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Acquisitions and Dispositions | 12 Months Ended
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Mar. 31, 2024
Acquisitions and Dispositions [Abstract] |
Acquisitions and Dispositions | Note 2: Acquisitions and Dispositions Acquisition of Scott Springfield Mfg. Inc. On March 1, 2024, the Company acquired all of the issued and outstanding shares in the capital of Scott Springfield Mfg. Inc. (“Scott Springfield Manufacturing”) for consideration totaling $184.1 million ($183.8 million net of cash acquired.) The final purchase price is pending and will be adjusted for net working capital and certain other items, as defined by the purchase agreement. The Company paid $181.4 million upon transaction closing and expects to pay the seller $2.4 million during the first half of fiscal 2025, primarily for the working capital adjustment. The Company utilized its revolving credit facility and cash on hand to fund the purchase price. Based in Calgary, Canada, Scott Springfield Manufacturing is a leading manufacturer of air handling units to customers in the data center, telecommunications, healthcare, and aerospace markets. This acquisition expands the Company’s product offerings and customer base in the high-growth data center and indoor air quality markets in the U.S. and Canada. Prior to being acquired by the Company, Scott Springfield Manufacturing reported approximately $110.0 million of net sales during the year ended December 31, 2023. Since the date of the acquisition, March 1, 2024, the Company has reported the financial results of the Scott Springfield Manufacturing business within the Climate Solutions segment. For the one month in fiscal 2024 that the Company owned Scott Springfield Manufacturing, it included $7.9 million of net sales of the acquired business within its consolidated statement of operations. Operating income attributable to the acquired business in fiscal 2024 was not significant and included the impact of the inventory fair value adjustment, as further described below. In addition, the Company recorded $2.1 million of costs directly related to the acquisition and integration of Scott Springfield Manufacturing as SG&A expenses within the consolidated statement of operations during the year ended March 31, 2024. These costs principally consisted of fees for i) transaction advisors, ii) legal, accounting, and other professional services, and iii) incremental costs directly associated with integration activities. The Company has preliminarily allocated the purchase price of Scott Springfield Manufacturing to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date, as follows:
Cash and cash equivalents |  | $ | 0.3 |
Trade accounts receivable |  |  | 27.5 |
Inventories |  |  | 20.9 |
Property, plant and equipment |  |  | 6.0 |
Intangible assets |  |  | 102.3 |
Goodwill |  |  | 65.2 |
Other assets |  |  | 4.0 |
Accounts payable |  |  | (8.6 | )
Accrued compensation and employee benefits |  |  | (1.3 | )
Deferred income taxes |  |  | (24.4 | )
Other liabilities |  |  | (7.8 | )
Purchase price |  | $ | 184.1 |
At the time the March 31, 2024 financial statements were finalized, the Company was continuing its review of the fair value estimates for certain assets acquired, including intangible assets, and liabilities assumed. As part of its purchase accounting and integration activities, the Company is in the process of assessing, refining and harmonizing the internal controls and accounting processes of the acquired business with those of the Company. As part of this process, the Company is continuing to review the appropriateness of accruals and reserves, including those related to accounts receivable, inventory, and product warranties. In addition, the final determination of the purchase price is pending calculations of working capital and other adjustments. As such, the allocation of purchase price above is considered preliminary. The Company expects to complete its accounting for the acquisition of Scott Springfield Manufacturing during the first half of fiscal 2025. The Company primarily based its fair value estimates upon third-party valuations using assumptions developed by management and other information compiled by management, including, but not limited to, future expected cash flows. The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $65.2 million, none of which is expected to be deductible for income tax purposes. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the acquisition includes Scott Springfield Manufacturing’s workforce and anticipated future revenue and cost synergies. Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of acquired assets. The fair values were primarily based upon significant inputs that are not observable in the market and thus represent Level 3 measurements. See Note 4 for information regarding Level 3 fair value measurements. Inventories: The Company determined the fair value of acquired inventory by estimating the selling price of finished goods inventory, less an estimate of costs to be incurred to complete work-in-process inventory. For raw materials acquired, the Company estimated the cost of replacement. As a result, the Company wrote-up acquired inventory by $3.2 million. The Company charged $1.6 million of this write-up to cost of sales in March 2024 and expects to charge the remaining $1.6 million to cost of sales during the first quarter of fiscal 2025, as the remaining underlying inventory is sold. Property, plant and equipment: The Company valued property, plant and equipment primarily utilizing the cost and market approaches. The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility and adjusting the value in consideration of depreciation as of the acquisition date. The cost approach relies on assumptions regarding replacement costs and the age and estimated remaining useful lives of the assets. The market approach considers values on secondary equipment markets for similar assets. The fair value of property, plant and equipment will be recognized as depreciation expense in our results of operations over the expected remaining useful lives of the assets. Intangible assets: The Company determined the fair value of acquired intangible assets by using variations of the income approach. These methods generally forecast expected future net cash flows discretely associated with each of the identified intangible assets and adjust the forecasts to present value by applying a discount rate intended to reflect risk factors associated with the cash flows and the time value of money. Acquired intangible assets were as follows:
|  | Gross |  | Weighted- |
|  | Carrying |  | Average |
|  | Value |  | Useful Life |
Customer relationships |  | $ | 66.9 |  | 12 years |
Order backlog |  |  | 22.6 |  | 1 year |
Trade name |  |  | 12.8 |  | 10 years |
Total intangible assets acquired |  | $ | 102.3 |  |  |
Customer relationships represent the estimated fair value of Scott Springfield Manufacturing’s business relationship with existing customers. Order backlog represents the estimated fair value of open purchase orders as of the acquisition date. The fair values for the customer relationship and order backlog intangible assets were determined using the multi-period excess earnings method, in which the value is derived by projecting the future anticipated after-tax cash flows attributable to the customer relationships and order backlog. Key inputs used in the valuation included future revenue growth rates, customer attrition rates, and discount rates. The Company determined the value of the acquired Scott Springfield Manufacturing trade name using the relief-from-royalty method, a variation of the income approach, which applies an assumed royalty rate to revenue expected to be derived under the acquired trade name. The fair value was estimated to be the present value of the royalties saved because the Company owns the trade name. The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Scott Springfield Manufacturing had occurred at the beginning of fiscal 2023. 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 or the operating results that may be obtained in the future.
|  | Years ended March 31, |
|  | 2024 |  |  | 2023 |
Net sales |  | $ | 2,507.5 |  |  | $ | 2,346.2 |
Net earnings attributable to Modine |  |  | 164.3 |  |  |  | 126.3 |
The supplemental pro forma financial information above is based upon the Company’s historical results and the historical results of Scott Springfield Manufacturing, which have been translated from Canadian dollars to U.S. dollars using the historical average foreign exchange rates. The proforma information includes adjustments for: (i) annual amortization and depreciation expense totaling approximately $20.0 million for fiscal 2023 and approximately $9.0 million for fiscal 2024 for acquired tangible and intangible assets, (ii) estimated annual interest expense of approximately $6.0 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 Canada. In addition, the pro forma financial information assumes that both $2.0 million of acquisition-related transaction costs, not including costs for integration-related activities, and $3.2 million of inventory purchase accounting adjustments were incurred during fiscal 2023. The pro forma financial information does not reflect any expected revenue or cost synergies. Purchase of TMGcore, Inc. intellectual property In January 2024, the Company purchased intellectual property and other specific assets from TMGcore, Inc., a specialist in single- and two-phase liquid immersion cooling technology for data centers. The Company expects to utilize the liquid cooling immersion technology to support its growth strategy of expanding its global data center product offerings. The initial purchase price of the assets was $12.0 million. The Company allocated $11.4 million to acquired technology, which it will amortize over a 10-year useful life, and the remaining $0.6 million to property, plant and equipment. Additional contingent consideration may be payable to the seller in fiscal 2029. The amount of any additional consideration is dependent upon future financial metrics associated with the acquired technology. At this time, the Company cannot estimate the amount or range of additional consideration that may be payable to the seller in fiscal 2029. In line with asset acquisition accounting rules under U.S. GAAP, the Company will record an accrual for the contingent consideration if and when it becomes probable and estimable. Acquisition of Napps Technology Corporation On July 1, 2023, the Company acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for consideration totaling $5.8 million. The Company paid $4.8 million during fiscal 2024 and, based upon the terms of the agreement, expects to pay the remaining $1.0 million to the seller one year after closing. Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps. This acquisition expands the Company’s indoor air quality product portfolio and supports its growth strategy and mission of improving indoor air quality. Since the date of the acquisition, the Company has reported the financial results of the Napps business within the Climate Solutions segment. For the fiscal year ended March 31, 2024, the Company included $4.5 million of net sales within its consolidated statement of operations attributable to nine months of Napps operations. The Company has completed the purchase price allocation for its acquisition of Napps. The purchase price of $5.8 million was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date. The Company engaged a third-party valuation specialist to assist in determining the fair value of the acquired intangible assets. The valuation analysis considered the expected future cash flows of the acquired business. The Company recorded $2.9 million of intangible assets, including customer relationship and acquired technology assets. The Company is amortizing the acquired intangible assets using a weighted-average life of approximately ten years. The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $1.0 million, which is deductible for income tax purposes. The Company’s allocation of the purchase price was as follows:
Trade accounts receivable |  | $ | 1.2 |
Inventories |  |  | 1.3 |
Property, plant and equipment and other assets |  |  | 0.1 |
Intangible assets |  |  | 2.9 |
Goodwill |  |  | 1.0 |
Accounts payable and other liabilities |  |  | (0.7 | )
Purchase price |  | $ | 5.8 |
Disposition of two coatings facilities In September 2023, the Company sold two coatings facilities, located in California and Florida, to Protecall, LLC. These facilities provide aftermarket application services, in which HVAC units are sprayed with an anti-corrosion protective coating. The Company’s other coatings businesses continue to own and license its spray-applied coatings used in aftermarket applications and are strategically pursuing growth through product licensing arrangements. Prior to the disposition, the Company reported the financial results of these businesses within the Performance Technologies segment. In fiscal 2023, the net sales of these two businesses totaled $6.4 million. As a result of this transaction, the Company wrote-off $0.7 million of goodwill attributable to the disposed businesses and recorded a gain on sale of less than $0.1 million during fiscal 2024. Disposition of Germany automotive businesses On October 31, 2023, the Company sold three automotive businesses based in Germany (the “disposal group”) to affiliates of Regent, L.P. The sale of these businesses, which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, is in line with the Company’s strategic prioritization of resources towards higher-margin technologies. The Company determined the disposal group did not qualify as a discontinued operation for reporting purposes under U.S. GAAP. As part of its evaluation, the Company considered anticipated future sales in Europe to automotive and other vehicular customers with similar product offerings and using similar heat-transfer technology within the Performance Technologies segment. The net transaction price for the sale of the disposal group was less than $1.0 million. As a result of the sale, the Company recorded a $4.0 million gain on sale during fiscal 2024, primarily driven by the net liability position of the disposal group at the time of sale. In addition, the gain on sale includes the write-off of $0.6 million of net actuarial gains related to the disposal group’s pension plans. The Company reported the $4.0 million gain on the gain on sale of assets line within the consolidated statement of operations. Prior to the disposition, the Company reported the financial results of the disposal group within its Performance Technologies segment. Net sales of the disposal group included within the Company’s consolidated statements of operations for fiscal 2024 and 2023 totaled $54.2 million and $79.0 million, respectively. Automotive business previously held for sale During fiscal 2022, in connection with the termination of an agreement to sell the liquid-cooled automotive business within its Performance Technologies segment, the Company determined that the business no longer met the requirements to be classified as held for sale. The Company remeasured the long-lived assets reverting back to held and used classification at the lower of their (i) carrying value, as if held for sale classification had not been met; or (ii) fair value at the date of the decision not to sell. The long-lived assets primarily consisted of property, plant and equipment assets and were fully impaired while classified as held for sale. For purposes of the remeasurement, the Company engaged third-party valuation specialists to assist in estimating the fair values of the assets. The Company primarily used the market and cost valuation approaches and utilized third-party information from various industry-accepted sources, including applicable government-published statistics and data from appraisal and resale service providers. As a result of the remeasurement, the Company recorded a net impairment reversal of $56.0 million during fiscal 2022 within the impairment charges (reversals) line on the consolidated statement of operations. In addition, the Company resumed depreciating the property, plant and equipment assets of the liquid-cooled automotive business based on the remeasured asset values during the third quarter of fiscal 2022. Disposition of Austrian air-cooled automotive business During fiscal 2022 the Company sold its Austrian air-cooled automotive business to Schmid Metall GmbH. As a result of this transaction, the Company recorded a loss of $6.6 million during fiscal 2022, which included the write-off of $1.7 million of net actuarial losses related to its pension plan. The Company reported this loss within the loss on sale of assets line on the consolidated statement of operations. Upon transaction closing, $5.9 million of cash within the business transferred to the buyer. Later in fiscal 2022, the Company paid the buyer $2.4 million upon the finalization of a purchase price adjustment for net working capital and certain other items. Financial results of this business, prior to the disposition, are reported within the Performance Technologies segment. For the one month in fiscal 2022 that the Company owned this business, it included $5.3 million of net sales within its consolidated statement of operations. In connection with the sale of this business, the Company provided the buyer with a 5-year, €4.0 million loan facility. Borrowings under the agreement currently bear interest at 7.8 percent. During fiscal 2022, the Company disbursed €4.0 million ($4.7 million) to the buyer under this facility. At both March 31, 2024 and 2023, the Company recorded the loan receivable within other noncurrent assets on its consolidated balance sheet because the Company expects to receive the principal repayment more than twelve months from the balance sheet date. Disposition of previously-closed facility in fiscal 2022 During fiscal 2022, the Company sold a previously-closed manufacturing facility in the U.S. and received net cash proceeds of $0.7 million. As a result of the sale, the Company recorded an impairment charge of $0.3 million within the Climate Solutions segment to write down the property to fair value less costs to sell.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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