Item 2. Management’s Discussion and Analysis
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 September 30, 2025 was the second quarter of fiscal 2026.
Fiscal 2026 acquisitions
We recently acquired three businesses within our Climate Solutions segment, each supporting our growth strategy by expanding our product portfolio and broadening our customer base.
On April 1, 2025, we acquired substantially all of the net operating assets of AbsolutAire, Inc. (“AbsolutAire”) for $11.3 million. AbsolutAire is a Michigan-based manufacturer of direct-fired heating, ventilation, and make-up air systems and has annual sales of approximately $25.0 million.
On May 31, 2025, we acquired LBW Holding Corp. (“L.B. White”) for $110.5 million. Headquartered in Wisconsin, with additional manufacturing and distribution operations in Georgia, L.B. White has annual sales of approximately $75.0 million and is a leading provider of specialty heating solutions, including direct-fired forced air, radiant, indirect-fired, and electric heating solutions, for the agriculture, construction, and special event industries.
On July 1, 2025, we acquired Climate by Design International (“Climate by Design”) for $64.4 million. Based in Minnesota, Climate by Design specializes in desiccant dehumidification technology and critical process air handlers and has annual sales of approximately $45.0 million.
See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information.
Second quarter highlights
Net sales in the second quarter of fiscal 2026 increased $80.9 million, or 12 percent, from the second quarter of fiscal 2025, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. Cost of sales increased $81.6 million, or 17 percent. Gross profit decreased $0.7 million. Gross margin declined 290 basis points to 22.3 percent, primarily due to lower gross margin in the Climate Solutions segment, largely driven by temporary operating inefficiencies associated with our rapid expansion of data center manufacturing capacity. Selling, general and administrative (“SG&A”) expenses decreased $1.6 million. We recorded a $4.1 million impairment charge in our Performance Technology segment related to a technical service center and administrative support facility in Germany, which we expect to sell during the second half of fiscal 2026. Operating income of $73.5 million during the second quarter of fiscal 2026 decreased $1.8 million from the prior year, primarily due to the impairment charge, partially offset by lower SG&A and restructuring expenses.
Year-to-date highlights
Net sales in the first six months of fiscal 2026 increased $102.2 million, or 8 percent, from the same period last year, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. Cost of sales increased $100.1 million, or 10 percent, from the same period last year. Gross profit increased $2.1 million, yet gross margin declined 170 basis points to 23.2 percent. SG&A expenses increased $0.5 million. Operating income of $149.2 million during the first six months of fiscal 2026 decreased $0.5 million from the prior year, primarily due to the impairment charge recorded during the second quarter, partially offset by higher gross profit and lower restructuring expenses.
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CONSOLIDATED RESULTS OF OPERATIONS
The following table presents our consolidated financial results on a comparative basis for the three and six months ended September 30, 2025 and 2024:
Three months ended September 30,
Six months ended September 30,
2025
2024
2025
2024
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
738.9
100.0
%
$
658.0
100.0
%
$
1,421.7
100.0
%
$
1,319.5
100.0
%
Cost of sales
574.0
77.7
%
492.4
74.8
%
1,091.4
76.8
%
991.3
75.1
%
Gross profit
164.9
22.3
%
165.6
25.2
%
330.3
23.2
%
328.2
24.9
%
Selling, general and administrative expenses
84.2
11.4
%
85.8
13.0
%
169.1
11.9
%
168.6
12.8
%
Restructuring expenses
3.1
0.4
%
4.5
0.7
%
7.9
0.6
%
9.9
0.8
%
Impairment charge
4.1
0.6
%
—
—
4.1
0.3
%
—
—
Operating income
73.5
9.9
%
75.3
11.4
%
149.2
10.5
%
149.7
11.3
%
Interest expense
(8.3)
(1.1)
%
(7.4)
(1.1)
%
(14.1)
(1.0)
%
(14.9)
(1.1)
%
Other expense – net
(1.5)
(0.2)
%
(1.5)
(0.2)
%
(5.7)
(0.4)
%
(1.8)
(0.1)
%
Earnings before income taxes
63.7
8.6
%
66.4
10.1
%
129.4
9.1
%
133.0
10.1
%
Provision for income taxes
(18.9)
(2.6)
%
(20.0)
(3.0)
%
(32.9)
(2.3)
%
(38.8)
(2.9)
%
Net earnings
$
44.8
6.1
%
$
46.4
7.1
%
$
96.5
6.8
%
$
94.2
7.1
%
Comparison of the three months ended September 30, 2025 and 2024
Second quarter net sales of $738.9 million were $80.9 million, or 12 percent, higher than the second quarter of the prior year, primarily due to $88.0 million of higher sales in our Climate Solutions segment, driven by sales growth to hyperscale and colocation data center customers in North America and $28.1 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses. The higher sales in the Climate Solutions segment were partially offset by lower sales in our Performance Technologies segment, which decreased $11.2 million, largely due to market weakness. Foreign currency exchange rates favorably impacted sales by $9.4 million.
Second quarter cost of sales increased $81.6 million, or 17 percent, primarily due to higher sales volume in the Climate Solutions segment and a $7.8 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was unfavorably impacted by temporary operating inefficiencies in the Climate Solutions segment, largely due to the rapid expansion of manufacturing capacity for data center products, and higher raw material costs, which increased approximately $5.0 million. These drivers, which increased cost of sales, were partially offset by lower sales volume and improved operating efficiencies in the Performance Technologies segment. As a percentage of sales, cost of sales increased 290 basis points to 77.7 percent, primarily due to the absence of commercial pricing settlements and the recognition of sales tax credits in Brazil, both of which favorably impacted the prior year, higher material costs, and temporary operating inefficiencies.
As a result of higher sales and higher cost of sales as a percentage of sales, second quarter gross profit decreased $0.7 million and gross margin declined 290 basis points to 22.3 percent.
Second quarter SG&A expenses decreased $1.6 million, or 2 percent. As a percentage of sales, SG&A expenses decreased by 160 basis points. The decrease in SG&A expenses was driven by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions, and lower incentive compensation expense. These drivers, which decreased SG&A, were partially offset by higher compensation-related expenses in the Climate Solutions segment, supporting the segment’s growth and including incremental expenses from the acquired businesses. Other costs directly associated with acquisition and integration activities increased $2.3 million.
Restructuring expenses decreased $1.4 million compared with the second quarter of fiscal 2025, primarily due to lower severance expenses in the Performance Technologies segment, partially offset by higher severance expenses in the Climate Solutions segment.
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During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge in the Performance Technologies segment related to a technical service center and administrative support facility in Germany, which we expect to sell during the second half of fiscal 2026.
Operating income of $73.5 million in the second quarter of fiscal 2026 decreased $1.8 million compared with the second quarter of fiscal 2025, primarily due to the $4.1 million impairment charge, partially offset by lower SG&A and restructuring expenses.
Interest expense during the second quarter of fiscal 2026 increased $0.9 million compared with the second quarter of fiscal 2025, primarily due to higher average outstanding borrowings on our revolving credit facility, partially offset by favorable changes in interest rates.
The provision for income taxes was $18.9 million and $20.0 million in the second quarter of fiscal 2026 and 2025, respectively. The $1.1 million decrease included favorable changes in the mix and amount of foreign and U.S. earnings, as compared with the same period in the prior year. The decrease in the provision for income taxes for fiscal 2026 was partially offset by impacts associated with provisions of the One Big Beautiful Bill Act (“OBBBA”) on state deferred taxes and the utilization of foreign tax credits, which increased the income tax provision during the second quarter of fiscal 2026 by $3.1 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.
Comparison of the six months ended September 30, 2025 and 2024
Fiscal 2026 year-to-date net sales of $1,421.7 million were $102.2 million, or 8 percent, higher than the same period last year, primarily due to $128.1 million of higher sales in our Climate Solutions segment, including $38.1 million of incremental sales from the acquired businesses and organic sales growth to hyperscale and colocation data center customers. The higher sales in the Climate Solutions segment were partially offset by $34.7 million of lower sales in our Performance Technologies segment, largely due to market weakness. Foreign currency exchange rates favorably impacted sales by $17.5 million.
Fiscal 2026 year-to-date cost of sales of $1,091.4 million increased $100.1 million, or 10 percent, primarily due to higher sales volume in the Climate Solutions segment and a $14.3 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was unfavorably impacted by temporary operating inefficiencies in the Climate Solutions segment, largely due to the rapid expansion of manufacturing capacity for data center products, and higher raw material costs, which increased approximately $7.0 million. These drivers, which increased cost of sales, were partially offset by lower sales volume and improved operating efficiencies in the Performance Technologies segment. As a percentage of sales, cost of sales increased 170 basis points to 76.8 percent, primarily due to higher material and labor costs and the absence of commercial pricing settlements and sales tax credits, which favorably impacted the prior year.
As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $2.1 million and gross margin declined 170 basis points to 23.2 percent.
Fiscal 2026 year-to-date SG&A expenses increased $0.5 million. As a percentage of sales, SG&A expenses decreased by 90 basis points. The increase in SG&A expenses includes higher compensation-related expenses in the Climate Solutions segment, supporting the segment’s growth and including incremental expenses from the acquired businesses. Other costs directly associated with acquisition and integration activities increased $3.7 million. These drivers, which increased SG&A expenses, were partially offset by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions, and lower incentive compensation expense.
Restructuring expenses during the first six months of fiscal 2026 decreased $2.0 million compared with the same period last year, primarily due to lower severance expenses in the Performance Technologies segment, partially offset by higher severance expenses in the Climate Solutions segment.
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During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge in the Performance Technologies segment related to a technical service center and administrative support facility in Germany, which we expect to sell during the second half of fiscal 2026.
Operating income of $149.2 million in the first six months of fiscal 2026 decreased $0.5 million compared with the same period last year, primarily due to the $4.1 million impairment charge, partially offset by higher gross profit and lower restructuring expenses.
Interest expense during the first six months of fiscal 2026 decreased $0.8 million compared with the same period last year, primarily due to favorable changes in interest rates, partially offset by higher average outstanding borrowings on our revolving credit facility.
Other net expenses during the first six months of fiscal 2026 increased $3.9 million compared with the same period last year, primarily due to an increase in net foreign currency transaction losses.
The provision for income taxes was $32.9 million and $38.8 million during the first six months of fiscal 2026 and 2025, respectively. The $5.9 million decrease included favorable changes in the mix and amount of foreign and U.S. earnings, as compared with the same period in the prior year. The decrease in the provision for income taxes for fiscal 2026 was partially offset by impacts associated with provisions of the OBBBA on state deferred taxes and the utilization of foreign tax credits, which increased the income tax provision during the second quarter of fiscal 2026 by $3.1 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.
SEGMENT RESULTS OF OPERATIONS
The following is a discussion of our segment results of operations for the three and six months ended September 30, 2025 and 2024:
Climate Solutions
Three months ended September 30,
Six months ended September 30,
2025
2024
2025
2024
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
454.4
100.0
%
$
366.4
100.0
%
$
851.8
100.0
%
$
723.7
100.0
%
Cost of sales
342.4
75.4
%
260.1
71.0
%
626.9
73.6
%
516.6
71.4
%
Gross profit
112.0
24.6
%
106.3
29.0
%
224.9
26.4
%
207.1
28.6
%
Selling, general and administrative expenses
47.4
10.4
%
40.1
11.0
%
92.1
10.8
%
80.9
11.2
%
Restructuring expenses
2.4
0.5
%
1.5
0.4
%
3.7
0.4
%
1.7
0.2
%
Operating income
$
62.2
13.7
%
$
64.7
17.6
%
$
129.1
15.2
%
$
124.5
17.2
%
Comparison of the three months ended September 30, 2025 and 2024
Climate Solutions net sales increased $88.0 million, or 24 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to higher sales volume and a $5.1 million favorable impact of foreign currency exchange rates. Compared with the second quarter of the prior year, sales of data center, HVAC technologies, and heat transfer solution products increased $67.4 million, $17.1 million, and $3.2 million, respectively. The higher data center product sales include sales growth to hyperscale and colocation customers in North America and Europe. The higher HVAC technologies product sales are primarily driven by $28.1 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses, partially offset by lower sales of other heating and indoor air quality products. The increase in sales of heat transfer products was partially offset by the absence of commercial pricing settlements with heat pump customers in Europe, which had a favorable impact during the prior year.
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Climate Solutions cost of sales increased $82.3 million, or 32 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to higher sales volume, temporary operating inefficiencies, largely due to the rapid expansion of manufacturing capacity in the U.S. for data center products, and higher raw material costs, which increased approximately $4.0 million. In addition, cost of sales was negatively impacted by $4.1 million from foreign currency exchange rates. As a percentage of sales, cost of sales increased 440 basis points to 75.4 percent, primarily due to the temporary operating inefficiencies, the absence of the commercial pricing settlements in the prior year, and higher material costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $5.7 million and gross margin declined 440 basis points to 24.6 percent.
Climate Solutions SG&A expenses increased $7.3 million compared with the second quarter of the prior year. As a percentage of sales, SG&A expenses decreased by 60 basis points. The increase in SG&A expenses was primarily driven by higher compensation-related expenses and increases across other general and administrative expenses, including costs to support strategic growth initiatives. The higher compensation-related expenses, which increased approximately $6.0 million, also included expenses from the acquired businesses. These increases were partially offset by lower amortization expense, which decreased $2.2 million. The lower amortization expense was primarily driven by an order backlog intangible asset, which we recorded in connection with our acquisition of Scott Springfield Mfg. Inc. and finished amortizing during the first quarter of fiscal 2026.
Restructuring expenses increased $0.9 million compared with the second quarter of fiscal 2025, primarily due to higher severance expenses, partially offset by lower equipment transfer costs.
Operating income of $62.2 million decreased $2.5 million from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to higher SG&A expenses, partially offset by higher gross profit.
Comparison of the six months ended September 30, 2025 and 2024
Climate Solutions year-to-date net sales increased $128.1 million, or 18 percent, from the same period last year, primarily due to higher sales volume, and an $11.2 million favorable impact of foreign currency exchange rates. Compared with the same period in the prior year, sales of data center, HVAC technologies, and heat transfer solutions products increased $91.7 million, $34.3 million, and $1.8 million respectively. The higher data center product sales include sales growth to hyperscale and colocation customers in North America and Europe. The higher HVAC technologies product sales are primarily driven by $38.1 million of incremental sales from the acquired businesses. The increase in sales of heat transfer products was partially offset by the absence of commercial pricing settlements with heat pump customers in Europe, which had a favorable impact during the prior year.
Climate Solutions year-to-date cost of sales increased $110.3 million, or 21 percent, from the same period last year, primarily due to higher sales volume and an $8.8 million unfavorable impact of foreign currency exchange rates . In addition, cost of sales was negatively impacted by temporary operating inefficiencies, largely due to the rapid expansion of manufacturing capacity in the U.S. for data center products, and higher raw material costs, which increased approximately $4.0 million. As a percentage of sales, cost of sales increased 220 basis points to 73.6 percent, primarily due to the temporary operating inefficiencies, the absence of the commercial pricing settlements in the prior year, and higher material costs.
As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $17.8 million and gross margin declined 220 basis points to 26.4 percent.
Climate Solutions year-to-date SG&A expenses increased $11.2 million, yet decreased 40 basis points as a percentage of sales. The increase in SG&A expenses was primarily driven by higher compensation-related expenses and increases across other general and administrative expenses. The higher compensation-related expenses, which increased approximately $12.0 million, includes expenses from the acquired businesses. This increase was partially offset by lower amortization expense, which decreased $3.3 million.
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Restructuring expenses during the first six months of fiscal 2026 increased $2.0 million compared with the same period last year, primarily due to higher severance expenses, partially offset by lower costs related to transferring production and warehousing for certain product lines.
Operating income of $129.1 million during the first six months of fiscal 2026 increased $4.6 million from the same period last year, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Performance Technologies
Three months ended September 30,
Six months ended September 30,
2025
2024
2025
2024
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
286.3
100.0
%
$
297.5
100.0
%
$
571.8
100.0
%
$
606.5
100.0
%
Cost of sales
232.2
81.1
%
237.4
79.8
%
465.8
81.5
%
482.9
79.6
%
Gross profit
54.1
18.9
%
60.1
20.2
%
106.0
18.5
%
123.6
20.4
%
Selling, general and administrative expenses
19.7
6.9
%
26.3
8.8
%
41.6
7.3
%
53.1
8.7
%
Restructuring expenses
0.6
0.2
%
3.0
1.0
%
4.1
0.7
%
8.2
1.4
%
Impairment charge
4.1
1.4
%
—
—
4.1
0.7
%
—
—
Operating income
$
29.7
10.4
%
$
30.8
10.4
%
$
56.2
9.8
%
$
62.3
10.3
%
Comparison of the three months ended September 30, 2025 and 2024
Performance Technologies net sales decreased $11.2 million, or 4 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to lower sales volume in North America, largely due to market weakness, our strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives, and, to a lesser extent, the absence of sales tax credits recognized in Brazil during the prior year. These decreases were partially offset by higher average selling prices, and a $4.3 million favorable impact of foreign currency exchange rates. Compared with the second quarter of the prior year, sales of on-highway application and heavy-duty equipment products decreased $6.5 million and $0.3 million, respectively.
Performance Technologies cost of sales decreased $5.2 million, or 2 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies. These drivers, which decreased cost of sales, were partially offset by a $3.7 million unfavorable impact of foreign currency exchange rates and higher raw material costs, which increased approximately $1.0 million. As a percentage of sales, cost of sales increased 130 basis points to 81.1 percent, primarily due to the unfavorable impact of lower sales and higher material costs, partially offset by improved operating efficiencies.
As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $6.0 million and gross margin declined 130 basis points to 18.9 percent.
Performance Technologies SG&A expenses decreased $6.6 million compared with the second quarter of the prior year. As a percentage of sales, SG&A expenses decreased by 190 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $8.0 million and included the benefits of previous restructuring actions.
Restructuring expenses decreased $2.4 million compared with the second quarter of the prior year, primarily due to lower severance expenses in Europe.
During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge to reduce the carrying value of a technical service center and administrative support facility in Germany to estimated fair value, less costs to sell.
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Operating income of $29.7 million decreased $1.1 million from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to lower gross profit and the impairment charge recorded in the current year, partially offset by lower SG&A and restructuring expenses.
Comparison of the six months ended September 30, 2025 and 2024
Performance Technologies year-to-date net sales decreased $34.7 million, or 6 percent, from the same period last year, primarily due to lower sales volume, largely due to market weakness, our strategic exit from lower-margin business , and, to a lesser extent, the absence of sales tax credits recognized in Brazil during the prior year. These decreases were partially offset by a $6.3 million favorable impact of foreign currency exchanges rates. Compared with the same period in the prior year, sales of on-highway applications and heavy-duty equipment products decreased $21.1 million and $4.5 million, respectively.
Performance Technologies year-to-date cost of sales decreased $17.1 million, or 4 percent, from the same period last year, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies. These drivers, which decreased cost of sales, were partially offset by higher raw material costs, which increased approximately $3.0 million, and a $5.5 million unfavorable impact of foreign currency exchange rates. As a percentage of sales, cost of sales increased 190 basis points to 81.5 percent, primarily due to the unfavorable impact of lower sales and higher material costs, partially offset by improved operating efficiencies.
As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $17.6 million and gross margin declined 190 basis points to 18.5 percent.
Performance Technologies year-to-date SG&A expenses decreased $11.5 million, or 22 percent, compared with the same period last year. As a percentage of sales, year-to-date SG&A expenses decreased by 140 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $14.0 million and included the benefits of previous restructuring actions.
Restructuring expenses during the first six months of fiscal 2026 decreased $4.1 million compared with the same period last year, primarily due to lower severance expenses in Europe, partially offset by higher severance expenses in North America.
During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge to reduce the carrying value of a technical service center and administrative support facility in Germany to estimated fair value, less costs to sell.
Operating income of $56.2 million during the first six months of fiscal 2026 decreased $6.1 million from the same period last year, primarily due to lower gross profit and the impair ment charge recorded in the current year, partially offset by lower SG&A and restructuring expenses.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of September 30, 2025 of $83.8 million, and available borrowing capacity of $128.8 million under our revolving credit facility. Given our extensive international operations, approximately $53.0 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. We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.
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Net cash provided by operating activities
Net cash provided by operating activities for the six months ended September 30, 2025 was $29.1 million, which represents a $68.7 million decrease compared with the same period in the prior year. This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, as compared with the same period in the prior year. The unfavorable changes in working capital include the impact of higher inventory levels and higher payments for incentive compensation. Our Climate Solutions segment has increased inventory levels in fiscal 2026, primarily to support growing customer demand for data center products in the U.S. These drivers were partially offset by the favorable impact of increases in accounts payable, which largely results from the higher inventory levels.
Capital expenditures
Capital expenditures of $59.4 million during the first six months of fiscal 2026 increased $19.1 million compared with the same period in the prior year. During the second quarter of fiscal 2026, we announced a new plan to invest an incremental $100.0 million over the next twelve months to expand our manufacturing capacity in the U.S. for data center products.
Business acquisitions
We are focused on acquiring businesses that we expect will accelerate our strategic growth. During the first half of fiscal 2026, we made cash payments totaling $182.1 million to acquire L.B. White, Climate by Design, and AbsolutAire. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information regarding these acquisitions.
Debt
During the first six months of fiscal 2026, borrowings on our credit facilities, net of repayments, totaled $224.6 million. We primarily used the incremental borrowings to fund our acquisitions of L.B. White and Climate by Design, which closed on May 31, 2025 and July 1, 2025, respectively.
In July 2025, we executed an amended and restated credit agreement with a syndicate of banks that provides for a multi-currency $400.0 million revolving credit facility and a $200.0 million term loan facility maturing in July 2030. This credit agreement modified our then-existing revolving credit and term loan facilities, which would have matured in October 2027. We also amended the agreement governing our Senior Notes, to conform the applicable terms to those of the aforementioned amended and restated credit agreement.
Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant, which are discussed further below. Indebtedness under our credit agreements is secured by liens on substantially all domestic assets, excluding real estate. These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; or make restricted payments, including dividends. Also, the credit agreements may require prepayments in the event of certain asset sales.
As amended, 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 agreements, to no more than three and one-half times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”). 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.
As of September 30, 2025, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during the remainder of fiscal 2026 and beyond.
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U.S. pension plan termination
In June 2024, we approved the termination of our U.S. pension plan. We offered certain participants the option to receive their pension benefits in the form of a lump-sum distribution and plan to purchase annuity contracts to transfer our remaining obligations under the plan. In connection with the plan termination, we expect to make additional cash contributions in the range of $20.0 million to $25.0 million to fully fund the plan, on a plan termination basis, and to record non-cash pension settlement charges totaling approximately $120.0 million to $125.0 million during the second half of fiscal 2026. The timing and amount of the final cash contribution and settlement charges could materially differ from our estimates due to the nature and timing of participant settlements, prevailing market and economic conditions, the duration of the termination process, or other factors.
Share repurchase program
We did not purchase shares under our share repurchase program during the first half of fiscal 2026. As of September 30, 2025, we had $81.6 million of share repurchase authorization remaining under the repurchase program, which does not expire. Our decision whether and to what extent to repurchase additional shares under the program will depend on a number of factors, including business conditions, other cash priorities, and stock price.
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, 2025. Other risks and uncertainties include, but are not limited to, the following:
Market risks:
● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, government incentive or funding programs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions, and military conflicts, including the conflicts in Ukraine and in the Middle East and tension in the Red Sea;
● The impact of other 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 foreign currency exchange rate fluctuations; changes in interest rates; recession and recovery therefrom; and the general uncertainties about the impact of statutory, regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented in the U.S. or abroad;
● The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory 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, including through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;
● Our ability to be at the forefront of technological advances to differentiate ourselves from our competitors and provide innovative products and services to our customers, the impacts of any changes in or the adoption rate of technologies that we expect to drive sales growth, including those related to data center cooling and electric vehicles, and the impacts of any threats or changes to the market growth prospects for our customers;
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● Our ability to mitigate increases in labor costs and labor shortages;
● The impact of public health threats on the national and global economy, our business, suppliers (and the supply chain), customers, and employees; and
● The impact of legislation, regulations, and government incentive programs, including those addressing climate change, on demand for our products and the markets we serve, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives.
Operational risks:
● The impact of problems, including logistic and transportation challenges, associated with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;
● The overall health of and pricing pressure from our 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 relationships and compete effectively for new business, including our ability to achieve profit margins acceptable to us by offsetting or otherwise addressing any cost increases associated with supply chain challenges and inflationary market conditions;
● The impact of product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and warranty claims;
● The impact of delays or modifications initiated by major customers with respect to product or program launches, product applications or requirements, or timing of construction or development projects that incorporate our products and services;
● 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;
● Our ability to effectively and efficiently manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring activities and realizing the anticipated benefits thereof;
● Costs and other effects of the investigation and remediation of environmental contamination; including 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, operational and administrative functions;
● Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;
● The impact of a substantial disruption, including any prolonged service outage, or material breach of our information technology systems, and any related delays, problems or costs;
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● Increasingly complex and restrictive laws and regulations and the costs associated with compliance therewith, including state and federal labor regulations, laws and regulations associated with being a U.S. public company, and other laws and regulations present in various jurisdictions in which we operate;
● Increasing emphasis by global regulatory bodies, customers, investors, and employees on environmental, social and corporate governance matters may impose additional costs on us, adversely affect our reputation, or expose us to new risks;
● Work stoppages or interference at our facilities or those of our major customers and/or suppliers; and
● The constant and increasing pressures associated with healthcare and associated insurance costs.
Strategic risks:
● Our ability to successfully realize anticipated benefits, including improved profit margins and cash flow, from strategic initiatives and our continued application of 80/20 principles across our businesses;
● Our ability to accelerate growth by identifying and executing on organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses; and
● Our ability to successfully exit portions of our business that do not align with our strategic plans. Business dispositions involve risks, including transaction-related and other costs, damage to or the loss of customer relationships, the diversion of management’s attention from our other business concerns, and other effects of litigation, claims, or other obligations, including those that may be asserted against us in connection with disposed businesses.
Financial risks:
● Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
● The impact of increases in interest rates in relation to our variable-rate debt obligations;
● The impact of changes in federal, state or local taxes that could have the effect of increasing our income tax expense;
● Our ability to comply with the financial covenants in our 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 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2025. The Company’s market risks have not materially changed since the fiscal 2025 Form 10-K was filed.