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Item 7. Management’s Discussion and Analysis

2026-05-27 compared with 2025-05-21 · 256 added, 200 removed, 278 unchanged (62% of the section changed)

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Our mission is to use our thermal management expertise to help our customers improve indoor air quality, reduce energy and water consumption, lower harmful emissions, enable cleaner running vehicles, and use more environmentally friendly refrigerants.

We operate in four continents, in 16 countries, and employ approximately 11,300 persons worldwide.

We operate in four continents, in numerous countries, and employ approximately 13,200 persons worldwide.

We sell customer-centric thermal management solutions in a wide array of commercial, industrial, and building HVAC&R markets.

In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway OEM vehicular applications.

Our primary product groups include i) data center cooling;

ii) heat transfer;

iv) air-cooled;

v) liquid-cooled;

and vi) advanced solutions.

Our primary product groups include i) Data Centers;

ii) Heat Transfer Solutions;

iii) HVAC Technologies;

iv) Heavy-Duty Equipment;

and v) On-Highway Applications.

Company Strategy

Our purpose of Engineering a Cleaner, Healthier World™ guides our strategic direction.

We are committed to evolving our product portfolio in pursuit of highly engineered, mission-critical thermal solutions.

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These markets continue to shift to low-carbon energy solutions, driving demand for cleaner, more efficient thermal management.

In fiscal 2025, we continued our strategic transformation.

We first announced our vision for a “new” Modine in late fiscal 2021.

Over the last four fiscal years, we have simplified and re-segmented our organization and have aligned resources around specific strategies and market-based verticals.

Over the last five fiscal years, we have simplified and re-segmented our organization and have aligned resources around specific strategies and market-based verticals.

Our leadership and teams have embraced 80/20 principles and have created a high-performance culture that focuses resources on products and markets with the highest sustainable growth opportunities and best return profiles, while simplifying and improving our processes.

We have strategically expanded our Data Center Cooling and Indoor Air Quality businesses.

Through initiatives based upon 80/20 principles, we have achieved significant improvements in our profit margins since we started our transformational journey.

Entering fiscal 2026, we are committed to our strategic pillars to drive value creation.

In fiscal 2026, we continued our strategic transformation.

Following our 80/20 discipline, we significantly expanded our Data Centers business and production capacity to meet increasing customer demand.

We see great opportunity in growing our Data Centers business in light of trends in high-performance computing, with significant data center growth fueled by increased AI usage.

In addition, we acquired three businesses during fiscal 2026, AbsolutAire, L.B.

White, and Climate by Design, which contributed to growth in our HVAC Technologies business.

In January 2026, we entered into definitive agreements with Gentherm, whereby we will spin-off and simultaneously combine our Performance Technologies segment businesses with Gentherm in a Reverse Morris Trust transaction.

Gentherm, a Michigan-based corporation, is a global leader of innovative thermal management and pneumatic comfort technologies.

This transaction, which we expect will close by the end of calendar 2026, will transform our company into a pure-play climate solutions company focused on the data center and commercial HVAC&R markets.

Entering fiscal 2027, we are committed to executing our strategic priorities, including further expanding our Data Centers business and completing the transaction with Gentherm.

We will continue to apply our strategic pillars across our businesses to drive value creation.

We aim to capitalize on our expertise in thermal management to provide differentiated solutions and sustain market leadership.

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We will continue to elevate our 80/20 discipline throughout our businesses and use 80/20 to guide our daily decision making.

Finally, we will continue to evolve our portfolio to compound shareholder value.

As we continue on our strategic transformation, we expect to change our mix of business.

We are growing our data center cooling, heating and indoor air quality businesses, for example, while strategically deemphasizing others.

Most notably, we are working towards exiting our automotive business since it does not align with our transformation goals.

We expect these changes will fuel improvements in both profit margins and cash flows, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.

Finally, we will continue to evolve our portfolio to increase shareholder value.

Development of New Products and Technology

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We devote significant resources to global strategic planning and development activities to strengthen our competitive position.

During fiscal 2025, we integrated Scott Springfield Manufacturing, a leading manufacturer of air handling units serving customers in the U.S.

and Canada, into our Modine businesses.

We will continue to pursue growth opportunities, particularly to grow our global, market leading positions in the data center cooling and HVAC&R markets.

We have provided our general managers with the tools that they need to be successful, including dedicated resources to create an entrepreneurial environment and to challenge the status quo.

During fiscal 2026, we significantly expanded production capacity in our Data Centers business and integrated three acquired businesses, AbsolutAire, L.B.

White, and Climate by Design, into our Climate Solutions segment.

We will continue to pursue growth opportunities, particularly to grow our global, market leading positions in the data center and commercial HVAC markets.

We have provided our businesses with the tools that they need to be successful, including dedicated resources to create an entrepreneurial environment and to challenge the status quo.

Operational and Financial Discipline

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Our fiscal 2026 annual cash incentive plan for our management team was based upon two performance metrics:

growth in net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) and Adjusted EBITDA margin as a percentage of net sales.

growth in net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) and Adjusted EBITDA as a percentage of net sales.

The incentive plan’s performance goals were established for each operating segment as well for the consolidated Company.

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These plans and results are used by our CODM to evaluate the performance of each segment and to make decisions on the allocation of resources.

Effective April 1, 2026, we reorganized our Climate Solutions segment and split it into two separate operating segments:

1) Data Centers and 2) Commercial HVAC.

We believe that managing these businesses independently will allow us to better deploy our 80/20 strategy focused on capitalizing on growth opportunities, particularly in our Data Centers business, and optimizing profit margins and cash flow.

Climate Solutions (65 percent of fiscal 2026 net sales)

Our Climate Solutions segment provides energy-efficient, safe, climate-controlled solutions and components for a wide range of critical applications.

The Climate Solutions segment sells data center cooling solutions, heat transfer products, and HVAC&R products to customers in North America, EMEA, and Asia.

Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, CRAC and CRAH units, fan walls, and CDUs.

Heat transfer products include heat exchanger coils used in commercial, industrial, and residential HVAC&R applications and coating products and application services that extend the life of equipment and components by protecting against corrosion.

HVAC&R products include commercial and residential unit heaters, vertical and horizontal unit ventilators, air conditioning chillers, low global warming potential unit coolers, air-cooled condensers, and dry coolers.

We sell our products and solutions both directly to commercial and industrial OEM and end user customers and through wholesalers, distributors, consulting engineers, contractors and data center operators for applications such as data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing facilities, and other commercial and industrial applications.

During fiscal 2025, Climate Solutions segment sales increased $333 million, or 30 percent, compared with the prior year, primarily driven by higher sales of data center cooling and HVAC&R products, partially offset by lower sales of heat transfer products.

We are seeing the benefits of our strategic growth initiatives, particularly within our Data Center Cooling business.

The increase in sales of data center cooling products included incremental sales from our Scott Springfield Manufacturing business, which we acquired during the fourth quarter of fiscal 2024, and significant organic sales growth to hyperscale and colocation customers.

In fiscal 2026, we will elevate our 80/20 discipline across our Climate Solutions businesses.

We will leverage our deep expertise in thermal management to bring highly-engineered, mission critical thermal solutions to our customers and to capitalize on growth opportunities supported by mega-trends in the areas of high-performance computing, low global warming refrigerant regulations, and indoor air quality.

We are particularly excited about growth opportunities in the global data center markets.

We expect continued strong growth in the data center markets during fiscal 2026, as the need for digital infrastructure continues to expand.

Through our acquisition of Scott Springfield Manufacturing and investment in liquid cooling technologies, we have expanded our product portfolio and will continue to invest in product innovations and next-generation technology to meet the data center cooling needs of new and existing customers in the future.

We are continuing to increase our production capacity and global footprint, including a new production facility in India, to support our customers with data center cooling solutions and best-in-class support.

We also expect the North American commercial HVAC and school markets, to which we sell our indoor air quality products, will experience modest growth during fiscal 2026, driven by private and local institutional funding for ventilation improvements for commercial applications and schools.

W e are strategically expanding our HVAC technology portfolio to better serve our customers with tailored solutions.

In April 2025, we acquired AbsolutAire Inc., a Michigan-based manufacturer of direct-fired heating, ventilation, and make-up air systems that complements our existing Heating and Indoor Air Quality businesses.

In addition, in response to F-gas regulations, we are working closely with customers to design heat exchangers and systems that leverage now-required low global warming potential refrigerants effectively.

Further, we are focused on growing our refrigeration sales and believe we can become a market leader in more environmentally friendly carbon dioxide gas coolers and adiabatic solutions in North America and Europe.

Finally, we are focused on applying 80/20 principles within our manufacturing facilities and expect to achieve further production efficiency improvements as a result.

Our Climate Solutions segment provides energy-efficient, climate-controlled solutions and components for a wide range of applications, including data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing and construction sites, poultry and swine facilities, and other commercial and industrial applications.

The Climate Solutions segment sells data center, heat transfer solutions, and HVAC technologies products to customers in North America, EMEA, and Asia Pacific.

Data center products include chillers, dry coolers, precision air handling units, CRAC and CRAH units, fan walls, rear-door heat exchangers, CDUs, and immersion solutions.

In addition, the Data Centers business sells modular data center solutions, replacement parts, maintenance service and control solutions for existing equipment and new building management controls and systems.

Heat transfer solutions include heat exchanger coils, anti-corrosion coating products, commercial and industrial refrigeration products, and power generation and transmission cooling solutions.

HVAC technologies products include heating products, including unit heaters, roof-mounted direct- and indirect-fired makeup air units, duct furnaces, infrared units, and perimeter heating products.

HVAC technologies products also include indoor air quality products, including single packaged unit ventilators, ceiling cassettes, modular chillers, air handling units, condensing units, and desiccant dehumidifiers.

During fiscal 2026, Climate Solutions segment sales increased $621 million, or 43 percent, compared with the prior year, primarily driven by higher sales of data center and HVAC technologies products, which increased $468 million and $102 million, respectively.

We have rapidly expanded our Data Centers business, investing to expand our manufacturing capacity, particularly in the U.S.

and Canada, to support the significant sales growth to both hyperscale and colocation customers during fiscal 2026.

The higher HVAC technologies product sales include $119 million of incremental sales from three businesses — AbsolutAire, L.B.

White, and Climate by Design — that we acquired during fiscal 2026.

These acquisitions expanded our heating and indoor air quality product portfolios and broadened our customer base.

We are seeing the benefits of our strategic growth initiatives.

Effective April 1, 2026, we reorganized our Climate Solutions segment and split it into two separate segments:

1) Data Centers and 2) Commercial HVAC.

We believe that managing these businesses independently will allow our teams to better deploy our 80/20 strategy to capitalize on growth opportunities and optimize profit margins and cash flow.

We are especially excited about opportunities to grow our Data Centers segment and are prioritizing the expansion of this business and our manufacturing footprint to meet increasing customer demand.

We expect strong growth in the data center cooling markets in fiscal 2027, supported by sustained global reliance on digital technologies and anticipated significant investments in data center infrastructure, particularly in the U.S.

In light of this strong growth, however, market demand is currently outpacing supplier capacity for certain components that we purchase to manufacture our data center products.

We began experiencing supply shortages in the fourth quarter of fiscal 2026.

These component shortages are negatively impacting our production schedules for the first quarter of fiscal 2027.

We are actively working with our supply chain, including qualifying new vendors, to mitigate the supply constraints.

As we work to grow our businesses, we will continue to apply our strategic pillars to drive value creation.

We will leverage our deep expertise in thermal management to bring highly-engineered, mission-critical thermal solutions to our customers and to capitalize on growth opportunities supported by mega-trends in the areas of digitalization, climate change, and urbanization, which are increasing the needs for energy-efficient cooling solutions and HVAC technologies products.

We are also focused on applying 80/20 principles within our manufacturing facilities and expect to achieve production efficiency improvements as a result.

Performance Technologies (35 percent of fiscal 2026 net sales)

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The segment also provides solutions that increase fuel economy, reduce harmful emissions and maximize range in zero emission applications.

The Performance Technologies segment designs and manufactures products and solutions using air-cooled and liquid-cooled technology for vehicular, stationary power, and industrial applications.

Air-cooled products consist primarily of powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fan shrouds, and surge tanks;

Liquid-cooled products include engine oil coolers, EGR coolers, liquid charge air coolers, transmission and retarder oil coolers, chillers, and condensers.

In addition, the Performance Technologies segment provides advanced thermal solutions designed to improve battery range and vehicle life to zero-emission and hybrid commercial vehicle and off-highway customers.

These solutions include battery thermal management systems, electronics cooling packages, and battery chillers.

During fiscal 2025, Performance Technologies segment sales decreased $158 million, or 12 percent, compared with the prior year, primarily due to lower sales volume, including $54 million of lower sales from three automotive businesses in Germany that we sold during the third quarter of fiscal 2024.

In fiscal 2025, we focused on applying 80/20 principles and were able to achieve gross margin improvement despite the lower sales volume.

We closed a technical service center in Germany to optimize the utilization of our global technical service center capacity and have taken restructuring actions, including targeted headcount reductions and product line transfers, to reduce selling, general, and administrative (“SG&A”) and operational expenses and to optimize the efficiency of our supply chain and manufacturing processes.

In fiscal 2025, we signed a definitive agreement to sell the technical service center in Germany and expect the sale transaction will close during the first half of fiscal 2026.

Looking ahead, we are closely monitoring uncertainties in the markets we serve, including the potential impacts of tariffs on our businesses, our customers, and the economy as a whole.

In anticipation of continued weakness in vehicular markets, we are actively reducing our cost structure in the Performance Technologies segment and have approved additional headcount reductions during the first quarter of fiscal 2026.

We will continue to apply 80/20 principles and are focused on exiting the portions of our business that do not align with our strategic plan.

We will also continue to evaluate our manufacturing footprint to optimize our production.

The segment’s Heavy-Duty Equipment business provides heat exchangers and cooling modules for off-highway markets, including agricultural and construction.

In addition, the Heavy-Duty Equipment business sells cooling module generator sets that provide mission-critical stationary power.

Heavy-Duty Equipment products primarily include powertrain cooling products, such as radiators, condensers, charge air coolers, oil coolers, and engine cooling modules;

The segment’s On-Highway Applications business provides heat exchangers and cooling systems for commercial vehicle, automotive, bus and specialty vehicle customers.

Its products and solutions include products for traditional powertrains, including aluminum and stainless steel engine oil coolers, EGR coolers, charge air coolers, transmission and retarder oil coolers, chillers, condensers, fan shrouds, and surge tanks.

In addition, the On-Highway Applications business provides products and solutions for zero-emission and hybrid passenger car, commercial vehicle, bus and specialty vehicles, including complete battery thermal management systems, electronics cooling packages, battery chillers, battery cooling plates, coolers and casings for electronics cooling, and coolers for e-axles.

During fiscal 2026, Performance Technologies segment sales decreased $31 million, or 3 percent, compared with the prior year, primarily due to lower sales volume in North America, largely due to general market weakness and the strategic exit of lower-margin business.

In light of the lower sales volume, we focused on cost containment measures during fiscal 2026 and significantly lowered our selling, general and administrative (“SG&A”) expenses, which benefitted from recent restructuring actions.

In January 2026, we entered into definitive agreements to spin-off and simultaneously combine our Performance Technologies segment business with Gentherm in a Reverse Morris Trust Transaction.

We expect the transaction will close by the end of calendar 2026 and are focused on executing the steps necessary to facilitate a smooth and timely transaction.

Gentherm, a Michigan-based corporation, is a global leader of innovative thermal management and pneumatic comfort technologies.

We believe this transaction will provide a renewed focus on investment and growth opportunities for the Performance Technologies business, while positioning us to further focus on the data center and commercial HVAC&R markets.

Until the transaction closes, we are continuing to manage this business as our Performance Technologies segment, using our strategic pillars rooted in 80/20 principles as our guide.

Consolidated Results of Operations

Acquisitions and dispositions

Pending Reverse Morris Trust Transaction

As discussed earlier in this report, we have entered into definitive agreements with Gentherm, whereby we will spin-off and simultaneously combine our Performance Technologies segment businesses with Gentherm in a Reverse Morris Trust transaction.

We anticipate this transaction will close by the end of calendar 2026, subject to approval by Gentherm’s shareholders and other closing conditions, including regulatory approvals.

The transaction is intended to establish Gentherm as a scaled leader in thermal management.

We will retain our Climate Solutions segment businesses, creating a pure-play climate solutions company focused on the data center and commercial HVAC&R markets.

Under the terms of the agreement, at the time of the spin-off of our Performance Technologies segment businesses, our shareholders will receive newly-issued Gentherm stock, representing ownership of approximately 40 percent of the combined company.

In addition, immediately prior to transaction closing, we will receive cash proceeds of $210 million, subject to adjustment, which will be used to pay down our long-term debt obligations.

Based upon the Gentherm stock price, the transaction was valued at approximately $1 billion when we entered into the agreement.

Under the Reverse Morris Trust structure, the transaction is intended to be generally tax-free for U.S.

federal income tax purposes for the Company and our shareholders.

To facilitate this transaction, we expect to incur significant fees for transaction advisory, legal, accounting, tax and other professional services.

We currently estimate that these fees and other costs directly related to the transaction will total approximately $45 million to $55 million.

Fiscal 2026 acquisitions

During fiscal 2026, we 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 for $11 million.

AbsolutAire is a Michigan-based manufacturer of direct-fired heating, ventilation, and make-up air systems.

On May 31, 2025, we acquired L.B.

White for $111 million.

Headquartered in Wisconsin, with additional manufacturing and distribution operations in Georgia, L.B.

White 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 for $64 million.

Based in Minnesota, Climate by Design specializes in desiccant dehumidification technology and critical process air handlers.

Fiscal 2024 acquisitions and dispositions

During fiscal 2024, we acquired two businesses within our Climate Solutions segment.

On March 1, 2024, we acquired Scott Springfield Manufacturing, a Canadian-based manufacturer of air handling units, for consideration totaling $184 million.

On July 1, 2023, we acquired Napps Technology Corporation (“Napps”), a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, for consideration totaling $6 million.

These acquisitions expanded our data center and indoor air quality product portfolios and support our growth strategy and mission of improving indoor air quality.

We have reported the financial results of these businesses within the Climate Solutions segment since the acquisition dates.

In October 2023, we sold three automotive businesses based in Germany.

The sale of these Performance Technologies businesses, which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies.

In September 2023, we sold two coatings facilities, located in California and Florida.

Sales from these two businesses, which provided aftermarket application services, totaled $6 million in fiscal 2023.

In December 2024, we signed a definitive agreement to sell our technical service center and administrative support facility in Germany to a real estate investment firm for €12 million ($12 million).

Earlier this fiscal year, we closed the technical service center and reduced headcount in light of the sale of the three automotive businesses in Germany.

We expect the sale transaction will close during the first half of fiscal 2026, subject to remaining closing conditions.

We expect to record a gain on sale, net of costs to sell, of approximately $3 million when the transaction is completed.

In April 2025, we acquired AbsolutAire, Inc., a Michigan-based manufacturer of direct-fired heating, ventilation, and make-up air systems.

We paid $11 million upon transaction closing.

This acquisition supports our growth strategy by expanding our heating and indoor air quality product portfolios and also broadens our customer base in the commercial, industrial, food service, and warehousing sectors.

We will report the financial results of this business within the Climate Solutions segment beginning in the first quarter of fiscal 2026.

Sales from these three businesses totaled $54 million in fiscal 2024.

See Note 2 of the Notes to Consolidated Financial Statements for further information regarding acquisitions and dispositions.

Fiscal 2026 highlights

Fiscal 2026 net sales increased $598 million, or 23 percent, from the prior year, primarily due to higher sales in our Climate Solutions segment, driven by higher sales of data center products and $119 million of incremental sales from the three businesses that we acquired during fiscal 2026.

Cost of sales increased $510 million, or 26 percent, primarily due to the higher sales volume.

Gross profit increased $87 million.

Gross margin declined 190 basis points to 23.0 percent and was negatively impacted by temporary operating inefficiencies associated with the rapid expansion of our Data Centers business and higher material costs in both of our operating segments.

SG&A expenses increased $28 million and included higher costs associated with our strategic acquisition and disposition activities.

Operating income of $342 million during fiscal 2026 increased $59 million from the prior year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

During fiscal 2026, we recorded a $116 million non-cash pension termination charge in connection with the termination of our primary U.S.

pension plan.

Fiscal 2025 highlights

Fiscal 2025 net sales increased $175 million, or 7 percent, from the prior year, primarily due to higher sales in our Climate Solutions segment, partially offset with lower sales in our Performance Technologies segment.

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Gross profit increased $118 million and gross margin improved 310 basis points to 24.9 percent.

SG&A expenses increased $58 million and included higher compensation-related expenses and higher expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets.

Operating income of $283 million during fiscal 2025 increased $42 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4 million gain on sale of three automotive businesses in Germany in fiscal 2024.

Fiscal 2024 highlights

Fiscal 2024 net sales increased $110 million, or 5 percent, from the prior year, primarily due to higher sales in our Performance Technologies and Climate Solutions segments.

Cost of sales decreased $27 million, or 1 percent, primarily due to lower material costs and improved operating efficiencies .

Gross profit increased $137 million and gross margin improved 490 basis points to 21.8 percent.

SG&A expenses increased $40 million, primarily due to higher compensation-related expenses.

Operating income of $241 million during fiscal 2024 increased $91 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.

SG&A expenses increased $58 and included higher compensation-related expenses and higher expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets.

Operating income of $283 million during fiscal 2025 increased $42 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4 million gain on the sale of three automotive businesses in Germany in fiscal 2024.

The following table presents our consolidated financial results on a comparative basis for fiscal years 2026, 2025 and 2024.

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Restructuring expenses

Gain on sale of assets

Impairment charge

Loss (gain) on sale of assets

Operating income

Interest expense

Pension termination charge

Other expense – net

Earnings before income taxes

(Provision) benefit for income taxes

Provision for income taxes

Year ended March 31, 2026 compared with year ended March 31, 2025

Fiscal 2026 net sales of $3,181 million were $598 million, or 23 percent, higher than the prior year, primarily due to $621 million of higher sales in our Climate Solutions segment, including organic sales growth to hyperscale and colocation data center customers in North America and Europe and $119 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 $31 million of lower sales in our Performance Technologies segment, largely due to market weakness.

Foreign currency exchange rates favorably impacted sales by $63 million.

Fiscal 2026 cost of sales of $2,450 million increased $510 million, or 26 percent, primarily due to higher sales volume in the Climate Solution segment and a $50 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 $28 million and included the impact of tariffs.

These drivers, which increased cost of sales, were partially offset by lower sales volume in the Performance Technologies segment.

As a percentage of sales, cost of sales increased 190 basis points to 77.0 percent, primarily due to temporary operating inefficiencies, higher material 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 $87 million and gross margin declined 190 basis points to 23.0 percent.

Fiscal 2026 SG&A expenses increased $28 million, or 8 percent.

As a percentage of sales, SG&A expenses decreased 160 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 disposition activities increased $18 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 2026 decreased $7 million compared with the prior year, primarily due to lower severance expenses in the Performance Technologies segment and at Corporate, partially offset by higher severance expenses in the Climate Solutions segment and higher costs related to transferring production for certain product lines.

During fiscal 2026, we recorded a $4 million non-cash impairment charge in the Performance Technologies segment related to a technical service center and administrative support facility in Germany, the sale of which is pending.

During fiscal 2026, we recorded a $4 million loss at Corporate resulting from the settlement of a loan facility that we had provided to the buyer of our Austrian automotive business in fiscal 2022.

Operating income of $342 million in fiscal 2026 increased $59 million compared with the prior year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses and the impairment charge and loss on sale of assets in fiscal 2026.

Interest expense in fiscal 2026 increased $6 million compared with the prior year, primarily due to higher average outstanding borrowings, partially offset by favorable changes in interest rates.

During fiscal 2026 and in connection with the termination of our primary U.S.

pension plan, we recorded a $116 million non-cash pension termination charge to recognize actuarial losses that were included within accumulated other comprehensive loss on our consolidated balance sheet.

Other net expense during fiscal 2026 increased $5 million compared with the same period last year, primarily due to net foreign currency transaction losses, which increased $6 million compared with fiscal 2025.

The provision for income taxes of $63 million decreased $6 million from fiscal 2025.

Higher operating earnings and the impact of provisions of the One Big Beautiful Bill Act (“OBBBA”) increased the income tax provision in fiscal 2026.

These increases were more than offset by a $13 million net income tax benefit related to the U.S.

pension plan termination and the impact of changes in the mix and amount of foreign and U.S.

The $13 million net income tax benefit related to the pension termination charge included a $17 million income tax detriment resulting from disproportionate income tax effects in accumulated other comprehensive loss.

The impacts associated with provisions of the OBBBA on state deferred taxes and the utilization of foreign tax credits increased the income tax provision during fiscal 2026 by $6 million.

The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.

Year ended March 31, 2025 compared with year ended March 31, 2024

Fiscal 2025 net sales of $2,583 million were $175 million, or 7 percent, higher than the prior year, primarily due to $333 million of higher sales in our Climate Solution segment, partially offset by $158 million of lower sales in our Performance Technologies segment.

The Climate Solutions sales increase includes $240 million of higher sales from the Scott Springfield Manufacturing and Napps businesses, which we acquired in fiscal 2024, and organic sales growth to hyperscale and colocation data center customers.

The lower sales in our Performance Technologies segment includes a $54 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

The Climate Solutions sales increase included $240 million of higher sales from the Scott Springfield Manufacturing and Napps businesses, which we acquired in fiscal 2024, and organic sales growth to hyperscale and colocation data center customers.

The lower sales in our Performance Technologies segment included a $54 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.

Fiscal 2025 sales were negatively impacted by $18 million from foreign currency exchange rates.

Fiscal 2025 cost of sales of $1,940 million increased $58 million, or 3 percent, primarily due to higher sales volume and, to a lesser extent, higher labor and inflationary costs.

Fiscal 2025 cost of sales of $1,940 million increased $58 million, or 3 percent, primarily due higher sales volume and, to a lesser extent, higher labor and inflationary costs.

These increases were partially offset by improved operating efficiencies and a $13 million favorable impact of foreign currency exchange rates.

As a percentage of sales, cost of sales decreased 310 basis points to 75.1 percent, primarily due to the favorable sales mix, higher average selling prices, and improved operating efficiencies.

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $118 million and gross margin improved 310 basis points to 24.9 percent.

As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $118 million and gross margin improved 310 basis points to 24.9 percent.

Fiscal 2025 SG&A expenses increased $58 million, or 21 percent.

As a percentage of sales, SG&A expenses increased by 150 basis points.

The increase in SG&A expenses includes higher compensation-related expenses, which increased $45 million and included higher expenses from the acquired businesses and increased incentive compensation resulting from improved financial results.

The increase in SG&A expenses included higher compensation-related expenses, which increased $45 million and included higher expenses from the acquired businesses and increased incentive compensation resulting from improved financial results.

In addition, SG&A expenses included $17 million of higher amortization expense for acquired intangible assets.

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earnings in the current year compared to the prior year.

Year ended March 31, 2024 compared with year ended March 31, 2023

Fiscal 2024 net sales of $2,408 million were $110 million, or 5 percent, higher than the prior year, primarily due to higher average selling prices and a $28 million favorable impact of foreign currency exchange rates.

Sales in the Performance Technologies and Climate Solutions segments increased $53 million and $51 million, respectively.

Fiscal 2024 cost of sales of $1,882 million decreased $27 million, or 1 percent, primarily due to lower raw material prices, which decreased $50 million, and, to a lesser extent, improved operating efficiencies.

These decreases were partially offset by a $22 million unfavorable impact of foreign currency exchange rates and higher labor and inflationary costs.

In addition, cost of sales in fiscal 2024 was negatively impacted by an inventory purchase accounting adjustment of $2 million recorded at Corporate related to the acquisition of Scott Springfield Manufacturing.

As a percentage of sales, cost of sales decreased 490 basis points to 78.2 percent, primarily due to the favorable impact of higher sales, lower material costs, and improved operating efficiencies, partially offset by higher labor and inflationary costs.

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $137 million and gross margin improved 490 basis points to 21.8 percent.

Fiscal 2024 SG&A expenses increased $40 million, or 17 percent.

As a percentage of sales, SG&A expenses increased by 120 basis points.

The increase in SG&A expenses was primarily driven by higher compensation-related expenses, which increased approximately $22 million, and increases across other general and administrative expenses, such as higher product development costs, professional service fees, and employee travel expenses.

The compensation-related expenses included higher incentive compensation expenses driven by improved financial results, as compared with the prior year.

In addition, we recorded $2 million of costs related to the acquisition and integration of Scott Springfield Manufacturing in fiscal 2024.

Restructuring expenses during 2024 increased $10 million compared with the prior year, primarily due to higher severance expenses in the Performance Technologies segment.

We sold three automotive businesses based in Germany on October 31, 2023.

As a result of the sale, we recorded a $4 million gain on sale at Corporate during fiscal 2024.

Operating income of $241 million in fiscal 2024 increased $91 million compared with the prior year, primarily due to a $137 million increase in gross profit, partially offset by higher SG&A and restructuring expenses.

Interest expense in fiscal 2024 increased $3 million compared with the prior year, primarily due to unfavorable changes in interest rates and borrowings on our revolving credit facility that we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing, partially offset by the absence of $1 million of costs recorded in the prior year related to a credit agreement amendment.

The provision for income taxes was $51 million in fiscal 2024, compared with a benefit for income taxes of $28 million in fiscal 2023.

The $79 million change was primarily due to the absence of a $57 million income tax benefit recorded in the prior year related to the reversal of the valuation allowance on certain deferred tax assets in the U.S.

and higher earnings in the current year, as compared with the prior year.

These drivers, which increased the provision for income taxes, were partially offset by a $3 million income tax benefit recorded in fiscal 2024 related to the sale of three automotive businesses in Germany.

Segment Results of Operations

Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.

Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar heating, ventilating, air conditioning, and refrigeration markets and customers.

We believe that unifying these complementary businesses allows us to better focus resources on targeted growth opportunities and more efficiently apply 80/20 principles to optimize profit margins and cash flow.

The segment realignment had no impact on our consolidated financial position, results of operations, and cash flows.

We have recast the segment financial information for fiscal 2024 and 2023 to conform to the fiscal 2025 presentation.

Effective April 1, 2026, we reorganized our Climate Solutions segment and split it into two separate operating segments:

1) Data Centers and 2) Commercial HVAC.

Beginning for fiscal 2027, we will report three operating segments:

1) Data Centers;

2) Commercial HVAC and 3) Performance Technologies.

Climate Solutions

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Year ended March 31, 2026 compared with year ended March 31, 2025

Climate Solutions net sales increased $621 million, or 43 percent, in fiscal 2026 compared with the prior year, primarily due to higher sales volume.

In addition, foreign currency exchange rates favorably impacted sales by $38 million.

Compared with the prior year, sales of data center, HVAC technologies, and heat transfer solutions products increased $468 million, $102 million, and $45 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 $119 million of incremental sales from the acquired L.B.

White, Climate by Design, and AbsolutAire businesses, partially offset by lower sales of other indoor air quality products.

The increase in sales of heat transfer products, driven by higher sales of heat transfer coils for commercial and residential applications, 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 cost of sales increased $513 million, or 50 percent, in fiscal 2026, primarily due to higher sales volume and, to a lesser extent, 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 $18 million and included the impact of tariffs.

In addition, cost of sales was negatively impacted by $29 million from foreign currency exchange rates.

As a percentage of sales, cost of sales increased 350 basis points to 74.6 percent, primarily due to the temporary operating inefficiencies, higher material costs, and the absence of the commercial pricing settlements in the prior year.

Due to the increasing market demand for data center cooling products, demand for certain key components is currently outpacing supplier capacity.

We began experiencing supply shortages in the fourth quarter of fiscal 2026.

These component shortages are negatively impacting our production schedules for the first quarter of fiscal 2027.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $108 million and gross margin declined 350 basis points to 25.4 percent.

Climate Solutions SG&A expenses increased $32 million, or 20 percent, compared with the prior year.

As a percentage of sales, SG&A expenses decreased 180 basis points.

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 $29 million, included expenses from the acquired businesses.

This increase was partially offset by lower amortization expense, which decreased $7 million.

Restructuring expenses increased $2 million in fiscal 2026, primarily due to higher severance expenses.

Operating income of $321 million during fiscal 2026 increased $73 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Year ended March 31, 2025 compared with year ended March 31, 2024

Climate Solutions net sales increased $333 million, or 30 percent, in fiscal 2025 compared with the prior year, primarily due to higher sales volume, including $240 million of higher sales from the Scott Springfield Manufacturing and Napps businesses, which we acquired in fiscal 2024.

Compared with the prior year, sales of data center cooling and HVAC&R products increased $350 million and $53 million, respectively.

The increase in sales of data center cooling products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers.

Sales of heat transfer products decreased $71 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications, partially offset by commercial pricing settlements with heat pump customers in Europe.

Compared with the prior year, sales of data center and HVAC technologies products increased $350 million and $50 million, respectively.

The increase in sales of data center products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers.

Sales of heat transfer solutions products decreased $67 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications, partially offset by commercial pricing settlements with heat pump customers in Europe.

Climate Solutions cost of sales increased $214 million, or 26 percent, in fiscal 2025, primarily due to higher sales volume, higher raw material costs, which increased $9 million, and, to a lesser extent, higher labor and inflationary costs.

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Climate Solutions SG&A expenses increased $47 million compared with the prior year.

As a percentage of sales, SG&A expenses increased by 80 basis points.

As a percentage of sales, SG&A expenses increased 80 basis points.

The increase in SG&A expenses includes higher compensation-related expenses, which increased $24 million, and $17 million of higher amortization expense related to acquired intangible assets.

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Operating income of $248 million during fiscal 2025 increased $69 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Year ended March 31, 2024 compared with year ended March 31, 2023

Climate Solutions net sales increased $51 million, or 5 percent, in fiscal 2024 compared with the prior year, primarily due to higher sales volume and a $14 million favorable impact of foreign currency exchange rates.

The higher sales volume includes $8 million of incremental sales from Scott Springfield Manufacturing, which we acquired on March 1, 2024.

Compared with the prior year, sales of data center cooling products increased $120 million, primarily due to higher sales to both hyperscale and colocation customers.

Sales of heat transfer and HVAC&R products decreased $68 million and $1 million, respectively.

The decrease in sales of heat transfer products was largely due to market weakness and lower customer demand compared with the prior year and the strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives.

Climate Solutions cost of sales decreased $5 million, or 1 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $19 million, and improved operating efficiencies.

These decreases were partially offset by increases resulting from higher sales volume, a $10 million unfavorable impact of foreign currency exchanges rates, and higher labor and inflationary costs and warranty expenses.

As a percentage of sales, cost of sales decreased 400 basis points to 73.2 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $56 million and gross margin improved 400 basis points to 26.8 percent.

Climate Solutions SG&A expenses increased $9 million compared with the prior year.

As a percentage of sales, SG&A expenses increased by 30 basis points.

The increase in SG&A expenses includes higher compensation-related expenses and increases across other general and administrative expenses.

In addition, SG&A expenses included $1 million of incremental amortization expense related to intangible assets recorded for the acquisition of Scott Springfield Manufacturing.

Restructuring expenses increased $1 million in fiscal 2024, primarily due to higher equipment transfer costs for product line transfers to improve production efficiencies in connection with our 80/20 initiatives.

Operating income of $179 million during fiscal 2024 increased $47 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Performance Technologies

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Restructuring expenses

Impairment charge

Operating income

Year ended March 31, 2026 compared with year ended March 31, 2025

Performance Technologies net sales decreased $31 million, or 3 percent, in fiscal 2026 compared with the prior year, primarily due to lower sales volume in North America, largely due to market weakness and 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 $25 million favorable impact of foreign currency exchanges rates and higher average selling prices.

Compared with the same period in the prior year, sales of heavy-duty equipment and on-highway applications products decreased $13 million and $4 million, respectively.

Performance Technologies cost of sales decreased $6 million, or 1 percent, in 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 higher raw material costs, which increased $10 million and included the impact of tariffs, and a $21 million unfavorable impact of foreign currency exchange rates.

As a percentage of sales, cost of sales increased 170 basis points to 81.9 percent, primarily due to the higher raw material and tariff costs, partially offset by improved operating efficiencies and higher average selling prices.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $25 million and margin declined 170 basis points to 18.1 percent.

Performance Technologies SG&A expenses decreased $23 million, or 23 percent, compared with the prior year.

As a percentage of sales, SG&A expenses decreased 180 basis points.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $26 million and included the benefits of previous restructuring actions.

Restructuring expenses during fiscal 2026 totaled $12 million, a decrease of $8 million compared with the prior year, primarily due to lower severance expenses, partially offset by higher costs related to transferring production for certain product lines.

During fiscal 2026, we recorded a $4 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 in fiscal 2026 increased $2 million to $110 million, primarily due to lower SG&A and restructuring expenses, partially offset by lower gross profit and the impairment charge recorded in the current year.

Year ended March 31, 2025 compared with year ended March 31, 2024

Performance Technologies net sales decreased $158 million, or 12 percent, in fiscal 2025 compared with the prior year, primarily due to lower sales volume, including a $54 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024, and a $17 million unfavorable impact of foreign currency exchange rates.

These decreases were partially offset by higher average selling prices and, to a lesser extent, the recognition of sales tax credits in Brazil.

Compared with last year, sales of liquid-cooled and air-cooled products decreased $87 million and $72 million, respectively.

Sales of advanced solutions products increased $3 million.

Compared with the prior year, sales of on-highway applications and heavy-duty equipment products decreased $116 million and $41 million, respectively.

Performance Technologies cost of sales decreased $159 million, or 15 percent, in fiscal 2025, primarily due to lower sales volume and a $13 million favorable impact of foreign currency exchange rate changes.

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Performance Technologies SG&A expenses decreased $4 million, or 4 percent, compared with the prior year.

As a percentage of sales, SG&A expenses increased by 80 basis points.

As a percentage of sales, SG&A expenses increased 80 basis points.

The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased $1 million, a $1 million favorable impact of foreign currency exchange rates, and decreases across other general and administrative expenses.

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Operating income in fiscal 2025 decreased $4 million to $108 million, primarily due to higher restructuring expenses, partially offset by lower SG&A expenses.

Year ended March 31, 2024 compared with year ended March 31, 2023

Performance Technologies net sales increased $53 million, or 4 percent, in fiscal 2024 compared with the prior year, primarily due to higher average selling prices and a $14 million favorable impact of foreign currency exchange rates.

These increases were partially offset by lower sales volume, including $25 million of lower sales from the three Germany automotive businesses that we sold on October 31, 2023.

Sales of advanced solutions, air-cooled and liquid-cooled products increased $28 million, $23 million, and $8 million, respectively.

Performance Technologies cost of sales decreased $26 million, or 2 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $31 million, and lower sales volume.

These decreases were partially offset by higher labor and inflationary costs and a $12 million unfavorable impact of foreign currency exchange rates.

As a percentage of sales, cost of sales decreased 560 basis points to 82.6 percent, primarily due to the favorable impact of higher sales and lower material costs, partially offset by higher labor and inflationary costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $81 million and gross margin improved 560 basis points to 17.4 percent.

Performance Technologies SG&A expenses increased $17 million, or 19 percent, compared with the prior year.

As a percentage of sales, SG&A expenses increased by 100 basis points.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $10 million, and increases across other general and administrative expenses.

Restructuring expenses during fiscal 2024 totaled $12 million, an increase of $9 million compared with the prior year, primarily due to higher severance-related expenses associated with the closure of a technical service center in Europe.

Operating income in fiscal 2024 increased $54 million to $112 million, primarily due to higher gross profit, partially offset by higher 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 March 31, 2025 of $72 million, and an available borrowing capacity of $239 million under our revolving credit facility.

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of March 31, 2026 of $74 million, and available borrowing capacity of $391 million under our revolving credit facility.

Given our extensive international operations, approximately $59 million of our cash and cash equivalents are held by our non-U.S.

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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.

Our primary contractual obligations include debt and related interest payments, lease obligations, pension obligations, and obligations for capital expenditures.

Our global pension liabilities totaled $30 million as of March 31, 2025.

In June 2024, we approved the termination of our primary U.S.

pension plan.

In connection with the pending termination, we expect to make cash contributions in the range of $15 million to $20 million during fiscal 2026 to fully fund the plan on a plan termination basis.

See Note 18 of the Notes to Consolidated Financial Statements for further information.

Our primary contractual obligations include debt and related interest payments, lease obligations, obligations for capital expenditures, and pension obligations.

During fiscal 2026, we contributed $15 million to fully fund our primary U.S.

pension plan and settled all future obligations under the pension plan through a combination of lump-sum payments to participants and the purchase of irrevocable annuity contracts.

As a result, we recorded a non-cash pension termination charge of $116 million during fiscal 2026.

As of March 31, 2026, our global pension liabilities totaled $12 million.

Operating activities

Net cash provided by operating activities in fiscal 2026 was $249 million, an increase of $36 million from $213 million in the prior year.

This increase in operating cash flow was primarily due to higher operating earnings and the favorable impact of customer deposits received during fiscal 2026, partially offset by an increase in working capital, which decreased operating cash flow, as compared with the prior year.

The Climate Solutions segment’s Data Centers business is growing rapidly.

We recently entered into a long-term capacity agreement with one of our data center customers, who made a $165 million up-front deposit intended to support our investments necessary to meet the planned sales volume.

In addition, we have increased inventory levels to support the growing customer demand and higher sales have resulted in increased accounts receivable.

The increases in inventory and accounts receivable were partially offset by increases in accounts payable, largely resulting from the higher inventory levels.

Net cash provided by operating activities in fiscal 2025 was $213 million, a decrease of $2 million from $215 million in the prior year.

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These unfavorable changes in working capital were partially offset by the favorable impact of lower inventory levels.

Net cash provided by operating activities in fiscal 2024 was $215 million, an increase of $107 million from $108 million in the prior year.

This increase in operating cash flow was primarily due to the favorable impact of higher earnings and, to a lesser extent, favorable net changes in working capital as compared with the prior year.

The favorable changes in working capital include an increase in customer deposits received in connection with sales contracts with long inventory lead times.

Investing activities

Capital expenditures

Capital expenditures of $84 million during fiscal 2025 decreased $4 million compared with fiscal 2024.

Capital expenditures of $143 million during fiscal 2026 increased $59 million compared with fiscal 2025, primarily due to higher capital spending in the Climate Solutions segment.

Our capital spending in fiscal 2026 in the Climate Solutions and Performance Technologies segments totaled $113 million and $28 million, respectively.

Capital spending in the Climate Solutions segment includes investments supporting our strategic growth initiatives, including expanding production capacity for data center cooling products.

Capital spending in the Climate Solutions segment primarily includes investments to support expanding production capacity for data center products.

Capital expenditures in the Performance Technologies segment include tooling and equipment purchases in conjunction with new and renewal programs with customers.

Business and asset acquisitions

During fiscal 2026, we made cash payments totaling $182 million to acquire L.B.

White, Climate by Design, and AbsolutAire.

During fiscal 2024, we made cash payments totaling $186 million to acquire Scott Springfield Manufacturing and Napps.

We made additional cash payments totaling $3 million during fiscal 2025 for these acquisitions, primarily related to a purchase price working capital adjustment.

In addition, we paid $12 million during fiscal 2024 to purchase intellectual property and other specific assets from TMGcore, Inc.

These investments support our strategy to grow our data center cooling and indoor air quality product offerings in our Climate Solutions segment.

In addition, we paid $12 million during fiscal 2024 to purchase intellectual property and related assets from TMGcore, Inc.

These investments support our growth strategy by expanding our product portfolio and broadening our customer base in our Climate Solutions segment.

See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding acquisitions.

Financing activities

Our total debt outstanding decreased $81 million to $351 million at March 31, 2025 compared with the prior year, primarily due to repayments during fiscal 2025.

During fiscal 2026, borrowings on our credit facilities, net of repayments, totaled $79 million.

We borrowed on our credit facilities to support our strategic growth initiatives, including our acquisitions of L.B.

White and Climate by Design and the rapid expansion of our Data Centers business.

In July 2025, we executed an amended and restated credit agreement with a syndicate of banks that provides for a multi-currency $400 million revolving credit facility and a $200 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.

In December 2025, we further amended the credit agreement primarily to increase the borrowing capacity under the revolving credit facility by $150 million to $550 million.

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.

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;

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Also, the credit agreements may require prepayments in the event of certain asset sales.

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-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).

In connection with the pending transaction with Gentherm, we expect to receive $210 million immediately prior to transaction closing.

Proceeds from this transaction are required to be applied towards the principal outstanding under our credit agreements.

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.

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We expect to remain in compliance with our debt covenants during fiscal 2027 and beyond.

See Note 17 of the Notes to Consolidated Financial Statements for additional information regarding our credit agreements.

Share repurchase programs

Effective March 7, 2025, our Board of Directors authorized us to repurchase up to $100 million of Modine common stock at such times and prices that we deem to be appropriate.

This authorization does not expire and replaced the previous repurchase program, which expired in November 2024.

During fiscal 2025 and 2024, we repurchased $18 million and $13 million, respectively, of our common stock under the repurchase programs.

Share repurchase program

During fiscal 2026, we did not purchase any shares under our share repurchase program.

During fiscal 2025, we repurchased $18 million of our common stock under the program.

As of March 31, 2026, we had $82 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 depends on a number of factors, including business conditions, other cash priorities, and stock price.

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The majority of our revenue is recognized at a point in time, based upon shipment terms.

A limited number of our customer contracts provide an enforceable right to payment for performance completed to date.

A limited number of our customer contracts for highly-specified products provide an enforceable right to payment for performance completed to date.

For these contracts, we recognize revenue over time based upon our estimated progress toward the satisfaction of the contract’s performance obligations.

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When such indicators are present, we perform an impairment evaluation.

During fiscal 2026, we recorded a non-cash impairment charge of $4 million related to technical service center and administrative support facility in Germany, which we expect to sell during fiscal 2027.

See Note 2 of the Notes to Consolidated Financial Statements for additional information.

Impairment of goodwill

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We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill.

At March 31, 2025, our goodwill totaled $234 million.

At March 31, 2026, our goodwill totaled $292 million, all of which is related to our Climate Solutions segment.

We conducted goodwill impairment tests as of February 28, 2026, by applying a fair value-based test and determined the fair value for each of our reporting units exceeded the respective book value.

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We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.

During fiscal 2026, we acquired L.B.

White, Climate by Design, and AbsolutAire.

See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding these acquisitions.

Pension obligations

Our calculation of the expense and liabilities of our pension plans is dependent upon various assumptions.

During fiscal 2026, we completed the termination of our primary U.S.

pension plan.

We contributed $15 million to fully fund the plan and settled all future obligations under the pension plan through a combination of lump-sum payments to participants and the purchase of irrevocable annuity contracts.

As a result, we recorded a non-cash pension termination charge of $116 million during fiscal 2026.

At March 31, 2026, our global pension liabilities totaled $12 million.

The majority of the pension liabilities relate to non-U.S.

plans maintained in Germany and Italy.

These plans are closed to new participants and are substantially unfunded.

Our calculation of the expense and liabilities for our remaining pension plans is dependent upon various assumptions.

The most significant assumptions include the discount rate, expected return on plan assets, and mortality rates.

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These differences impact future pension expense.

Our domestic pension plans are closed to new participants;

therefore, participants in these plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

The primary non-U.S.

plans are maintained in Germany and Italy and are also closed to new participants and are substantially unfunded.

In June 2024, we approved the termination of our primary U.S.

pension plan, which we expect to complete during fiscal 2026.

In connection with the plan termination, we have measured the benefit obligation for our primary U.S.

pension plan on a settlement liability basis and have incorporated assumptions regarding the plan termination, including the estimated percentage of participants who will elect a lump sum payment and estimates of annuity pricing.

See Note 18 of the Notes to Consolidated Financial Statements for additional information.

For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our pension plan assets and the majority of our pension plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (i) the actual return earned on plan assets, (ii) historical rates of return on the asset classes in the plan portfolio, (iii) projections of returns on those asset classes, (iv) capital market conditions and economic forecasts, and (v) administrative expenses paid with the plan assets.

The rate of return on plan assets utilized in fiscal 2025 and 2024 was 5.5 percent and 6.5 percent, respectively.

For fiscal 2026, we have assumed a rate of return of 5.5 percent.

A change of 25 basis points in the expected rate of return on plan assets would impact our fiscal 2026 pension expense by less than $1 million.

The discount rate reflects rates available on high-quality fixed-income corporate bonds on the measurement date of March 31.

For fiscal 2025 and 2024, for purposes of determining pension expense, we used a discount rate of 5.4 percent and 5.2 percent, respectively.

We determined these rates based upon a yield curve that was created following an analysis of the projected cash flows for our plans.

See Note 18 of the Notes to Consolidated Financial Statements for additional information.

A change in the assumed discount rate of 25 basis points would impact our fiscal 2026 pension expense and projected benefit obligation by less than $1 million and approximately $4 million, respectively.

We operate in numerous taxing jurisdictions;

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Other risks and uncertainties include, but are not limited to, the following:

● 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 potential adverse developments or disruptions in the global economy and financial markets, including impacts related to geopolitical tensions and military conflicts, including the conflict between the U.S.

and Iran, 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;

● 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;

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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 threats or changes to the market growth prospects for our customers;

● 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 the impacts of threats or changes to the market growth prospects for our customers;

● Our ability to mitigate increases in labor costs and labor shortages;

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● 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 product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and product warranty and liability 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;

● 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, particularly in our Data Centers business, while also completing restructuring activities and realizing the anticipated benefits thereof;

● Costs and other effects of the investigation and remediation of environmental contamination;

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● 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 IT systems, and any related delays, problems or costs;

● 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;

● 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.

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● The constant and increasing pressures associated with healthcare and associated insurance costs.

Strategic Risks

Strategic risks related to the pending Reverse Morris Trust transaction with Gentherm

● Our ability to complete the pending transaction on the terms or in the time frame expected by the parties, or at all;

● The occurrence of any event that could give rise to the termination of the pending transaction;

● Potential shareholder litigation in connection with the pending transaction or other litigation, settlements or investigations may affect the timing or occurrence of the pending transaction or result in significant costs of defense, indemnification and liability;

● Our ability to obtain the anticipated tax treatment of the pending transaction;

● Greater than expected difficulty in separating the businesses subject to the pending disposition from our other businesses;

● Disruption of management time from ongoing business operations due to the pending transaction, or other effects of the pending transaction on our relationship with our employees, customers, suppliers, or other counterparties.

Strategic risks related to business growth and optimization

● Our ability to realize the sales growth and return on investments anticipated in our Data Centers business;

● Our ability to identify and execute on other organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses;

● 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;

● 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 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.

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

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What changed 10-K

Item 7. Management’s Discussion and Analysis