When we use the terms "Modine," "we," "us," the "Company," or "our" in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended September 30, 2021 was the second quarter of fiscal 2022.

Recent Announcement On October 25, 2021, we announced that we have agreed with Dana Incorporated ("Dana") to terminate the definitive sale agreement for our liquid-cooled automotive business. We have been actively engaged with Dana in the regulatory review process in Germany for many months and mutually decided that it is no longer in the best interest of either party to pursue the transaction further.

As a result of terminating the sale agreement, we expect that the liquid-cooled automotive business will no longer meet the requirements to be classified as held for sale during the third quarter of fiscal 2022. Accordingly, we expect to adjust the underlying asset groups to the lower of their (i) carrying value, as if held for sale classification had not been met, or (ii) fair value. At this time, we are unable to quantify or predict any adjustments to the carrying value of the liquid-cooled automotive business's long-lived assets to be recorded during the third quarter of fiscal 2022.

Air-cooled Automotive Business On April 30, 2021, we sold our air-cooled automotive business to Schmid Metall GmbH. As a result of this transaction, we recorded a loss of $6.6 million during the first quarter of fiscal 2022. The finalization of and payment for the purchase price adjustment for net working capital and certain other items, as defined by the sale agreement, is pending. While we do not expect a material adjustment, it is possible that the loss on sale may increase when the purchase price adjustment is finalized.

COVID-19

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

The COVID-19 pandemic has broadly impacted the global economy and our key end markets, which were most severely impacted during the first quarter of fiscal 2021. In an effort to mitigate the negative impacts of COVID-19 on our financial results, we implemented cost-saving actions starting in the first quarter of fiscal 2021 that primarily impacted selling, general and administrative ("SG&A") expenses and capital expenditures. While we remain focused on controlling expenses, we withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered. As a result and as anticipated, compensation-related expenses, particularly SG&A expenses, were higher in the first half of fiscal 2022 compared with the prior year.

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

Second Quarter Highlights Net sales in the second quarter of fiscal 2022 increased $17.5 million, or 4 percent, from the second quarter of fiscal 2021, primarily due to higher sales volume in our Heavy Duty Equipment ("HDE"), Commercial Industrial Solutions ("CIS"), and Building HVAC ("BHVAC") segments, partially offset by lower sales in our Automotive segment. Cost of sales increased $32.0 million, or 8 percent, compared with the second quarter of fiscal 2021, primarily due to higher sales volume and higher raw material prices, including underlying metal prices and related premiums, fabrication, freight, tariff and packaging costs. Gross profit decreased $14.5 million and gross margin declined 370 basis points to 13.8 percent. SG&A expenses increased $1.1 million. Higher compensation-related expenses were partially offset by lower severance expenses for executive management positions compared with the second quarter of fiscal 2021. Operating income of $10.5 million during the second quarter of fiscal 2022 decreased $18.0 million from the prior-year, primarily due to lower earnings in our Automotive and HDE segments.


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Year-to-date Highlights
Net sales in the first six months of fiscal 2022 increased $164.3 million, or 20
percent, from the same period last year, primarily due to higher sales in our
HDE, CIS and BHVAC segments, partially offset by lower sales in our Automotive
segment.  Cost of sales increased $151.7 million, or 22 percent, from the same
period last year, primarily due to higher sales volume and higher raw material
prices.  Gross profit increased $12.6 million and gross margin declined 140
basis points to 14.3 percent.  SG&A expenses increased $15.8 million, primarily
due to higher compensation-related expenses, as the prior-year benefitted from
cost-saving measures implemented in response to COVID-19.  Operating income of
$19.2 million during the first six months of fiscal 2022 decreased $6.1 million
from the same period in the prior-year, primarily due to the $6.6 million loss
from the sale of the air-cooled automotive business and lower earnings in our
Automotive and BHVAC segments, partially offset by the higher earnings in our
CIS and HDE segments.

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