or foreign withholding taxes for these earnings. The Company is currently analyzing its global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxes. ~~The Company expects to complete its analysis of the accounting guidance related to the Tax Act and its evaluation of the impacts of the Tax Act in the~~ ~~fourth quarter of fiscal 2018 or in early fiscal 2019.~~

~~At December 31, 2017,~~September 30,2020, valuation allowances against deferred tax assets in certain foreign jurisdictions ~~totaled $47.4 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. The $1.2 million increase in the U.S. ~~valuation allowances during the three months ended December 31, 2017 relates mainly to adjustments made to state tax attributes as a result of tax reform.~~totaled $30.9 million and $22.0million, respectively. The Company will ~~continue to provide a~~maintain the valuation ~~allowance against its net deferred tax assets~~allowances in each ~~of the~~ applicable ~~jurisdictions~~tax jurisdiction until ~~the need for a valuation allowance is eliminated. The need for a valuation allowance is eliminated when the Company~~it determines it is more likely than not the deferred tax assets will be ~~realized. The Company may release~~realized, thereby eliminating the need for a valuation ~~allowance (approximately $3.0 million)~~allowance. As further discussed in Note 17, the COVID-19 pandemic has resulted in risks and uncertainties to our business. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in the U.S. and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances, which could have a ~~foreign jurisdiction during~~material adverse effect on the ~~fourth quarter~~Company’s results of ~~fiscal 2018 or in fiscal 2019.~~operations and financial condition.

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 ~~2018.~~2021.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Note 9:~~

~~Earnings Per Share~~

Note 9: Earnings Per Share

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

	Three months ended September 30,					Six months ended September 30,
	2020		2019			2020		2019
Net earnings (loss) attributable to Modine	$	8.6	$	(4.7	)	$	0	$	3.3

Weighted-average shares outstanding - basic		51.3		50.8			51.1		50.8
Effect of dilutive securities		0		0			0		0.3
Weighted-average shares outstanding - diluted		51.3		50.8			51.1		51.1

Earnings (loss) per share:
Net earnings (loss) per share - basic	$	0.17	$	(0.09	)	$	0	$	0.07
Net earnings (loss) per share - diluted	$	0.17	$	(0.09	)	$	0	$	0.06

Three months ended
December 31,

Nine months ended
December 31,

2017 2016 2017 2016
Net (loss) earnings attributable to Modine $ (28.3 ) $ 1.7 $ 4.6 $ 6.2
Less: Undistributed earnings attributable to unvested shares - - - (0.1 )
Net (loss) earnings available to Modine shareholders $ (28.3 ) $ 1.7 $ 4.6 $ 6.1

Weighted-average shares outstanding - basic 50.0 47.9 49.8 47.3
Effect of dilutive securities - 0.6 0.8 0.4
Weighted-average shares outstanding - diluted 50.0 48.5 50.6 47.7

Earnings per share:
Net (loss) earnings per share - basic $ (0.57 ) $ 0.04 $ 0.09 $ 0.13
Net (loss) earnings per share - diluted $ (0.57 ) $ 0.04 $ 0.09 $ 0.13

For ~~both~~ the three and ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2020, the calculation of diluted earnings per share excluded ~~0.2~~1.0 million and 1.1 million stock options, respectively, because they were anti-dilutive. In addition, the calculation for both the three and six months ended September 30, 2020 excluded 0.4 million restricted stock awards because they were anti-dilutive.

For the three and ~~nine~~six months ended ~~December 31, 2016,~~September 30, 2019, the calculation of diluted earnings per share excluded 0.9 million and ~~1.0~~0.8 million stock options, respectively, because they were anti-dilutive. In addition, the calculation for both the three and six months ended September 30, 2019 excluded 0.5 million restricted stock awards because they were anti-dilutive. For the three months ended ~~December 31, 2017,~~September 30, 2019, the total number of ~~potentially dilutive~~potentially-dilutive securities was ~~1.1~~0.3 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:~~

~~Inventories~~

Note 10: Cash, Cash Equivalents and Restricted Cash

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

	September 30, 2020		March 31, 2020
Cash and cash equivalents	$	62.5	$	70.9
Restricted cash		0.2		0.4
Total cash, cash equivalents and restricted cash	$	62.7	$	71.3

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 11: Inventories

Inventories consisted of the following:

	September 30, 2020		March 31, 2020
Raw materials	$	120.2	$	123.6
Work in process		36.5		34.6
Finished goods		45.0		49.2
Total inventories	$	201.7	$	207.4

December 31, 2017 March 31, 2017
Raw materials and work in process $ 140.0 $ 127.7
Finished goods 46.8 40.8
Total inventories $ 186.8 $ 168.5

~~Note 11:~~

Note 12: Property, Plant and Equipment

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

	September 30, 2020			March 31, 2020
Land	$	20.9		$	19.7
Buildings and improvements (10-40 years)		286.0			276.7
Machinery and equipment (3-15 years)		921.6			870.3
Office equipment (3-10 years)		99.2			95.2
Construction in progress		27.1			40.5
		1,354.8			1,302.4
Less: accumulated depreciation		(915.7	)		(854.4	)
Net property, plant and equipment	$	439.1		$	448.0

December 31, 2017 March 31, 2017
Gross property, plant and equipment $ 1,266.2 $ 1,177.6
Accumulated depreciation (774.9 ) (718.6 )
Net property, plant and equipment $ 491.3 $ 459.0

~~MODINE MANUFACTURING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In millions, except per share amounts)~~

~~(unaudited)~~

~~Note 12:~~

Note 13: Goodwill and Intangible Assets

Changes in the carrying amount of goodwill were as follows:

Asia
Building
HVAC
CIS Total
Goodwill, March 31, 2017 $ 0.5 $ 13.7 $ 150.9 $ 165.1
Acquisition (a) - - 1.3 1.3
Effect of exchange rate changes - 0.8 5.0 5.8
Goodwill, December 31, 2017 $ 0.5 $ 14.5 $ 157.2 $ 172.2

~~(a)~~

During the first six months of fiscal 2018, the Company recorded a $1.3 million increase to goodwill as a result of measurement period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS. See Note 2 for additional information.

~~Intangible assets consisted of the following:~~

December 31, 2017 March 31, 2017

Gross
Carrying
Value

Accumulated
Amortization

Net
Intangible
Assets

Gross
Carrying
Value

Accumulated
Amortization

Net
Intangible
Assets

Customer relationships $ 63.6 $ (4.7 ) $ 58.9 $ 60.5 $ (1.7 ) $ 58.8
Trade names 60.1 (9.8 ) 50.3 58.4 (7.2 ) 51.2
Acquired technology 28.4 (5.1 ) 23.3 27.0 (2.9 ) 24.1
Total intangible assets $ 152.1 $ (19.6 ) $ 132.5 $ 145.9 $ (11.8 ) $ 134.1

The Company recorded amortization expense of $2.5 million and $1.1 million for the three months ended December 31, 2017 and 2016, respectively. The Company recorded amortization expense of $7.3 million and $1.9 million for the nine months ended December 31, 2017 and 2016, respectively. Estimated future amortization expense is as follows:

Fiscal Year
Estimated
Amortization
Expense

Remainder of 2018 $ 2.4
2019 9.6
2020 9.5
2021 8.9
2022 8.7
2023 & Beyond 93.4

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Intangible assets consisted of the following:

	September 30, 2020							March 31, 2020
	Gross Carrying Value		Accumulated Amortization			Net Intangible Assets		Gross Carrying Value		Accumulated Amortization			Net Intangible Assets
Customer relationships	$	62.6	$	(14.9	)	$	47.7	$	60.8	$	(12.6	)	$	48.2
Trade names		59.3		(17.9	)		41.4		58.3		(16.2	)		42.1
Acquired technology		24.4		(8.9	)		15.5		23.6		(7.6	)		16.0
Total intangible assets	$	146.3	$	(41.7	)	$	104.6	$	142.7	$	(36.4	)	$	106.3

The Company recorded amortization expense of $2.1 million and $2.2 million for the three months ended September 30, 2020 and 2019, respectively. The Company recorded amortization expense of $4.2 million and $4.4 million for the six months ended September 30, 2020 and 2019, respectively.The Company estimates that it will record $4.2 million of amortization expense during the remainder of fiscal 2021 and approximately $8.0 million of annual amortization expense in fiscal 2022 through 2026.

~~Note 13:~~

Note 14: Product Warranties

Changes in accrued warranty costs were as follows:

Three months ended December 31,
2017 2016
Beginning balance $ 9.4 $ 8.4
Warranties recorded at time of sale 2.0 1.4
Adjustments to pre-existing warranties 0.2 0.1
Additions due to acquisition - 4.1
Settlements (2.1 ) (2.1 )
Effect of exchange rate changes 0.1 (0.3 )
Ending balance $ 9.6 $ 11.6

Nine months ended December 31,
2017 2016
Beginning balance $ 10.0 $ 8.3
Warranties recorded at time of sale 4.7 3.9
Adjustments to pre-existing warranties - -
Additions and adjustments due to acquisition (a) (1.0 ) 4.1
Settlements (4.6 ) (4.4 )
Effect of exchange rate changes 0.5 (0.3 )
Ending balance $ 9.6 $ 11.6

~~(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 acquisition of Luvata HTS. See Note 2 for additional information.

~~Note 14:~~

~~Indebtedness~~

~~Long-term debt consisted of the following:~~

Fiscal year
of maturity
December 31, 2017 March 31, 2017
Term loans 2022 $ 270.4 $ 268.9
6.8% Senior Notes 2021 105.0 117.0
5.8% Senior Notes 2027 50.0 50.0
Other (a) 2032 12.7 8.3
438.1 444.2
Less: current portion (37.9 ) (31.8 )
Less: unamortized debt issuance costs (5.7 ) (6.7 )
Total long-term debt $ 394.5 $ 405.7

~~(a)~~

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

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 15: Leases

Lease Assets and Liabilities

The following table provides a summary of leases recorded on the consolidated balance sheets.

-	Balance Sheet Location		September 30, 2020		March 31, 2020
Lease Assets
Operating lease ROU assets	Other noncurrent assets	$	63.3	$	61.4
Finance lease ROU assets (a)	Property, plant and equipment - net		8.5		8.5

Lease Liabilities
Operating lease liabilities	Other current liabilities	$	12.6	$	10.9
Operating lease liabilities	Other noncurrent liabilities		51.2		50.3
Finance lease liabilities	Long-term debt - current portion		0.4		0.4
Finance lease liabilities	Long-term debt		3.3		3.3

(a)	Finance lease right of use (“ROU”) assets were recorded net of accumulated amortization of $2.1 million and $1.8 million as of September 30, 2020 and March 31, 2020, respectively.

Components of Lease Expense

The components of lease expense were as follows:

	Three months ended September 30,				Six months ended September 30,
	2020		2019		2020		2019
Operating lease expense (a)	$	5.2	$	5.2	$	10.1	$	10.4
Finance lease expense:
Depreciation of ROU assets		0.1		0.1		0.2		0.2
Interest on lease liabilities		0.1		0.1		0.1		0.1
Total lease expense	$	5.4	$	5.4	$	10.4	$	10.7

(a)

For the three and six months ended September 30, 2020, operating lease expense included short-term lease expense of $0.9million and $1.8 million, respectively. For the three and six months ended September 30, 2019, operating lease expense included short-term lease expense of $1.0 million and $1.9 million, respectively. Variable lease expense was not significant.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 16: Indebtedness

Long-term debt consisted of the following:

	Fiscal year of maturity	September 30, 2020		March 31, 2020
Term loans	2025	$	185.5	$	189.4
Revolving credit facility	2025		52.9		127.2
5.9% Senior Notes	2029		100.0		100.0
5.8% Senior Notes	2027		50.0		50.0
Other (a)			3.7		6.0
			392.1		472.6
Less: current portion			(13.5)		(15.6)
Less: unamortized debt issuance costs			(4.8)		(5.0)
Total long-term debt		$	373.8	$	452.0

(a)	Other long-term debt primarily includes finance lease obligations and borrowings by foreign subsidiaries.

Long-term debt, including the current portion of long-term debt, matures as follows:

Fiscal Year
Remainder of 2021	$	6.8
2022		21.9
2023		21.9
2024		21.9
2025		201.3
2026 & beyond		118.3
Total	$	392.1

Borrowings under both the revolving credit and term loan facilities bear interest at a variable rate, based upon the applicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as described below. At ~~December 31, 2017 and March 31, 2017,~~September 30, 2020, the ~~Company had $22.7 million and $40.4 million, respectively, of short-term borrowings under its $175.0 million multi-currency~~weighted-average interest rates for revolving credit facility ~~which expires in November 2021.~~borrowings and the term loans were both 2.8 percent. At ~~December 31, 2017,~~September 30, 2020, the Company’s revolving credit facility borrowings totaled $52.9 million and domestic letters of credit totaled ~~$3.9~~$5.7 million, resulting in available ~~capacity~~borrowings under the ~~Company’s~~ revolving credit facility of ~~$148.4~~$191.4 million.

The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings of $17.1 million and $14.8 million at ~~December 31, 2017~~September 30, 2020 and March 31, ~~2017 of $30.8 million and $33.0 million,~~2020, respectively. ~~At December 31, 2017, the Company’s foreign unused lines of credit totaled $20.4 million. In aggregate, the Company had total available lines of credit of $168.8 million at December 31, 2017.~~

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,~~Also, as ~~defined~~specified in the credit agreement, in the ~~event the Company’s annual excess cash flow exceeds defined levels or~~term loans may require prepayments in the event of certain asset sales. ~~The~~In addition, at the time of each incremental borrowing under the revolving credit facility, the Company is ~~also subject~~required to represent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on its business, property, or results of operations.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

In May 2020, the Company executed amendments to its primary credit agreements in the U.S. Under the amended agreements, the leverage ratio ~~covenants, the most restrictive of which~~covenant limit has been temporarily raised. The leverage ratio covenant requires the Company to limit the ratio of 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~~its consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”). The leverage ratio covenant limit for the second quarter of fiscal 2021 was 4.75 to 1. The leverage ratio covenant limit for the remainder of fiscal 2021 is 5.25 to 1 and 5.75 to 1 for the third and fourth quarters, respectively. In fiscal 2022, the leverage ratio covenant limit is 4.75 to 1, 3.75 to 1, and 3.50 to 1 for the first, second and third quarters, respectively, and subsequently returns to 3.25 to 1 for the fourth quarter of fiscal 2022. 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, 2017.~~September 30, 2020.

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. ~~At December 31, 2017~~As of September 30, 2020 and March 31, ~~2017,~~2020, 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 ~~$159.0~~$136.6 million and ~~$170.0~~$131.3 million, respectively. The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy. Refer to Note 3 for the definition of a Level 2 fair value measurement.

~~Note 15:~~

~~Contingencies and Litigation~~

Note 17: Risks, Uncertainties, Contingencies and Litigation

~~Environmental~~

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic. The ~~United States Environmental Protection Agency has designated~~spread of COVID-19 and the resulting work and travel restrictions, including international border closings, have disrupted, and may continue to disrupt, global supply chains and have negatively impacted the global economy. As a result of this pandemic, the Company ~~as a potentially responsible party for remediation~~has experienced significant impacts on its operations. Local government requirements or customer shutdowns caused the Company to suspend production at many of ~~three sites. These sites are: Auburn Incinerator, Inc./Lake Calumet Cluster (Illinois), Cam-Or (Indiana)~~its manufacturing facilities in March and ~~a scrap metal site known as Chemetco (Illinois).~~April 2020. All of the temporarily-closed facilities have reopened and have been trending back towards normal production levels. The Company is continuing to focus on protecting the health and wellbeing of its employees and the communities in which it operates, while also ensuring the continuity of its business operations and timely delivery of quality products and services to its customers. To mitigate the negative impacts of COVID-19, the Company has taken actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of the organization. In addition, ~~Modine~~the Company is ~~voluntarily participating~~focused on reducing operating and administrative expenses. Based upon its current expectations, the Company believes that its sources of liquidity will generate sufficient cash flow to meet its obligations during the next twelve months from the date these financial statements are issued.

The Company’s consolidated financial statements reflect estimates and assumptions made by management, including assumptions regarding the future impacts of the COVID-19 pandemic, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods presented. For example, assets particularly sensitive to assumptions that could be adversely impacted by the COVID-19 pandemic include goodwill and deferred tax assets. While the Company believes it used appropriate estimates and assumptions to prepare the consolidated financial statements, actual amounts could differ materially and future events or circumstances could have a potential negative effect on the assumptions used. If the Company, its suppliers, or its customers experience further shutdowns or other significant business disruptions associated with the COVID-19 pandemic, its ability to conduct business in the ~~care of an inactive landfill owned by~~manner and on the ~~City of Trenton (Missouri). These sites are not Company-owned; however, they allegedly contain materials attributable to Modine from past operations. The percentage of~~timelines presently planned could be materially and negatively impacted, which could have a material allegedly attributable to Modine is relatively low. Remediation of these sites is in various stages of administrative or judicial proceedings and includes recovery of past governmental costs and the costs of future investigations and remedial actions. The Company accrues for costs anticipated for the remedial settlement of the sites listed above if they are probable and can be reasonably determined. Costs anticipated for the remedial settlement of the sites listed above that are not probable or cannot be reasonably determined at this time have not been accrued; however, the Company does not believe any potential costs would be material toadverse effect on the Company’s business, financial position, ~~due to its relatively small portion~~results of ~~contributed materials.~~operations and cash flows.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Environmental

The Company has recorded environmental accruals for obligations assumed as a result of its recent acquisition of Luvata HTS, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States. In addition, the Company has recorded environmental investigation and remediation accruals related to ~~subsurface~~soil and groundwater contamination at manufacturing facilities in the U.S., one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, ~~investigative and remedial work related to a previously-owned manufacturing facility in the United States, and groundwater contamination at its manufacturing facility in Brazil,~~ along with accruals for lesser environmental matters at certain other facilities in the ~~United States.~~U.S. These accruals generally relate to facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance. The accruals for these environmental matters totaled ~~$17.0~~$18.3 million and ~~$16.8~~$18.2 million ~~at December 31, 2017~~ as of September 30,2020 and March 31, ~~2017,~~2020, 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.

~~Brazil Antitrust Investigation~~

As of March 31, 2017, the Company accrued $4.7 million related to alleged violations of Brazil’s antitrust regulations. During the first quarter of fiscal 2018, the Company paid $4.7 million to Brazil’s Administrative Council for Economic Defense to settle this matter.

Other Litigation

In the normal course of business, the Company and its subsidiaries are named as defendants in various ~~other~~ lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted against Modine. The Company believes that any additional loss in excess of amounts already accrued would not have a material effect on the Company’s consolidated balance sheet, results of operations, and cash flows. In ~~the opinion of~~addition, management expects that the liabilities ~~if any,~~ which may ultimately result from such lawsuits or proceedings, ~~are~~if any, would not ~~expected to~~ have a material adverse effect on the Company’s financial position.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Note 16:~~

Note 18: Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:

	Three months ended September 30, 2020												Six months ended September 30, 2020
	Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total			Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total
Beginning balance	$	(56.1	)	$	(159.7	)	$	0		$	(215.8	)	$	(61.4	)	$	(160.9	)	$	(1.0	)	$	(223.3	)

Other comprehensive income before reclassifications		17.3			0			0.3			17.6			22.6			0			1.1			23.7
Reclassifications:
Amortization of unrecognized net loss (a)		0			1.7			0			1.7			0			3.3			0			3.3
Realized losses - net (b)		0			0			0.3			0.3			0			0			0.8			0.8
Income taxes		0			(0.4	)		(0.2	)		(0.6	)		0			(0.8	)		(0.5	)		(1.3	)
Total other comprehensive income		17.3			1.3			0.4			19.0			22.6			2.5			1.4			26.5

Ending balance	$	(38.8	)	$	(158.4	)	$	0.4		$	(196.8	)	$	(38.8	)	$	(158.4	)	$	0.4		$	(196.8	)

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 ) - (1.3 ) (0.2 ) (1.5 )
Total other comprehensive income 4.6 0.9 0.4 5.9 32.4 2.6 0.4 35.4

Ending balance $ (14.4 ) $ (132.4 ) $ 0.4 $ (146.4 ) $ (14.4 ) $ (132.4 ) $ 0.4 $ (146.4 )

	Three months ended September 30, 2019												Six months ended September 30, 2019
	Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total			Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total
Beginning balance	$	(40.7	)	$	(135.2	)	$	(0.3	)	$	(176.2	)	$	(42.6	)	$	(136.3	)	$	0.5		$	(178.4	)

Other comprehensive loss before reclassifications		(18.7	)		0			(0.6	)		(19.3	)		(16.8	)		0			(1.6	)		(18.4	)
Reclassifications:
Amortization of unrecognized net loss (a)		0			1.4			0			1.4			0			2.8			0			2.8
Realized losses - net (b)		0			0			0.3			0.3			0			0			0.2			0.2
Foreign currency translation gains (c)		(0.6	)		0			0			(0.6	)		(0.6	)		0			0			(0.6	)
Income taxes		0			(0.3	)		0.1			(0.2	)		0			(0.6	)		0.4			(0.2	)
Total other comprehensive income (loss)		(19.3	)		1.1			(0.2	)		(18.4	)		(17.4	)		2.2			(1.0	)		(16.2	)

Ending balance	$	(60.0	)	$	(134.1	)	$	(0.5	)	$	(194.6	)	$	(60.0	)	$	(134.1	)	$	(0.5	)	$	(194.6	)

~~Table of Contents~~

~~MODINE MANUFACTURING COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In millions, except per share amounts)~~

~~(unaudited)~~

Three months ended
December 31, 2016

Nine months ended
December 31, 2016

Foreign
Currency
Translation

Defined
Benefit
Plans
Total
Foreign
Currency
Translation

Defined
Benefit
Plans
Total
Beginning balance $ (39.0 ) $ (136.5 ) $ (175.5 ) $ (36.0 ) $ (138.2 ) $ (174.2 )

Other comprehensive income (loss) before reclassifications (14.2 ) - (14.2 ) (17.2 ) - (17.2 )
Reclassifications for amortization of unrecognized net loss (a) - 1.3 1.3 - 3.9 3.9
Income taxes - (0.4 ) (0.4 ) - (1.3 ) (1.3 )
Total other comprehensive income (loss) (14.2 ) 0.9 (13.3 ) (17.2 ) 2.6 (14.6 )

Ending balance $ (53.2 ) $ (135.6 ) $ (188.8 ) $ (53.2 ) $ (135.6 ) $ (188.8 )

(a)

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

(b)	Amounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings.

(c)	As a result of the sale of its investment in NEX during the second quarter of fiscal 2020, the Company wrote off $0.6 million of accumulated foreign currency translation gains.

Table of Contents

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

~~Note 17:~~

Note 19: Segment Information

Effective April 1, 2020, the Company began managing its global automotive business separate from the other businesses within the previously-reported Vehicular Thermal Solutions (“VTS”) segment. The Company is managing the automotive business as the Automotive segment as it targets the sale or eventual exit of its underlying automotive business operations. The other businesses of the VTS segment, including the commercial vehicle and off-highway businesses, are being managed as the Heavy Duty Equipment segment. The segment realignment had no impact on the CIS and BHVAC segments or on the Company’s consolidated financial position, results of operations, and cash flows. Segment financial information for fiscal 2020 has been recast to conform to the fiscal 2021 presentation.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker. These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

The following is a summary of net sales, gross profit, operating income, and total assets by segment. In fiscal 2018, the Company adopted new accounting guidance related to the income statement presentation of pension and postretirement costs. Accordingly, the Company recast the comparable fiscal 2017 segment financial results to conform to the current-period presentation. See Note 1 for additional information on this new accounting guidance.segment:

Three months ended
December 31,

Nine months ended
December 31,

Net sales: 2017 2016 2017 2016
Americas $ 140.5 $ 123.4 $ 430.7 $ 389.4
Europe 134.6 119.8 405.4 389.7
Asia 42.8 28.6 117.7 78.2
Commercial and Industrial Solutions (a) 144.9 34.7 451.6 34.7
Building HVAC 56.1 47.2 147.9 132.8
Segment total 518.9 353.7 1,553.3 1,024.8
Corporate and eliminations (6.2 ) (3.9 ) (16.8 ) (10.1 )
Net sales $ 512.7 $ 349.8 $ 1,536.5 $ 1,014.7

	Three months ended September 30,
	2020								2019
	External Sales		Inter-segment Sales			Total			External Sales		Inter-segment Sales			Total
Net sales:
CIS	$	133.2	$	0.9		$	134.1		$	155.7	$	1.0		$	156.7
BHVAC		61.9		0			61.9			55.7		0.3			56.0
HDE		157.6		8.0			165.6			173.9		13.3			187.2
Automotive		108.7		1.2			109.9			114.9		0.8			115.7
Segment total		461.4		10.1			471.5			500.2		15.4			515.6
Corporate and eliminations		-		(10.1	)		(10.1	)		-		(15.4	)		(15.4	)
Net sales	$	461.4	$	-		$	461.4		$	500.2	$	-		$	500.2

Table of Contents

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Three months ended
December 31,

Nine months ended
December 31,

2017 2016 2017 2016
Gross profit: $'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales

Americas $ 21.7 15.4 % $ 18.4 14.9 % $ 69.7 16.2 % $ 59.5 15.3 %
Europe 17.9 13.3 % 18.6 15.5 % 56.8 14.0 % 60.3 15.5 %
Asia 8.2 19.0 % 5.0 17.6 % 21.9 18.6 % 13.1 16.7 %
Commercial and Industrial Solutions (a) 18.6 12.9 % 4.4 12.7 % 66.4 14.7 % 4.4 12.7 %
Building HVAC 19.0 33.8 % 15.3 32.4 % 45.0 30.4 % 37.1 28.0 %
Segment total 85.4 16.4 % 61.7 17.5 % 259.8 16.7 % 174.4 17.0 %
Corporate and eliminations - - (2.7 ) - 0.2 - (5.1 ) -
Gross profit $ 85.4 16.7 % $ 59.0 16.9 % $ 260.0 16.9 % $ 169.3 16.7 %

Three months ended
December 31,

Nine months ended
December 31,

Operating income: 2017 2016 2017 2016
Americas $ 8.9 $ 5.7 $ 28.8 $ 14.2
Europe 6.3 8.6 22.8 30.9
Asia 5.1 2.6 12.6 4.9
Commercial and Industrial Solutions (a) (4.6 ) (0.3 ) 14.3 (0.3 )
Building HVAC 9.2 6.7 18.6 10.4
Segment total 24.9 23.3 97.1 60.1
Corporate and eliminations (11.0 ) (16.6 ) (32.1 ) (38.7 )
Operating income $ 13.9 $ 6.7 $ 65.0 $ 21.4

December 31, 2017 March 31, 2017
Total assets:
Americas $ 275.9 $ 282.9
Europe 308.1 269.4
Asia 132.5 111.3
Commercial and Industrial Solutions 606.8 576.0
Building HVAC 88.8 85.2
Corporate and eliminations (b) 90.1 124.7
Total assets $ 1,502.2 $ 1,449.5

~~(a)~~

The Company acquired Luvata HTS on November 30, 2016 and began operating the business as its CIS segment. As the Company has consolidated CIS financial results since the acquisition date, the three and nine months ended December 31, 2016 included one month of financial results from CIS operations. During the three months ended December 31, 2017, the Company recorded restructuring expenses and an impairment charge totaling $9.5 million within the CIS segment associated with the closure of a manufacturing facility in Austria. See Note 6 for additional information.

~~(b)~~

The decrease in total assets at Corporate was primarily due to a decrease in deferred tax assets resulting from the impact of tax reform in the U.S. See Note 8 for additional information regarding the reduction in the corporate tax rate in the U.S.

	Six months ended September 30,
	2020								2019
	External Sales		Inter-segment Sales			Total			External Sales		Inter-segment Sales			Total
Net sales:
CIS	$	254.5	$	2.1		$	256.6		$	323.6	$	1.9		$	325.5
BHVAC		109.3		0.2			109.5			104.2		0.8			105.0
HDE		275.9		13.2			289.1			373.6		30.0			403.6
Automotive		169.5		2.5			172.0			227.8		1.5			229.3
Segment total		809.2		18.0			827.2			1,029.2		34.2			1,063.4
Corporate and eliminations		-		(18.0	)		(18.0	)		-		(34.2	)		(34.2	)
Net sales	$	809.2	$	-		$	809.2		$	1,029.2	$	-		$	1,029.2

	Three months ended September 30,												Six months ended September 30,
	2020						2019						2020						2019
	$'s			% of sales			$'s			% of sales			$'s			% of sales			$'s		% of sales
Gross profit:
CIS	$	19.3			14.4	%	$	22.9			14.6	%	$	34.8			13.5	%	$	47.2		14.5	%
BHVAC		21.7			35.1	%		17.7			31.7	%		36.2			33.1	%		31.4		29.9	%
HDE		23.6			14.2	%		22.4			12.0	%		34.9			12.1	%		54.9		13.6	%
Automotive		16.6			15.2	%		13.0			11.2	%		21.4			12.5	%		25.5		11.1	%
Segment total		81.2			17.2	%		76.0			14.7	%		127.3			15.4	%		159.0		15.0	%
Corporate and eliminations		(0.4	)		0			(0.3	)		0			(0.4	)		0			0.1		0
Gross profit	$	80.8			17.5	%	$	75.7			15.1	%	$	126.9			15.7	%	$	159.1		15.5	%

	Three months ended September 30,						Six months ended September 30,
	2020			2019			2020			2019
Operating income:
CIS	$	5.6		$	8.5		$	5.6		$	17.5
BHVAC		13.1			8.8			20.2			14.1
HDE		13.3			7.1			10.8			24.4
Automotive		8.0			0.4			4.2			0.4
Segment total		40.0			24.8			40.8			56.4
Corporate and eliminations		(11.5	)		(18.8	)		(15.5	)		(32.3	)
Operating income	$	28.5		$	6.0		$	25.3		$	24.1

	September 30, 2020		March 31, 2020
Total assets:
CIS	$	598.2	$	617.7
BHVAC		105.4		102.3
HDE		418.8		417.4
Automotive		281.7		272.5
Corporate and eliminations		106.8		126.2
Total assets	$	1,510.9	$	1,536.1

Note 20: Subsequent Event

On November 2, 2020, the Company announced that it signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated. The Company expects this transaction to close during the first half of calendar 2021, subject to regulatory approvals and other customary closing conditions. The Company does not expect significant net cash proceeds from this transaction based upon the selling price and adjustments for cash, debt, and working capital, as defined within the definitive agreement. The Company reports financial results of the liquid-cooled automotive business within its Automotive segment. Net sales attributable to the liquid-cooled automotive business were approximately $130.0 million during the first six months of fiscal 2021 and approximately $310.0 million in fiscal 2020. Net assets of this business were approximately $140.0 million as of September 30, 2020. There is 0 goodwill or intangible assets recorded within the liquid-cooled automotive business.

In connection with the pending sale, the Company expects to classify the liquid-cooled automotive business (the “disposal group”) as held for sale beginning in the third quarter of fiscal 2021 and plans to report the assets and liabilities of this business as held for sale beginning with its December 31, 2020 consolidated balance sheet. As a result of the disposal group being classified as held for sale, the Company expects to record a non-cash impairment charge of approximately $120.0 million to $130.0 million during the third quarter of fiscal 2021 related to the disposal group’s long-lived assets, which consist of property, plant and equipment. When the transaction is completed, the Company expects to record an additional loss on sale related to other net assets and cumulative foreign currency translation adjustments attributable to the disposal group, net working capital adjustments, and costs to sell. As the Company has not yet finalized its analysis, the impairment charge recorded in the third quarter could differ materially from the Company’s preliminary estimate and, at this time, the Company cannot estimate the loss on sale to be recorded upon completion of this transaction.

Table of Contents

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended ~~December 31, 2017~~September 30, 2020 was the ~~third~~second quarter of fiscal ~~2018.~~2021.

~~On November 30, 2016,~~COVID-19

As the COVID-19 pandemic continues, both the health and overall well-being of our employees and delivering quality products and services to our customers remain our top priorities.

The COVID-19 pandemic has broadly impacted the global economy and our key end markets, which were most severely impacted during the first quarter of fiscal 2021. In response to lower market demand and in an effort to mitigate the negative impacts of COVID-19 on our financial results, we ~~acquired Luvata Heat Transfer Solutions (“Luvata HTS”) for consideration totaling $415.6~~ implemented actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization. In addition, we have reduced operating and administrative expenses, including travel and entertainment expenditures, and lowered the annual compensation paid to the Board of Directors. We have also focused on limiting capital expenditures and, where possible, have delayed certain projects and the purchase of some program-related equipment and tooling. Our swift cost-saving actions, coupled with a slow but steady recovery in most of our key end markets, favorably impacted our financial results during the second quarter of fiscal 2021. Looking ahead, while we are continuing to focus on cost-saving measures, we plan to reduce the level of furloughs, shortened work weeks and salary reductions. As a result, we expect the benefit of the cost-saving actions, primarily on SG&A expenses, to be less significant in the second half of fiscal 2021.

The full extent of the impacts of COVID-19, which will largely depend on the length and severity of the pandemic, could have a material adverse effect on our business, results of operations, and cash flows.

Second Quarter Highlights

Net sales in the second quarter of fiscal 2021 decreased $38.8million, ~~($388.2 million, net~~or 8percent, from the second quarter of ~~cash acquired). Operating as~~fiscal 2020, primarily due to lower sales in our Commercial and Industrial Solutions (“CIS”) ~~segment, this business is a leading global supplier~~, Heavy Duty Equipment (“HDE”) and Automotive segments. Sales in each of ~~coils, coolers and coatings to~~these segments were impacted by market-driven volume declines. Cost of sales decreased $43.9 million, or 10 percent, from the ~~heating, ventilation, air conditioning, and refrigeration industry. As we have consolidated CIS financial results since the acquisition date, the third~~second quarter of fiscal ~~2017 included one month of financial results from CIS operations.~~

In December 2017, the Tax Cuts and Jobs Act (“U.S. tax reform”) was enacted and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions. During the third quarter of fiscal 2018, we recorded provisional charges totaling $35.7 million for certain income tax effects of the U.S. tax reform. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information.

~~Third Quarter Highlights~~

~~Net sales in the third quarter of fiscal 2018 increased $162.9 million, or 47 percent, from the third quarter of fiscal 2017,~~2020, primarily due to ~~a $110.2 million increase in~~lower sales ~~in our CIS segment, which we owned for one month in the third quarter of the prior year, and higher sales in all of our other operating segments.~~volume. Gross profit increased ~~$26.4~~$5.1 million ~~including $14.2 million of additional contribution from our CIS segment.~~and gross margin improved 240 basis points to 17.5 percent. Selling, general and administrative (“SG&A”) expenses ~~increased $10.1~~decreased $16.6 million, primarily due to ~~a $9.0~~lower project costs associated with our review of strategic alternatives for the automotive business and cost-reduction initiatives in response to the negative impacts of COVID-19. Operating income during the second quarter of fiscal 2021 increased $22.5 million ~~increase of SG&A expenses in our CIS segment. Restructuring expenses increased $7.8~~to $28.5 million, primarily due to ~~severance~~higher earnings in our Automotive, HDE, and Building HVAC Systems (“BHVAC”) segments and lower SG&A expenses related to the recent closure of a manufacturing facility in Austria within the CIS segment. In addition, we recorded a $1.3 million asset impairment charge related to this CIS Austria facility. Operating income during the third quarter of fiscal 2018 increased $7.2 million to $13.9 million. Our net loss of $27.9 million represents a $29.8 million decline compared with the third quarter of the prior year, primarily due to $35.7 million of charges associated with U.S. tax reform, partially offset by the increase in operating income.at Corporate.

~~Year-to-Date~~Year-to-date Highlights

Net sales in the first ~~nine~~six months of fiscal ~~2018 increased $521.8~~2021 decreased $220.0 million, or 5121 percent, from the same period last year, primarily due to ~~$416.9 million of additional sales from our CIS segment and higher~~lower sales in ~~all~~our HDE, CIS and Automotive segments. Cost of ~~our other operating segments.~~sales decreased $187.8 million, or 22 percent, from the same period last year, primarily due to lower sales volume. Gross profit ~~increased $90.7~~decreased $32.2 million ~~including $62.0 million of additional contribution from our CIS segment.~~and gross margin improved 20 basis points to 15.7 percent. SG&A expenses ~~increased $39.1~~decreased $35.4 million, primarily due to ~~a $37.9 million increase~~lower project costs associated with our review of strategic alternatives for the automotive business and cost-reduction initiatives in ~~SG&A expenses in our CIS segment.~~response to the negative impacts of COVID-19. Operating income during the first ~~nine~~six months of fiscal ~~2018~~2021 increased ~~$43.6~~$1.2 million to ~~$65.0 million. Our net earnings of $5.8~~$25.3 million, ~~decreased $1.0 million compared with the same period in the prior year,~~ primarily due to ~~$35.7 million of charges associated with U.S. tax reform~~higher earnings in our BHVAC and ~~higher interest expense,~~Automotive segments and lower SG&A expenses at Corporate, partially offset by ~~the increase~~lower earnings in ~~operating income.~~our HDE and CIS segments.

Table of Contents

Recent Event

On November 2, 2020, we announced that we entered into a definitive agreement to sell our liquid-cooled automotive business to Dana Incorporated. We expect this transaction to close during the first half of calendar 2021, subject to regulatory approvals and other customary closing conditions. We do not expect significant net cash proceeds from this transaction based upon the selling price and adjustments for cash, debt, and working capital, as defined within the definitive agreement. We report financial results of this business within the Automotive segment. Net sales attributable to the liquid-cooled automotive business were approximately $130.0 million during the first six months of fiscal 2021 and approximately $310.0 million in fiscal 2020. Net assets of this business were approximately $140.0 million as of September 30, 2020.

In connection with this pending sale, we expect to record a non-cash impairment charge of approximately $120.0 million to $130.0 million during the third quarter of fiscal 2021 related to the long-lived assets of the liquid-cooled automotive business. When the transaction is completed, we expect to record an additional loss on sale related to other net assets and cumulative foreign currency translation adjustments attributable to the business, net working capital adjustments, and costs to sell. As we have not yet finalized our analysis, the impairment charge recorded in the third quarter could differ materially from our preliminary estimate and, at this time, we cannot estimate the loss on sale to be recorded upon completion of this transaction.

We are continuing to evaluate strategic alternatives for our other automotive businesses and are committed to exiting these businesses in a manner that is in the best interest of our shareholders.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

	Three months ended September 30,													Six months ended September 30,
	2020						2019							2020						2019
(in millions)	$'s			% of sales			$'s			% of sales				$'s			% of sales			$'s			% of sales
Net sales	$	461.4			100.0	%	$	500.2			100.0	%		$	809.2			100.0	%	$	1,029.2			100.0	%
Cost of sales		380.6			82.5	%		424.5			84.9	%			682.3			84.3	%		870.1			84.5	%
Gross profit		80.8			17.5	%		75.7			15.1	%	��		126.9			15.7	%		159.1			15.5	%
Selling, general and administrative expenses		50.8			11.0	%		67.4			13.5	%			95.5			11.8	%		130.9			12.7	%
Restructuring expenses		1.5			0.3	%		2.3			0.4	%			6.1			0.8	%		4.1			0.4	%
Operating income		28.5			6.2	%		6.0			1.2	%			25.3			3.1	%		24.1			2.3	%
Interest expense		(5.2	)		-1.1	%		(5.8	)		-1.1	%			(10.6	)		-1.3	%		(11.7	)		-1.1	%
Other expense – net		(0.5	)		-0.1	%		(1.3	)		-0.3	%			(0.5	)		-0.1	%		(2.4	)		-0.2	%
Earnings (loss) before income taxes		22.8			4.9	%		(1.1	)		-0.2	%			14.2			1.8	%		10.0			1.0	%
Provision for income taxes		(13.9	)		-3.0	%		(3.7	)		-0.7	%			(13.7	)		-1.7	%		(6.6	)		-0.6	%
Net earnings (loss)	$	8.9			1.9	%	$	(4.8	)		-1.0	%		$	0.5			0.1	%	$	3.4			0.3	%

Three months ended December 31, Nine months ended December 31,
2017 2016 2017 2016
(in millions) $'s % of sales $'s % of sales $'s % of sales $'s % of sales
Net sales $ 512.7 100.0 % $ 349.8 100.0 % $ 1,536.5 100.0 % $ 1,014.7 100.0 %
Cost of sales 427.3 83.3 % 290.8 83.1 % 1,276.5 83.1 % 845.4 83.3 %
Gross profit 85.4 16.7 % 59.0 16.9 % 260.0 16.9 % 169.3 16.7 %
Selling, general and administrative expenses 60.8 11.9 % 50.7 14.5 % 182.2 11.9 % 143.1 14.1 %
Restructuring expenses 9.4 1.8 % 1.6 0.5 % 11.5 0.7 % 6.0 0.6 %
Impairment charge 1.3 0.3 % - - 1.3 0.1 % - -
Gain on sale of facility - - - - - - (1.2 ) -0.1 %
Operating income 13.9 2.7 % 6.7 1.9 % 65.0 4.2 % 21.4 2.1 %
Interest expense (6.3 ) -1.2 % (4.5 ) -1.3 % (19.5 ) -1.3 % (10.5 ) -1.0 %
Other expense – net (0.3 ) -0.1 % (1.0 ) -0.3 % (2.3 ) -0.1 % (2.8 ) -0.3 %
Earnings before income taxes 7.3 1.4 % 1.2 0.3 % 43.2 2.8 % 8.1 0.8 %
(Provision) benefit for income taxes (35.2 ) -6.9 % 0.7 0.2 % (37.4 ) -2.4 % (1.3 ) -0.1 %
Net (loss) earnings $ (27.9 ) -5.5 % $ 1.9 0.5 % $ 5.8 0.4 % $ 6.8 0.7 %

Comparison of Three Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Third~~Second quarter net sales of ~~$512.7~~$461.4 million were ~~$162.9~~$38.8 million, or 478 percent, ~~higher~~lower than the ~~third~~second quarter of the prior year, primarily due to ~~$110.2 million of additional~~lower sales ~~from~~volume in our CIS, HDE, and Automotive segments. Sales in these segments decreased $22.6 million, $21.6 million, and $5.8 million, respectively, and were impacted by market-driven volume declines. BHVAC segment sales increased $5.9 million.

Second quarter cost of sales decreased $43.9 million, or 10 percent, primarily due to lower sales volume. As a percentage of sales, cost of sales decreased 240 basis points to 82.5 percent, primarily due to favorable impacts of cost-reduction initiatives, which ~~we owned for one month~~were implemented earlier in the ~~third quarter~~fiscal year in response to lower end market demand, and procurement initiatives.

As a result of ~~the prior year, higher~~lower sales ~~in all~~and lower cost of ~~our other operating segments, and~~sales as a ~~$15.9 million favorable impact~~percentage of ~~foreign currency exchange rate changes.~~

~~Third~~sales, second quarter gross profit increased ~~$26.4~~$5.1 million and gross margin improved 240 basis points to 17.5 percent.

Second quarter SG&A expenses decreased $16.6 million. The decrease in SG&A expenses was primarily due to ~~$14.2~~lower costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment’s business operations, which decreased approximately $12.0 million, and lower compensation-related expenses, which decreased approximately $8.0 million. The lower compensation-related expenses resulted primarily from our cost-reduction initiatives aimed to mitigate the negative impacts of COVID-19. These favorable drivers were partially offset by $5.5 million of additional contribution from our CIS segment and higher gross profit in our Building HVAC, Americas, and Asia segments. Third quarter gross profit was favorably impacted by $2.1 million from foreign currency exchange rate changes. Gross margin declined 20 basis points to 16.7 percent, as the benefits from higher sales volume and the absence of a $2.9 million inventory purchase accounting adjustment, which wascosts recorded at Corporate in connection with Thomas A. Burke stepping down from his position as President and Chief Executive Officer (“CEO.”) These costs primarily consisted of severance and benefit-related expenses and costs directly associated with the ~~prior year, were offset by unfavorable sales mix, higher material costs, and the absence of favorable customer pricing settlements in Europe recorded~~search for Mr. Burke’s successor.

Restructuring expenses totaled $1.5 million in the ~~prior year.~~

~~SG&A expenses increased $10.1 million from the third~~second quarter of fiscal ~~2017 to the third quarter~~2021 and primarily consisted of fiscal 2018, primarily due to a $9.0 million increase in SG&A expenses in our CIS segment, a $1.4 million unfavorable impact of foreign currency exchange rate changes, and higher compensation-related expenses, partially offset by lower costs incurred related to the acquisition of Luvata HTS. SG&A expenses, as a percentage of net sales, decreased 260 basis points compared with the third quarter of the prior year.

~~Restructuring expenses of $9.4 million in the third quarter of fiscal 2018 increased $7.8 million compared with the prior year, primarily due to severance-related~~severance expenses in the CIS segment related to ~~the closure of a manufacturing facility in Austria~~.plant consolidation activities.

~~During the third quarter of fiscal 2018, we recorded a $1.3 million impairment charge related to the closure of a CIS manufacturing facility in Austria.~~

Operating income of ~~$13.9~~$28.5 million in the ~~third~~second quarter of fiscal ~~2018 improved $7.2~~2021 increased $22.5 million compared with the ~~third~~second quarter of fiscal ~~2017,~~2020. The increase was primarily due to higher earnings in ~~the Americas, Asia~~our Automotive, HDE, and ~~Building HVAC segments.~~BHVAC segments and lower SG&A expenses at Corporate.

Interest expense increased $1.8 million to $6.3 million in the third quarter of fiscal 2018, primarily due to the debt issued in November 2016 to finance a significant portion of our acquisition of Luvata HTS.

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The provision for income taxes was ~~$35.2~~$13.9 million and $3.7 million in the ~~third~~second quarter of fiscal ~~2018, compared with a benefit for income taxes of $0.7~~2021 and 2020, respectively. The $10.2 million ~~in the third quarter of fiscal 2017. The $35.9 million change~~increase was primarily due to ~~charges totaling $35.7~~a $6.6 million income tax charge for a valuation allowance on certain U.S. deferred tax assets and higher operating earnings in the ~~third~~current year. In addition, the prior year benefitted from the release of an uncertain tax position. These factors, which caused an increase in our tax provision during the second quarter of fiscal ~~2018 related to~~2021, were partially offset by a favorable impact of global intangible low taxed income compared with the ~~recently-enacted U.S. tax reform. In addition, the tax provision in the third quarter of fiscal 2018 included a $2.2 million benefit from a development tax credit in Hungary.~~prior year.

Comparison of ~~Nine~~Six Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

Fiscal ~~2018~~2021 year-to-date net sales of ~~$1,536.5~~$809.2 million were ~~$521.8~~$220.0 million, or 5121 percent, ~~higher~~lower than the same period last year, primarily due to ~~$416.9 million of additional sales from our CIS segment, higher~~lower sales in ~~all~~our HDE, CIS and Automotive segments. Sales in these segments decreased $114.5 million, $68.9 million, and $57.3 million, respectively, and were significantly impacted by market-driven volume declines and temporary plant closures due to the COVID-19 pandemic. BHVAC segment sales increased $4.5 million.

Fiscal 2021 year-to-date cost of ~~our other segments, and an $18.7~~sales of $682.3 million ~~favorable~~decreased $187.8 million, or 22 percent, primarily due to lower sales volume. As a percentage of sales, cost of sales decreased 20 basis points to 84.3 percent. The unfavorable impact of ~~foreign currency exchange rate changes.~~the lower sales volume was more than offset by the benefits of cost-reduction initiatives in response to lower end market demand and procurement initiatives.

~~Fiscal 2018~~As a result of lower sales and lower cost of sales as a percentage of sales, fiscal 2021 year-to-date gross profit ~~of $260.0~~decreased $32.2 million ~~increased $90.7 million from the same period last year, due primarily to $62.0 million of incremental~~and gross profit in our recently-acquired CIS segment and higher gross profit in our Americas, Asia, and Building HVAC segments. Year-to-date gross profit was favorably impacted by $2.4 million from foreign currency exchange rate changes. Gross margin improved 20 basis points to ~~16.9 percent,~~15.7 percent.

Fiscal 2021 year-to-date SG&A expenses decreased $35.4 million. The decrease in SG&A expenses was primarily due to ~~higher sales volume~~lower costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment’s business operations, which decreased approximately $20.0 million, and ~~improved production efficiencies,~~lower compensation-related expenses, which decreased approximately $18.0 million. These favorable drivers were partially offset by ~~unfavorable material~~$5.5 million of costs ~~and incremental depreciation and amortization expense resulting from purchase accounting for Luvata HTS.~~recorded at Corporate in connection with Mr. Burke stepping down as our CEO.

Fiscal 2018 year-to-date SG&A expenses increased $39.1 million from the same period last year, primarily due to a $37.9 million increase in SG&A expenses in our CIS segment, higher compensation-related expenses, and a $1.5 million unfavorable impact of foreign currency exchange rate changes, partially offset by lower costs incurred related to the acquisition of Luvata HTS. SG&A expenses, as a percentage of net sales, decreased 220 basis points compared with the same period last year.

Restructuring expenses of ~~$11.5~~$6.1 million during the first ~~nine~~six months of fiscal ~~2018~~2021 increased ~~$5.5~~$2.0 million compared with the same period last year and consisted primarily ~~due to severance-related~~of severance expenses ~~in the CIS segment~~ related to ~~the closure of a manufacturing facility in Austria.~~plant consolidation activities and targeted headcount reductions.

~~During fiscal 2018, we recorded a $1.3 million impairment charge related to the closure of the CIS manufacturing facility in Austria.~~

~~During fiscal 2017, we sold a manufacturing facility within our Europe segment for cash proceeds of $4.3 million and recognized a $1.2 million gain as a result.~~

Operating income of ~~$65.0~~$25.3 million during the first ~~nine~~six months of fiscal ~~2018 represents a $43.6~~2021 increased $1.2 million ~~improvement~~ compared with the same period last ~~year,~~year. The increase was primarily due ~~to $14.6 million of incremental operating income contributed by our CIS segment~~lower SG&A expenses at Corporate and higher earnings in ~~the Americas, Asia~~our BHVAC and ~~Building HVAC~~Automotive segments, partially offset by lower earnings in our HDE and CIS segments.

~~Interest expense increased $9.0 million to $19.5 million in the first nine months of fiscal 2018, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.~~

The provision for income taxes was ~~$37.4~~$13.7 million and ~~$1.3~~$6.6 million induring the first ~~nine~~six months of fiscal ~~2018~~2021 and ~~2017,~~2020, respectively. The ~~$36.1~~$7.1 million increase was primarily due to ~~$35.7~~a $6.6 million ~~of charges recorded in the third quarter of fiscal 2018 related to~~income tax charge for a valuation allowance on certain U.S. deferred tax ~~reform~~assets and ~~increased~~slightly higher operating earnings in the current year. In addition, the prior year benefitted from the release of an uncertain tax position. These factors, which caused an increase in our tax provision during the first six months of fiscal 2021, were partially offset by ~~tax benefits of $7.9 million from~~ a development tax credit in Hungary and a $1.8 million reduction of unrecognized tax benefits resulting from a lapse in statutes of limitations. We expect the full-year fiscal 2018 benefit for the Hungary development tax credit to total approximately $11.0 million. We do not expect thefavorable impact of ~~this tax credit to be significant in fiscal 2019. It is possible that~~global intangible low taxed income compared with the prior year.

SEGMENT RESULTS OF OPERATIONS

Effective April 1, 2020, we ~~may release~~began managing our global automotive business separate from the ~~tax valuation allowance (approximately $3.0 million) in a foreign jurisdiction in~~other businesses within the ~~fourth quarter~~previously-reported Vehicular Thermal Solutions (“VTS”) segment. We have been managing the automotive business as the Automotive segment as we target the sale or eventual exit of ~~fiscal 2018 or in fiscal 2019. See Note 8~~its underlying automotive business operations. We are managing the other businesses of the ~~Notes to Condensed Consolidated Financial Statements for additional information regarding U.S. tax reform~~VTS segment, including the commercial vehicle and ~~income tax valuation allowances.~~off-highway businesses, as the Heavy Duty Equipment segment.

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~~SEGMENT RESULTS OF OPERATIONS~~

~~Since the date we acquired Luvata HTS (November 30, 2016), we have included CIS segment~~We began reporting financial results ~~within~~for our ~~consolidated results of operations. As~~new segment structure beginning for fiscal 2021. Segment financial information for fiscal 2020 has been recast to conform to the fiscal 2021 presentation. The segment realignment had no impact on the CIS ~~financial results were not included in our consolidated financial statements for the full period during the three~~ and nine months ended December 31, 2016, we have not provided separate discussion of our CIS segment below. The contributions of our CIS segment are included within the discussion of our consolidated financial results above. BHVAC segments.

The following is a discussion of our segment results of operations for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

Americas
Three months ended December 31, Nine months ended December 31,
2017 2016 2017 2016
(in millions) $'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales

Net sales $ 140.5 100.0 % $ 123.4 100.0 % $ 430.7 100.0 % $ 389.4 100.0 %
Cost of sales 118.8 84.6 % 105.0 85.1 % 361.0 83.8 % 329.9 84.7 %
Gross profit 21.7 �� 15.4 % 18.4 14.9 % 69.7 16.2 % 59.5 15.3 %
Selling, general and administrative expenses 12.7 9.0 % 11.3 9.2 % 39.3 9.1 % 40.1 10.3 %
Restructuring expenses 0.1 0.1 % 1.4 1.1 % 1.6 0.4 % 5.2 1.3 %
Operating income $ 8.9 6.3 % $ 5.7 4.6 % $ 28.8 6.7 % $ 14.2 3.6 %
Commercial and Industrial Solutions

	Three months ended September 30,										Six months ended September 30,
	2020					2019					2020					2019
(in millions)	$'s		% of sales			$'s		% of sales			$'s		% of sales			$'s		% of sales
Net sales	$	134.1		100.0	%	$	156.7		100.0	%	$	256.6		100.0	%	$	325.5		100.0	%
Cost of sales		114.8		85.6	%		133.8		85.4	%		221.8		86.5	%		278.3		85.5	%
Gross profit		19.3		14.4	%		22.9		14.6	%		34.8		13.5	%		47.2		14.5	%
Selling, general and administrative expenses		12.2		9.1	%		14.0		9.0	%		25.3		9.8	%		29.1		8.9	%
Restructuring expenses		1.5		1.2	%		0.4		0.2	%		3.9		1.5	%		0.6		0.2	%
Operating income	$	5.6		4.2	%	$	8.5		5.4	%	$	5.6		2.2	%	$	17.5		5.4	%

Comparison of Three Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Americas~~CIS net sales ~~increased $17.1~~decreased $22.6 million, or 14 percent, from the ~~third~~second quarter of fiscal ~~2017~~2020 to the ~~third~~second quarter of fiscal ~~2018,~~2021, primarily due to ~~higher~~lower sales volume. Sales to data center cooling and commercial HVAC&R customers decreased $12.3 million and $10.6 million, respectively.

CIS cost of sales decreased $19.0 million, or 14 percent, from the second quarter of fiscal 2020 to the second quarter of fiscal 2021, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 20 basis points to 85.6 percent, primarily due to the unfavorable impact of lower sales volume, ~~to commercial vehicle, off-highway,~~partially offset by cost-reduction and ~~automotive customers. Gross~~procurement initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit ~~increased $3.3~~decreased $3.6 million and gross margin ~~improved 50~~declined 20 basis points ~~primarily due~~ to ~~higher sales volume and improved production efficiencies, partially offset by unfavorable material costs.~~ 14.4 percent.

SG&A expenses ~~increased $1.4~~decreased $1.8 million ~~primarily due to a lower recovery of development costs and higher compensation-related expenses. Restructuring expenses decreased $1.3 million in~~compared with the ~~third~~second quarter of ~~fiscal 2018,~~the prior year. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $2.0 million.

Restructuring expenses during the second quarter of fiscal 2021 totaled $1.5 million and primarily consisted of severance expenses related to plant consolidation ~~costs.~~ activities in China.

Operating income ~~increased $3.2~~of $5.6 million ~~to $8.9~~decreased $2.9 million during the quarter, primarily due to lower gross profit and higher ~~gross profit.~~restructuring expenses, partially offset by lower SG&A expenses.

Comparison of ~~Nine~~Six Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Americas~~CIS year-to-date net sales ~~increased $41.3~~decreased $68.9 million, or 1121 percent, from the same period last year, primarily due to lower sales volume largely associated with the impacts of the COVID-19 pandemic. Sales to commercial HVAC&R and data center cooling customers decreased $47.6 million and $22.7 million, respectively.

CIS year-to-date cost of sales decreased $56.5 million, or 20 percent, from the same period last year, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 100 basis points to 86.5 percent, primarily due to the unfavorable impact of lower sales volume, partially offset by cost-reduction and procurement initiatives.

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As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $12.4 million and gross margin declined 100 basis points to 13.5 percent.

CIS year-to-date SG&A expenses decreased $3.8 million compared with the prior year. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $4.0 million.

Restructuring expenses during the first six months of fiscal 2021 increased $3.3 million and primarily consisted of severance expenses related to plant consolidation activities in China and targeted headcount reductions in North America.

Operating income decreased $11.9 million to $5.6 million, primarily due to lower gross profit and higher restructuring expenses, partially offset by lower SG&A expenses.

Building HVAC Systems

	Three months ended September 30,										Six months ended September 30,
	2020					2019					2020					2019
(in millions)	$'s		% of sales			$'s		% of sales			$'s		% of sales			$'s		% of sales
Net sales	$	61.9		100.0	%	$	56.0		100.0	%	$	109.5		100.0	%	$	105.0		100.0	%
Cost of sales		40.2		64.9	%		38.3		68.3	%		73.3		66.9	%		73.6		70.1	%
Gross profit		21.7		35.1	%		17.7		31.7	%		36.2		33.1	%		31.4		29.9	%
Selling, general and administrative expenses		8.6		14.0	%		8.9		15.9	%		16.0		14.7	%		17.3		16.5	%
Operating income	$	13.1		21.1	%	$	8.8		15.8	%	$	20.2		18.4	%	$	14.1		13.4	%

Comparison of Three Months ended September 30, 2020 and 2019

BHVAC net sales increased $5.9 million, or 11 percent, from the second quarter of fiscal 2020 to the second quarter of fiscal 2021, primarily due to higher sales ~~volume to off-highway~~in both the U.K. and ~~commercial vehicle customers,~~the U.S., which increased ~~aftermarket~~$5.5 million and $0.4 million, respectively. The higher sales in ~~Brazil,~~the U.K. were primarily due to higher sales of data center products. The higher sales in the U.S. were primarily due to higher sales of heating products, partially offset by lower sales of ventilation products.

BHVAC cost of sales increased $1.9 million, or 5 percent, from the second quarter of fiscal 2020 to the second quarter of fiscal 2021, primarily due to higher sales volume. As a percentage of sales, cost of sales decreased 340 basis points to 64.9 percent and was positively impacted by favorable customer pricing and cost-reduction initiatives.

As a ~~$2.0 million favorable impact~~result of ~~foreign currency exchange rate changes. Gross~~the higher sales and lower cost of sales as a percentage of sales, gross profit increased ~~$10.2~~$4.0 million and gross margin improved 90340 basis points ~~primarily due~~ to ~~higher sales volume and improved production efficiencies, partially offset by unfavorable material costs.~~ 35.1 percent.

SG&A expenses decreased ~~$0.8~~$0.3 million, ~~primarily due to the absence~~or 190 basis points as a percentage of ~~a $1.6 million charge recorded in~~sales, from the prior ~~year related to a legal matter~~year. The decrease in ~~Brazil, which has since been settled and paid, partially offset by legal costs incurred for an environmental matter associated with a previously-owned manufacturing facility. Restructuring~~SG&A expenses ~~decreased $3.6 million,~~was primarily due to lower ~~plant consolidation and severance~~travel expenses.

Operating income of $13.1 million increased ~~$14.6~~$4.3 million ~~to $28.8 million,~~during the quarter, primarily due to higher gross profit and lower ~~restructuring~~SG&A expenses.

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Europe
Three months ended December 31, Nine months ended December 31,
2017 2016 2017 2016
(in millions) $'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales

Net sales $ 134.6 100.0 % $ 119.8 100.0 % $ 405.4 100.0 % $ 389.7 100.0 %
Cost of sales 116.7 86.7 % 101.2 84.5 % 348.6 86.0 % 329.4 84.5 %
Gross profit 17.9 13.3 % 18.6 15.5 % 56.8 14.0 % 60.3 15.5 %
Selling, general and administrative expenses 10.5 7.8 % 9.9 8.2 % 32.3 8.0 % 30.8 7.9 %
Restructuring expenses (income) 1.1 0.9 % 0.1 0.1 % 1.7 0.4 % (0.2 ) -0.1 %
Gain on sale of facility - - - - - - (1.2 ) -0.3 %
Operating income $ 6.3 4.6 % $ 8.6 7.2 % $ 22.8 5.6 % $ 30.9 7.9 %

Comparison of ~~Three~~Six Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

Europe net sales increased $14.8 million, or 12 percent, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily due to an $11.1 million favorable impact of foreign currency exchange rate changes and higher sales volume to automotive and off-highway customers. Gross profit decreased $0.7 million and gross margin declined 220 basis points to 13.3 percent, primarily due to the absence of favorable customer pricing settlements recorded in the prior year. In addition, gross profit was favorably impacted by $1.4 million from foreign currency exchange rate changes. SG&A expenses increased $0.6 million, primarily due to a $0.9 million unfavorable impact of foreign currency exchange rate changes. Restructuring expenses increased $1.0 million in the third quarter of fiscal 2018, primarily due to higher severance expenses. Operating income of $6.3 million decreased $2.3 million, primarily due to higher restructuring expenses and lower gross profit.

~~Comparison of Nine Months Ended December 31, 2017 and 2016~~

~~Europe~~BHVAC year-to-date net sales increased ~~$15.7~~$4.5 million, or 4 percent, from the same period last year, primarily due to ~~a $14.6 million favorable impact of foreign currency exchange rate changes and~~ higher sales ~~volume~~volume. Compared with the first six months of the prior year, BHVAC sales increased $7.2 million in the U.K. and decreased $2.7 million in the U.S. The higher sales in the U.K. were primarily due to ~~off-highway and automotive customers,~~higher sales of data center products, partially offset by lower sales of air conditioning products. The lower sales in the ~~planned wind-down~~U.S. resulted from the negative impacts of ~~certain commercial vehicle programs. Gross~~the COVID-19 pandemic and decreased sales of ventilation products.

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BHVAC year-to-date cost of sales decreased $0.3 million from the same period last year. As a percentage of sales, cost of sales decreased 320 basis points to 66.9 percent and was positively impacted by favorable customer pricing and cost-reduction initiatives.

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit ~~decreased $3.5~~increased $4.8 million and gross margin ~~declined 150~~improved 320 basis points to ~~14.0 percent,~~33.1 percent.

BHVAC year-to-date SG&A expenses decreased $1.3 million, or 180 basis points as a percentage of sales, from the prior year. The decrease in SG&A expenses was primary due to lower compensation-related expenses and lower travel expenses.

Operating income of $20.2 million increased $6.1 million, primarily due to ~~unfavorable material costs~~higher gross profit and lower SG&A expenses.

Heavy Duty Equipment

	Three months ended September 30,										Six months ended September 30,
	2020					2019					2020					2019
(in millions)	$'s		% of sales			$'s		% of sales			$'s		% of sales			$'s		% of sales
Net sales	$	165.6		100.0	%	$	187.2		100.0	%	$	289.1		100.0	%	$	403.6		100.0	%
Cost of sales		142.0		85.8	%		164.8		88.0	%		254.2		87.9	%		348.7		86.4	%
Gross profit		23.6		14.2	%		22.4		12.0	%		34.9		12.1	%		54.9		13.6	%
Selling, general and administrative expenses		10.3		6.2	%		14.9		8.0	%		22.2		7.7	%		29.7		7.4	%
Restructuring expenses		-		-			0.4		0.2	%		1.9		0.6	%		0.8		0.2	%
Operating income	$	13.3		8.1	%	$	7.1		3.8	%	$	10.8		3.8	%	$	24.4		6.0	%

Comparison of Three Months ended September 30, 2020 and 2019

HDE net sales decreased $21.6 million, or 12 percent, from the ~~absence~~second quarter of fiscal 2020 to the ~~favorable customer pricing settlements recorded in~~second quarter of fiscal 2021, primarily due to lower sales volume. Sales to commercial vehicle customers decreased $14.6 million, primarily within the ~~prior year, partially offset by improved production efficiencies.~~Americas. In addition, ~~gross profit was favorably~~sales were unfavorably impacted by ~~$2.0~~$2.6 million from foreign currency exchange rate changes. ~~SG&A expenses increased $1.5 million, primarily due to a $1.1 million unfavorable impact~~

HDE cost of foreign currency exchange rate changes and higher compensation-related expenses. Restructuring expenses increased $1.9 million, primarily due to higher severance expenses and equipment transfer costs. During fiscal 2017, we sold a manufacturing facility for cash proceeds of $4.3 million and recorded a $1.2 million gain as a result. Operating income ofsales decreased $22.8 million, ~~decreased $8.1 million,~~or 14 percent, from the second quarter of fiscal 2020 to the second quarter of fiscal 2021, primarily due to lower sales volume. As a percentage of sales, cost of sales improved 220 basis points to 85.8 percent and was favorably impacted by improved operating efficiencies and cost savings from procurement and other cost-reduction initiatives, partially offset by the unfavorable impact of the lower sales volume.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit ~~and higher restructuring and SG&A expenses.~~

Asia
Three months ended December 31, Nine months ended December 31,
2017 2016 2017 2016
(in millions) $'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales

Net sales $ 42.8 100.0 % $ 28.6 100.0 % $ 117.7 100.0 % $ 78.2 100.0 %
Cost of sales 34.6 81.0 % 23.6 82.4 % 95.8 81.4 % 65.1 83.3 %
Gross profit 8.2 19.0 % 5.0 17.6 % 21.9 18.6 % 13.1 16.7 %
Selling, general and administrative expenses 3.1 7.3 % 2.4 8.4 % 9.3 7.9 % 8.2 10.4 %
Operating income $ 5.1 11.7 % $ 2.6 9.2 % $ 12.6 10.7 % $ 4.9 6.3 %

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~~Comparison of Three Months Ended December 31, 2017 and 2016~~

~~Asia net sales~~ increased $14.2 million, or 50 percent, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily due to higher sales volume to off-highway customers in all geographic markets and automotive customers in China and India. Foreign currency exchange rate changes favorably impacted third quarter net sales by $1.5 million. Gross profit increased $3.2$1.2 million and gross margin improved ~~140~~220 basis points to ~~19.0 percent, primarily due to higher sales volume.~~ 14.2 percent.

SG&A expenses ~~increased by $0.7~~decreased $4.6 million compared with the second quarter of the prior ~~year, yet decreased 110 basis points as a percentage of sales.~~year. The ~~increase~~decrease in SG&A expenses was primarily due to ~~higher~~lower compensation-related expenses, ~~incurred in support of the recent business growth.~~ which decreased approximately $2.0 million, and cost-reduction initiatives.

Operating income of ~~$5.1~~$13.3 million increased ~~$2.5~~$6.2 million during the quarter, primarily due to higher gross ~~profit.~~profit and lower SG&A expenses.

Comparison of ~~Nine~~Six Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Asia~~HDE year-to-date net sales ~~increased $39.5~~decreased $114.5 million, or 5128 percent, from the same period last year, primarily due to ~~higher~~lower sales volume resulting from the impacts of the COVID-19 pandemic. Sales to commercial vehicle, automotive and light vehicle, and off-highway customers decreased $61.0 million, $16.2 million, and $15.4 million, respectively. These sales declines, which were most significant in ~~all geographic markets~~the Americas and ~~automotive customers~~Europe, largely results from weakness in ~~China~~the global vehicular markets. In addition, the planned wind-downs of certain programs contributed, to a lesser extent, to the lower sales to commercial vehicle customers.

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HDE year-to-date cost of sales decreased $94.5 million, or 27 percent, primarily due to lower sales volume. As a percentage of sales, cost of sales increased 150 basis points to 87.9 percent. The significant unfavorable impact of the lower sales volume was partially offset by improved operating efficiencies and ~~India. Gross~~cost savings from procurement and other cost-reduction initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit ~~increased $8.8~~decreased $20.0 million and gross margin ~~improved 190~~declined 150 basis points to ~~18.6 percent, primarily due to higher sales volume.~~12.1 percent.

HDE year-to-date SG&A expenses ~~increased by $1.1~~decreased $7.5 million ~~compared with~~from the prior ~~year, yet decreased 250 basis points as a percentage of sales.~~year. The ~~increase~~decrease in SG&A expenses was primarily due to ~~higher~~lower compensation-related expenses, which decreased approximately $5.0 million, and cost-reduction initiatives, including lower travel expenses.

Restructuring expense during the first six months of fiscal 2021 totaled $1.9 million and primarily consisted of severance expenses resulting from targeted headcount reductions in North America.

Operating income of ~~$12.6~~$10.8 million ~~increased $7.7~~decreased $13.6 million, primarily due to ~~higher~~lower gross ~~profit.~~profit, partially offset by lower SG&A expenses.

Building HVAC
Three months ended December 31, Nine months ended December 31,
2017 2016 2017 2016
(in millions) $'s
% of
sales
$'s
% of
sales
$'s
% of
sales
$'s
% of
sales

Net sales $ 56.1 100.0 % $ 47.2 100.0 % $ 147.9 100.0 % $ 132.8 100.0 %
Cost of sales 37.1 66.2 % 31.9 67.6 % 102.9 69.6 % 95.7 72.0 %
Gross profit 19.0 33.8 % 15.3 32.4 % 45.0 30.4 % 37.1 28.0 %
Selling, general and administrative expenses 9.8 17.4 % 8.5 18.0 % 26.4 17.8 % 26.0 19.6 %
Restructuring expenses - - 0.1 0.2 % - - 0.7 0.5 %
Operating income $ 9.2 16.5 % $ 6.7 14.2 % $ 18.6 12.6 % $ 10.4 7.8 %
Automotive

	Three months ended September 30,										Six months ended September 30,
	2020					2019					2020					2019
(in millions)	$'s		% of sales			$'s		% of sales			$'s		% of sales			$'s		% of sales
Net sales	$	109.9		100.0	%	$	115.7		100.0	%	$	172.0		100.0	%	$	229.3		100.0	%
Cost of sales		93.3		84.8	%		102.7		88.8	%		150.6		87.5	%		203.8		88.9	%
Gross profit		16.6		15.2	%		13.0		11.2	%		21.4		12.5	%		25.5		11.1	%
Selling, general and administrative expenses		8.6		7.9	%		11.1		9.6	%		17.0		9.9	%		22.4		9.8	%
Restructuring expenses		-		-			1.5		1.3	%		0.2		0.1	%		2.7		1.2	%
Operating income	$	8.0		7.3	%	$	0.4		0.3	%	$	4.2		2.4	%	$	0.4		0.2	%

Comparison of Three Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Building HVAC~~Automotive net sales ~~increased $8.9~~decreased $5.8 million, or 195 percent, from the ~~third~~second quarter of fiscal ~~2017~~2020 to the ~~third~~second quarter of fiscal ~~2018,~~2021, primarily due to ~~higher ventilation~~lower sales volume. Compared with the prior year, sales decreased $7.2 million in Europe and ~~heating product~~increased $2.1 million in Asia.

Automotive cost of sales ~~in North America, higher ventilation product~~decreased $9.4 million, or 9 percent, from the second quarter of fiscal 2020 to the second quarter of fiscal 2021, primarily due to lower sales involume. As a percentage of sales, cost of sales decreased 400 basis points to 84.8 percent and was favorably impacted by improved operating efficiencies and cost savings from procurement initiatives.

As a result of the ~~U.K.,~~lower sales and lower cost of sales as a ~~$1.3 million favorable impact~~percentage of ~~foreign currency exchange rate changes. Gross~~sales, gross profit increased ~~$3.7~~$3.6 million and gross margin improved ~~140~~400 basis points to ~~33.8 percent,~~15.2 percent.

SG&A expenses decreased $2.5 million compared with the second quarter of the prior year. The decrease in SG&A expenses was primarily due to higher sales volume, favorable sales mix, and improved production efficiencies in the U.K. SG&A expenses increased $1.3 million, yet decreased 60 basis points as a percentage of sales, primarily due to higherlower compensation-related expenses, ~~including commission expenses resulting from the increased sales.~~ which decreased approximately $3.0 million.

Operating income of ~~$9.2~~$8.0 million increased ~~$2.5~~$7.6 million during the quarter, primarily due to higher gross profit ~~partially offset by higher~~and lower SG&A expenses and restructuring expenses.

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Comparison of ~~Nine~~Six Months ~~Ended December 31, 2017~~ended September 30, 2020 and ~~2016~~2019

~~Building HVAC~~Automotive year-to-date net sales ~~increased $15.1~~decreased $57.3 million, or 1125 percent, from the same period last year, primarily due to ~~higher ventilation~~lower sales volume largely resulting from the impacts of the COVID-19 pandemic. Sales in Europe and ~~heating product~~North America decreased $50.6 million and $10.6 million, respectively. Sales in Asia increased $3.9 million.

Automotive year-to-date cost of sales ~~in North America,~~decreased $53.2 million, or 26 percent, from the prior year, primarily due to lower sales volume. As a percentage of sales, cost of sales decreased 140 basis points to 87.5 percent and was favorably impacted by improved operating efficiencies and cost savings from procurement initiatives, partially offset by ~~a $0.9 million~~the unfavorable impact of ~~foreign currency exchange rate changes. Gross profit increased $7.9 million~~the lower sales volume.

As a result of the lower sales and ~~gross margin improved 240 basis points to 30.4 percent, primarily due to higher~~lower cost of sales ~~volume. SG&A expenses increased $0.4 million, yet decreased 180 basis points~~ as a percentage of ~~sales.~~ sales, gross profit decreased $4.1 million yet gross margin improved 140 basis points to 12.5 percent.

Automotive year-to-date SG&A expenses decreased $5.4 million compared with the prior year. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $6.0 million.

Restructuring expenses ~~decreased $0.7~~during the first six months of fiscal 2021 totaled $0.2 million, ~~due to~~a decrease of $2.5 million compared with the ~~absence~~same period in the prior year, and primarily consisted of severance expenses ~~incurred in the prior year.~~ resulting from targeted headcount reductions.

Operating income of ~~$18.6~~$4.2 million increased ~~$8.2~~$3.8 million, primarily due to ~~higher~~lower SG&A and restructuring expenses, partially offset by lower gross profit.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents ~~at December 31, 2017~~as of ~~$47.8~~September 30, 2020 of $62.5 million, and an available borrowing capacity of ~~$168.8~~$191.4 million under ~~lines of~~our revolving credit ~~provided by banks in the United States and abroad.~~facility. Given our extensive international operations, approximately ~~$46.0~~$42.0 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated.

In response to the COVID-19 pandemic, we have taken actions to reduce operating and administrative expenses, conserve cash and maximize liquidity. In addition, as described below, we have focused on reducing our capital expenditures and executed amendments to our primary credit agreements to help ensure liquidity through financial covenant flexibility during fiscal 2021 and 2022. We ~~have not encountered,~~believe our sources of liquidity, including cash flow from operations, our cash and ~~do not expect~~cash equivalents, and access to ~~encounter, any difficulty meeting~~both committed and uncommitted credit facilities, will provide sufficient cash flow to meet our obligations during the ~~liquidity requirements~~next twelve months and beyond. However, we are continuing to monitor the impacts of COVID-19 on our ~~global operations.~~business and the credit and financial markets.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2020 was ~~$105.6~~$87.3 million, which ~~was~~represents a ~~$70.6~~$69.8 million increase compared with the same period in the prior year. This increase in operating cash flow was primarily resulted from an increase in operating earnings, including contributions from our CIS segment, lower payments for restructuring expenses and costs associated with the acquisition and integration of Luvata HTS in the current year, anddue to favorable net changes in working ~~capital.~~capital and lower payments for separation and project costs associated with our review of strategic alternatives for the automotive business. The favorable changes in working capital during the first six months of fiscal 2021, compared with the same period in the prior year, included lower inventory levels and lower payments for incentive compensation, employee benefits, income taxes and payroll taxes. In addition, we have deferred payments of U.S. payroll taxes, as permitted by the Coronavirus Aid, Relief and Economic Security Act. We plan to resume payment of these payroll taxes during the fourth quarter of fiscal 2021.

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Capital Expenditures

In response to the economic impacts of the COVID-19 pandemic, we are taking steps to preserve our financial liquidity. As part of this initiative, we are focused on reducing our capital expenditures and, where possible, have delayed certain projects and the purchase of certain program-related equipment and tooling in our vehicular businesses. Capital expenditures of ~~$55.0~~$14.6 million during the ~~first nine~~six months of fiscal ~~2018 increased $9.0~~2021 decreased $26.8 million compared with the same period in the prior year, primarily due to capital expenditures by our recently-acquired CIS segment, equipment purchases to expand our manufacturing capacity in China, and tooling and equipment purchases to support new product launches.year.

Debt

Our ~~debt~~credit agreements require us to maintain compliance with various ~~covenants. The term loans require prepayments,~~covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below. Also, as ~~defined~~specified in the credit agreement, in the ~~event our annual excess cash flow exceeds defined levels or~~term loans may require prepayments in the event of certain asset sales. In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on our business, property, or results of operations.

In May 2020, we executed amendments to our primary ~~debt~~credit agreements in the U.S.~~, we are subject~~ to provide additional covenant flexibility in light of the risks and uncertainties associated with the COVID-19 pandemic. Under the amended agreements, the leverage ratio covenant limit has been temporarily raised. We believe this additional flexibility will enable us to be compliant with our debt covenants, even if the ~~most restrictive~~adverse effects of the COVID-19 pandemic on our business are more severe than we currently anticipate. However, failure to comply with the debt covenants could result in an event of default, which, if not cured or waived, could result in us being required to repay borrowings before their due date.

The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit ~~agreement,~~agreements, in relation to ~~no more than three and one-quarter times~~our consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”). For the remainder of fiscal 2021, the leverage ratio covenant limit is 5.25 to 1 and 5.75 to 1 for the third and fourth quarters, respectively. In fiscal 2022, the leverage ratio covenant limit is 4.75 to 1, 3.75 to 1, and 3.50 to 1 for the first, second and third quarters, respectively, and subsequently returns to 3.25 to 1 for the fourth quarter of fiscal 2022. We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense. ~~At December 31, 2017,~~

As of September 30, 2020, we were in compliance with our debt covenants; our leverage ratio and interest coverage ratio ~~was 2.5~~were 2.2 and ~~7.9,~~8.0, respectively. We ~~were~~expect to remain in compliance with our debt covenants ~~as of December 31, 2017 and expect to remain in compliance~~ during ~~the balance of~~ fiscal ~~2018~~2021 and beyond.

~~Shelf Registration Statement~~Recent Announcement - Share Repurchase Program

~~We filed~~On November 5, 2020, we announced our Board of Directors approved a ~~shelf registration statement with the Securities and Exchange Commission,~~two-year, $50.0 million share repurchase program, which ~~was declared effective as of June 26, 2017. The shelf registration statement~~ allows us to ~~offer and sell, from time to time,~~repurchase shares of our common stock through solicited and ~~certain~~unsolicited transactions in the open market or in privately-negotiated or other ~~equity or debt securities in one or more offerings in amounts,~~transactions, at such times and prices and upon such other terms as we deem appropriate. Our decision whether and to what extent to repurchase shares under this program will depend on ~~terms that we determine at the time~~a number of ~~any such offering, with an aggregate initial offering price of up to $200.0 million.~~factors, including business conditions, other cash priorities, and stock price.

~~Contractual Obligations~~

Other than the transition tax liability recorded as a result of U.S. tax reform, as discussed in Note 8 of the Notes to Condensed Consolidated Financial Statements, there have not been any material changes in the Company’s contractual obligations since March 31, 2017, as reported in Item 7. in Part II. of the Company’s Annual Report on Form 10-K.

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Forward-Looking Statements

This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2017.~~2020. Other risks and uncertainties include, but are not limited to, the following:

~~Market Risks:~~

Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency exchange rate fluctuations, tariffs, inflation, changes in interest rates, recession and recovery therefrom, restrictions and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that have been or may be implemented in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;

·	The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and

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

~~Operational Risks:~~

Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;

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

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

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

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

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·	Unanticipated problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers, particularly in light of continuing economic challenges in some areas of the world in which we and our suppliers operate;

Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine;

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

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

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

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

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

~~Strategic~~Market Risks:

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

The impact of the COVID-19 pandemic on the national and global economy, our business, suppliers, customers, and employees;

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

Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency exchange rate fluctuations; tariffs (and any potential trade war resulting from tariffs or retaliatory actions); inflation; changes in interest rates; recession and recovery therefrom; restrictions and uncertainty associated with cross-border trade, public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S. or abroad, as well as continuing uncertainty regarding the short- and long-term implications of “Brexit”;

~~Financial~~The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased components including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs. These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and significant fluctuations in demand. This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions; and

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

Operational Risks:

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

The overall health and continually increasing price-down focus of our vehicular customers in light of economic and market-specific factors, the concentration of sales within our CIS segment attributable to one customer, and the potential impact on us from any deterioration in the stability or performance of any of our major customers;

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

The impact of any problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;

·	~~Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;~~

·	~~Costs arising from the integration of Luvata HTS;~~

·	~~The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar;~~

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

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The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic;

The impact of any delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

Our ability to effectively and efficiently reduce our cost structure in response to sales volume declines and to complete restructuring activities and realize the anticipated benefits of those activities;

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

Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tight global labor markets;

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

The impact of any substantial disruption or material breach of our information technology systems, and any related delays, problems or costs;

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

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

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

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

Strategic Risks:

•

Our ability to ~~effectively realize~~successfully complete the ~~benefits~~pending sale of ~~tax assets~~our liquid-cooled automotive business, including the receipt of governmental and third-party approvals and satisfaction of other closing conditions, and our ability to successfully exit our other automotive businesses in ~~various jurisdictions~~a manner that is in ~~which we operate.~~the best interest of our shareholders;

Our ability to successfully realize anticipated benefits from our increased “industrial” market presence, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our HDE and Automotive businesses;

~~In addition~~

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

The potential impacts from any actions by activist shareholders, including disruption of our business and related costs.

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Financial Risks:

Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments, particularly in light of the ~~risks set forth above, we are subject~~volatility and negative pressure in the financial markets as a result of the COVID-19 pandemic and in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;

The impact of potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to ~~other risks~~our variable-rate debt obligations, and ~~uncertainties~~of the continued uncertainty around the utilization of LIBOR or alternative reference rates;

Our ability to comply with the financial covenants, as ~~identified~~amended, in our ~~public filings with~~credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);

The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

Our ability to effectively realize the ~~U.S. Securities and Exchange Commission. We~~benefits of deferred tax assets in various jurisdictions in which we operate.

Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Evaluation Regarding Disclosure Controls and Procedures

~~As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engaged~~There have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company. This customary integration-related process has resulted in a change in the Company’s internal control over financial reporting during the ~~third~~second quarter of fiscal ~~2018~~2021 that ~~has~~have materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~PART II.~~

~~OTHER INFORMATION~~

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~ISSUER PURCHASES OF EQUITY SECURITIES~~

~~The following describes the Company’s purchases of common stock during the third quarter of fiscal 2018:~~

~~Period~~	~~Total Number of~~ ~~Shares Purchased~~	~~Average~~ ~~Price Paid~~ ~~Per Share~~	~~Total Number of~~ ~~Shares Purchased~~ ~~as Part of Publicly~~ ~~Announced Plans~~ ~~or Programs~~	~~Maximum~~ ~~Number (or~~ ~~Approximate Dollar~~ ~~Value) of Shares~~ ~~that May Yet Be~~ ~~Purchased Under the~~ ~~Plans or Programs~~
~~October 1 – October 31, 2017~~	~~_______~~	~~_______~~	~~_______~~	~~_______~~

~~November 1 – November 30, 2017~~	~~_______~~	~~_______~~	~~_______~~	~~_______~~

~~December 1 – December 31, 2017~~	~~2,438 (a)~~	~~$22.60~~	~~_______~~	~~_______~~

~~Total~~	~~2,438 (a)~~	~~$22.60~~	~~_______~~	~~_______~~

~~(a)~~

Consists of shares delivered back to the Company by employees and/or directors to satisfy tax withholding obligations that arise upon the vesting of stock awards. The Company, pursuant to its equity compensation plans, gives participants the opportunity to turn back to the Company the number of shares from the award sufficient to satisfy tax withholding obligations that arise upon the termination of restrictions. These shares are held as treasury shares.

PART II. OTHER INFORMATION

~~(a)~~

~~Exhibits~~:

Exhibit No.	Description	Incorporated Herein By Reference To	Filed Herewith

~~31.1~~10.1	~~Rule 13a-14(a)/15d-14(a) Certification~~Form of Retention Letter, effective August 31, 2020, between the Company and each of Michael B. Lucareli, Scott L. Bowser and Sylvia A. Stein	Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 31, 2020

10.2	Form of Fiscal 2021 Modine Performance Cash Award Agreement	Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated September 30, 2020 (“September 30, 2020 8-K”)

10.3	Form of Fiscal 2021 Modine Incentive Stock Option Award Agreement	Exhibit 10.2 to September 30, 2020 8-K

10.4	Form of Fiscal 2021 Modine Non-Qualified Stock Option Award Agreement	Exhibit 10.3 to September 30, 2020 8-K

10.5	Form of Fiscal 2021 Modine Restricted Stock Unit Award Agreement	Exhibit 10.4 to September 30, 2020 8-K

10.6	Transition and Separation Agreement between Thomas A. Burke ~~President~~ and ~~Chief Executive Officer.~~Modine Manufacturing Company effective as of August 4, 2020		X

~~31.2~~31.1	Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Interim President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer.		X

32.1	Section 1350 Certification of ~~Thomas A. Burke,~~Michael B. Lucareli, Interim President and Chief Executive ~~Officer.~~		X

~~32.2~~	~~Section 1350 Certification of Michael B. Lucareli,~~Officer and Vice President, Finance and Chief Financial Officer.		X

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).		X

101.SCH	Inline XBRL Taxonomy Extension Schema		X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document		X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document		X

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~		X

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~		X

~~By:~~ ~~/s/ Michael B. Lucareli~~

*	~~Executing as both the principal financial officer and a duly authorized officer of the Company~~

Cash and cash equivalents	$	27.4
Trade accounts receivable		86.1
Inventories		55.0
Property, plant and equipment		120.4
Intangible assets		130.2
Goodwill		151.9
Other assets		39.1
Accounts payable		(73.7	)
Accrued compensation and employee benefits		(24.3	)
Deferred income taxes		(39.5	)
Pensions		(14.3	)
Other liabilities		(42.7	)
Purchase price	$	415.6

	Three months ended December 31, 2016		Nine months ended December 31, 2016
Net sales	$	439.5	$	1,393.3
Net earnings attributable to Modine		8.5		26.8
Net earnings per share attributable to Modine shareholders:
Basic	$	0.17	$	0.54
Diluted		0.17		0.53

	Unrecognized Compensation Expense		Weighted-Average Remaining Service Period in Years
Stock options	$	1.2		2.0
Restricted stock awards		3.9		2.7
Performance stock awards		0.4		1.5
Total	$	5.5		2.5

	Three months ended December 31,
	2017			2016
Beginning balance	$	3.0		$	9.2
Additions		8.6			0.1
Payments		(0.6	)		(1.3	)
Effect of exchange rate changes		0.2			(0.5	)
Ending balance	$	11.2		$	7.5

	December 31, 2017		March 31, 2017
Raw materials and work in process	$	140.0	$	127.7
Finished goods		46.8		40.8
Total inventories	$	186.8	$	168.5

	December 31, 2017			March 31, 2017
Gross property, plant and equipment	$	1,266.2		$	1,177.6
Accumulated depreciation		(774.9	)		(718.6	)
Net property, plant and equipment	$	491.3		$	459.0

	CIS		BHVAC		Total
Goodwill, March 31, 2020	$	152.6	$	13.5	$	166.1
Effect of exchange rate changes		2.8		0.5		3.3
Goodwill, September 30, 2020	$	155.4	$	14.0	$	169.4

	Asia		Building HVAC		CIS		Total
Goodwill, March 31, 2017	$	0.5	$	13.7	$	150.9	$	165.1
Acquisition (a)		-		-		1.3		1.3
Effect of exchange rate changes		-		0.8		5.0		5.8
Goodwill, December 31, 2017	$	0.5	$	14.5	$	157.2	$	172.2

Fiscal Year	Estimated Amortization Expense
Remainder of 2018	$	2.4
2019		9.6
2020		9.5
2021		8.9
2022		8.7
2023 & Beyond		93.4

	Fiscal year of maturity	December 31, 2017			March 31, 2017
Term loans	2022	$	270.4		$	268.9
6.8% Senior Notes	2021		105.0			117.0
5.8% Senior Notes	2027		50.0			50.0
Other (a)	2032		12.7			8.3
			438.1			444.2
Less: current portion			(37.9	)		(31.8	)
Less: unamortized debt issuance costs			(5.7	)		(6.7	)
Total long-term debt		$	394.5		$	405.7

	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	)		-			(1.3	)		(0.2	)		(1.5	)
Total other comprehensive income		4.6			0.9			0.4			5.9			32.4			2.6			0.4			35.4

Ending balance	$	(14.4	)	$	(132.4	)	$	0.4		$	(146.4	)	$	(14.4	)	$	(132.4	)	$	0.4		$	(146.4	)

Building HVAC
	Three months ended December 31,										Nine months ended December 31,
	2017					2016					2017					2016
(in millions)	$'s		% of sales			$'s		% of sales			$'s		% of sales			$'s		% of sales
Net sales	$	56.1		100.0	%	$	47.2		100.0	%	$	147.9		100.0	%	$	132.8		100.0	%
Cost of sales		37.1		66.2	%		31.9		67.6	%		102.9		69.6	%		95.7		72.0	%
Gross profit		19.0		33.8	%		15.3		32.4	%		45.0		30.4	%		37.1		28.0	%
Selling, general and administrative expenses		9.8		17.4	%		8.5		18.0	%		26.4		17.8	%		26.0		19.6	%
Restructuring expenses		-		-			0.1		0.2	%		-		-			0.7		0.5	%
Operating income	$	9.2		16.5	%	$	6.7		14.2	%	$	18.6		12.6	%	$	10.4		7.8	%