What changed in this filing

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Item 1. Financial Statements

2022-02-03 compared with 2021-11-03 · 703 added, 601 removed, 653 unchanged (67% of the section changed)

1 unchanged sentence

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and six months ended September 30, 2021 and 2020

CONSOLIDATED S TATEMENTS OF OPERATIONS

For the three and nine months ended December 31, 2021 and 2020

(In millions, except per share amounts)

Three months ended

September 30,

Six months ended

September 30,

Cost of sales

1 unchanged sentence

Restructuring expenses

Impairment charges – net

Impairment charges (reversals) – net

Loss on sale of assets

Operating income

Operating income (loss)

Interest expense

Other expense – net

Earnings before income taxes

Earnings (loss) before income taxes

Provision for income taxes

Net earnings (loss)

Net earnings attributable to noncontrolling interest

Net earnings attributable to Modine

Net earnings per share attributable to Modine shareholders:

Net earnings (loss) attributable to Modine

Net earnings (loss) per share attributable to Modine shareholders:

Weighted-average shares outstanding:

1 unchanged sentence

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and six months ended September 30, 2021 and 2020

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

For the three and nine months ended December 31, 2021 and 2020

(In millions)

Three months ended

September 30,

Six months ended

September 30,

Net earnings (loss)

Other comprehensive income (loss):

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Comprehensive income (loss)

Comprehensive loss (income) attributable to noncontrolling interest

Comprehensive income attributable to noncontrolling interest

Comprehensive income (loss) attributable to Modine

1 unchanged sentence

MODINE MANUFACTURING COMPANY

CONSOLIDATED BALANCE SHEETS

September 30, 2021 and March 31, 2021

BALANCE SHEETS

December 31, 2021 and March 31, 2021

(In millions, except per share amounts)

September 30, 2021

December 31, 2021

March 31, 2021

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Accumulated other comprehensive loss

Treasury stock, at cost, 2.7 million shares

Treasury stock, at cost, 2.8 million and 2.7 million shares

Total Modine shareholders’ equity

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MODINE MANUFACTURING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended September 30, 2021 and 2020

CONDENSED CONSOLIDATED STATEMENTS OF

For the nine months ended December 31, 2021 and 2020

(In millions)

Six months ended

September 30,

ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash (used for) provided by operating activities:

Net earnings (loss)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Depreciation and amortization

Impairment charges – net

Impairment charges (reversals) – net

Loss on sale of assets

5 unchanged sentences

Other assets and liabilities

Net cash (used for) provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

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Repayments of debt

Borrowings on bank overdraft facilities – net

Borrowings (repayments) on bank overdraft facilities – net

Financing fees paid

2 unchanged sentences

Effect of exchange rate changes on cash

Net increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale

Net increase in cash, cash equivalents, restricted cash and cash held for sale

Cash, cash equivalents, restricted cash and cash held for sale – beginning of period

2 unchanged sentences

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

For the three and six months ended September 30,

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three and nine months ended December 31,

2021 and 2020

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Balance, September 30, 2021

Other comprehensive income (loss)

Stock options and awards

Purchase of treasury stock

Stock-based compensation expense

Balance, December 31 , 2021

Accumulated other

Treasury stock,

Non-controlling

paid-in capital

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Balance, September 30, 2020

Net (loss) earnings

Other comprehensive income

Stock-based compensation expense

Balance, December 31 , 2020

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

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The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.

Results for the first six months of fiscal 2022 are

not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10 -K for the year ended March 31, 202 1.

Results for the first nine months of fiscal 2022 are not necessarily indicative of the results to be expected for the full year.

financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10 -K for the year

ended March 31, 202 1.

Disposition of Air-cooled Automotive Business

On April 30, 2021, the Company sold its air-cooled automotive business to Schmid Metall GmbH.

As a result of this transaction, the Company recorded a loss of $ 6.6 million during the first

quarter of fiscal 2022, which included the write-off of $ 1.7

million of net actuarial losses related to the business’s pension plan.

The Company reported this loss within the loss on sale of assets line on the consolidated statement

of operations.

As a result of this transaction, the Company recorded a loss of $ 6.6 million during the first quarter of fiscal 2022, which included the write-off of $ 1.7 million of net actuarial losses related to the business’s pension plan.

The Company reported this loss within the loss on sale of

assets line on the consolidated statement of operations.

Upon transaction closing, $ 5.9 million of cash within the business transferred to the buyer.

The finalization of and payment for the purchase price adjustment for net working capital and certain other items, as defined by the sale agreement, is pending.

While the Company does

not expect a material adjustment, it is possible that the loss on sale may increase when the purchase price adjustment is finalized.

Prior to the disposition, the Company reported the financial results of this business within the Automotive

The air-cooled automotive business’s net sales were $ 63.0 million in fiscal 2021.

In connection with the sale of the air-cooled automotive business, the Company provided the buyer with a 5 -year, 4.0 million euro loan facility.

During the third quarter of fiscal 2022, a purchase price adjustment for net working capital and certain other items was finalized and the

Company paid the buyer $ 2.4 million.

The final purchase price adjustment was consistent with the Company’s prior estimate and no

adjustment was required to the $ 6.6 million loss on sale recorded during the first quarter fiscal 2022.

Prior to the disposition, the

Company reported the financial results of this business within the Automotive segment.

The air-cooled automotive business’s net sales were $ 63.0

million in fiscal 2021.

In connection with the sale of the air-cooled automotive business, the Company provided the buyer with a 5 -year, € 4.0 million loan facility.

Borrowings under the agreement currently bear interest at 2.6 percent.

During the second quarter of fiscal 2022, the Company disbursed

4.0 million euro, or $ 4.7

€ 4.0 million ($ 4.7

million) to the buyer under this facility.

As of September 30, 2021, the Company recorded the loan receivable within other noncurrent assets on its consolidated balance sheet because the Company expects to receive the principal repayment more than

twelve months from the balance sheet date.

The Company recorded the loan receivable within other noncurrent assets on its consolidated balance sheet because the Company expects to receive the principal repayment more than twelve months from the

balance sheet date.

Disposition of Previously-Closed Facility

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Burke stepped down from his position as President and CEO.

The Board of Directors subsequently conducted a

search for his successor and, effective December 1, 2020, appointed Neil D.

Brinker as President and CEO.

As a result of Mr.

Burke’s departure and in

connection with the search for his successor, the Company recorded costs totaling $ 5.5 million during the second quarter of fiscal

These costs, which were recorded as selling, general and administrative (“SG&A”) expenses at Corporate, primarily consisted of severance and benefit-related expenses based upon the terms of Mr.

Burke’s transition and separation

agreement and costs directly associated with the CEO search, partially offset by the impact of Mr.

Burke’s departure and in connection with the search for his successor, the Company recorded costs totaling $ 5.9 million during the first nine months of fiscal 2021.

These costs, which were recorded as selling, general and administrative (“SG&A”)

expenses at Corporate, primarily consisted of severance and benefit-related expenses based upon the terms of Mr.

Burke’s transition and separation agreement and costs directly associated with the CEO search, partially offset by the impact of Mr.

Burke’s forfeited stock-based compensation awards.

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Liquid-cooled Automotive Business

On November 2, 2020, the Company signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated (“Dana”) , subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions.

During the first quarter of fiscal 2022, the Company and Dana

withdrew the regulatory filing for approval of the transaction in Germany.

The Company and Dana subsequently resubmitted a plan containing a modified sale perimeter for regulatory approval.

During the second quarter of fiscal 2022, the Company and

Dana engaged with the regulatory authority in Germany, providing responses and information as requested.

As of September 30, 2021, the Company believed it was probable that the sale would close within one year and all held for sale criteria were

Accordingly, the Company classified the assets and liabilities within the modified sale perimeter as held for sale on its September 30, 2021 consolidated balance sheet.

On October 25, 2021, the Company announced that it has reached a mutual agreement with Dana to terminate the sale agreement.

Both companies have been

actively engaged in the regulatory review process in Germany for many months and mutually decided that it is no longer in the best interest of either party to pursue the transaction further.

As a result, the Company expects that the

liquid-cooled automotive business will no longer meet the requirements to be classified as held for sale during the third quarter of fiscal 2022.

The Company expects that, upon reverting back to held and used classification during the third

quarter of fiscal 2022, it will measure the asset groups within the modified sale perimeter at the lower of their (i) carrying value, as if held for sale classification had not been met;

or (ii) fair value.

The long-lived assets within the

liquid-cooled automotive business, primarily property, plant and equipment, have been fully impaired while classified as held for sale.

Through September 30, 2021, the Company recorded $ 119.6 million of cumulative asset impairment charges related to these assets.

At this time, the Company is unable to quantify or predict any adjustments to the carrying

value of the liquid-cooled automotive business's long-lived assets to be recorded during the third quarter of fiscal 2022.

At each reporting date while the liquid-cooled automotive business was held for sale, the Company reassessed its fair value less costs to sell.

result of these evaluations for the first two quarters of fiscal 2022, the Company recorded a total of $ 8.6 million of non-cash

impairment charges related to the Automotive segment’s held for sale assets.

These impairment charges reduced the net carrying value of property, plant and equipment additions during each quarter to zero .

In addition, in connection with the modification to the sale perimeter in the first quarter of fiscal 2022, the Company determined that certain manufacturing

operations no longer met the requirements to be classified as held for sale.

As a result of its evaluation, the Company reversed $ 7.4

million of impairment charges to adjust the long-lived asset groups to their estimated fair value as of June 30, 2021.

For purposes of its evaluation, the Company estimated the fair value of the businesses primarily using the income approach,

which is a valuation technique that focuses on future cash flows anticipated to be generated by a business.

The Company’s determination of fair value involved judgement and the use of significant estimates and assumptions, including

assumptions regarding future revenue projections and operating profit margins, risk-adjusted discount rates, business trends and market conditions.

The fair value measurements of these businesses are categorized as Level 3 within the fair

value hierarchy.

On October 25, 2021, the Company announced that it agreed with Dana Incorporated (“Dana”)

to terminate an agreement for the sale of the liquid-cooled automotive business.

Both companies had been actively engaged in the regulatory review process in Germany for many months and agreed that it was no longer in the best interest of either

party to pursue the sale transaction further.

In connection with the termination of the sale agreement,

the Company determined that the liquid-cooled automotive business no longer met the requirements to be classified as held for sale during the third quarter of fiscal 2022.

As a result, the Company remeasured the long-lived assets reverting back to held and used classification at the

lower of their (i) carrying value, as if held for sale classification had not been met;

or (ii) fair value at the date of the decision not to sell.

These long-lived assets consisted primarily of property, plant and equipment assets and were

fully impaired while classified as held for sale.

During the third quarter of fiscal 2022, the Company reversed $ 57.2 million of held for sale impairment charges based on the remeasurement of the long-lived assets of the liquid-cooled automotive business.

The Company engaged third-party valuation specialists to assist in

estimating the fair values of the assets.

The Company primarily used the market and cost valuation approaches and utilized third-party information from various industry-accepted sources, including applicable government-published statistics and

data from appraisal and resale service providers.

The market approach focused on prices for comparable assets in arm’s length transactions.

For land and building assets, for example, sales of similar properties near the Company’s facilities

were analyzed.

For machinery and equipment assets, the Company referenced available third-party information regarding the selling prices of similar equipment.

The cost approach focused on the amount for which an asset could be replaced or

The cost of an asset was then adjusted downward based on various factors including, but not limited to, age, location, and physical condition.

After estimating the fair values of the assets reverting back to held and used

classification, the Company compared the fair value for each asset to its carrying value.

Carrying value represented each asset’s carrying value before the initial impairment charge, reduced for depreciation that would have been recorded if the

asset had not been classified as held for sale.

The Company then adjusted each asset to the lower of fair value or carrying value, resulting in the reversal of $ 57.2 million of previous impairment charges.

In addition, the Company resumed depreciating the property, plant and equipment assets of the liquid-cooled automotive business based on the remeasured asset values

during the third quarter of fiscal 2022.

On a year-to-date basis, the $ 57.2 million held for sale impairment reversal during the

third quarter of fiscal 2022 was partially

offset by $ 1.2 million of net held

for sale impairment charges recorded during the first six months of fiscal 2022.

At both June 30, 2021 and September 30, 2021, while the liquid-cooled automotive business was held for sale, the Company reassessed its fair value less costs to sell.

As a result of these evaluations,

the Company recorded a total of $ 8.6 million of impairment charges during the first and second quarters of fiscal 2022.

These impairment charges reduced the net carrying value of property, plant and equipment additions

during each quarter to zero .

In addition, in connection with a modification of the sale perimeter in the first quarter of fiscal 2022, the Company determined that

certain manufacturing operations no longer met the requirements to be classified as held for sale.

As a result, the Company reversed $ 7.4

million of previous impairment charges to adjust the long-lived assets within the asset groups impacted by the sale perimeter change to their estimated

fair value as of June 30, 2021.

Company’s determination of fair value for the long-lived assets within these businesses involved judgement and the use of significant estimates and assumptions, including assumptions regarding future revenue projections and operating profit

margins, risk-adjusted discount rates, business trends and market conditions.

The Company’s fair value measurements of the property, plant

and equipment assets within the liquid-cooled automotive business are categorized as Level 3 within the fair value hierarchy.

Refer to Note 4 for the definition of a Level 3 fair value measurement.

The liquid-cooled automotive business was initially classified

as held for sale during the third quarter of fiscal 2021.

At that time, the Company recorded $ 134.4 million of impairment charges primarily related to the long-lived assets within the liquid-cooled automotive business.

Upon classification as held for sale, the Company assessed the disposal group’s fair value

less costs to sell and reduced the net carrying value of the disposal group’s long-lived assets to zero .

The Company reported all impairment charges and reversals

during fiscal 2021 and 2022 within the

impairment charges (reversals) line on the consolidated statements of operations.

MODINE MANUFACTURING COMPANY

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Assets and Liabilities Held for Sale

As of S eptember 30, 2021 , the Company presented the assets and liabilities within the modified sale perimeter of the liquid-cooled automotive business as held for sale on its consolidated balance sheet.

As of March 31, 2021 , the Company presented the assets and liabilities of the liquid- and air-cooled automotive businesses as held for sale.

See Note 1 for

additional information regarding the sale of the air-cooled automotive business, which was completed on April 30, 2021 .

The major classes of assets and liabilities held for sale were as follows:

September 30, 2021

March 31 , 2021

As of March 31, 2021, the Company presented the assets and liabilities of the liquid- and

air-cooled automotive businesses as held for sale.

See Note 1 for additional information regarding the sale of the air-cooled automotive

business, which was completed on April 30, 2021.

The major classes of assets and liabilities held for sale at March 31, 2021 were as follows:

Cash and cash equivalents

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(In millions, except per share amounts)

Three months ended September 30,

Three months ended December 31,

Primary end market:

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Products transferred over time

Six months ended

September 30, 2021

Six months ended

September 30, 2020

ended December 31, 2021

ended December 31, 2020

Primary end market:

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

September 30, 2021

December 31, 2021

March 31, 2021

1 unchanged sentence

Contract liabilities

At March 31, 2021, $ 7.1 million and $ 2.9 million of contract

assets and contract liabilities, respectively, were classified as held for sale and excluded from the amounts above.

See Note 2 for additional information.

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned

tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed.

The $ 4.7 million increase in contract assets during the first six months of fiscal 2022 primarily resulted from an increase in contracts assets for revenue

recognized over time and, to a lesser extent, an increase in capitalized costs related to customer-owned tooling contracts.

The $ 12.3 million increase in contract assets during the first nine months of fiscal 2022 primarily resulted from the reclassification of contract assets

previously held for sale and an increase in contract assets for revenue recognized over time.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying

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The $ 4.3 million increase in contract

liabilities during the first six months of fiscal 2022 was primarily related to customer contracts for which payment was received in advance of the Company’s satisfaction of performance obligations.

liabilities during the first nine months of fiscal 2022 primarily resulted from the reclassification of contract liabilities previously held for sale and payments received in advance of the Company’s satisfaction of performance obligations.

Fair Value Measurements

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within Level 2 of the valuation hierarchy.

The Company classifies all other

investments held by the trusts within Level 1 of the valuation hierarchy, as it

uses quoted market prices to determine the investments’ fair value.

The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.

At September 30, 2021 and March 31, 2021 , the fair values of the investments and obligations for the Company’s deferred compensation plans each totaled $ 2.9 million and $ 2.8 million, respectively .

The Company classifies all other investments held by the trusts within Level 1 of the valuation hierarchy, as it uses quoted market prices to determine the investments’ fair value.

The Company’s deferred

compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.

At December 31, 2021 and March 31, 2021, the fair values of the investments and obligations for the

Company’s deferred compensation plans each totaled $ 3.0 million and $ 2.8 million, respectively .

MODINE MANUFACTURING COMPANY

3 unchanged sentences

Three months ended

September 30,

Six months ended

September 30,

Nine months ended

Interest cost

2 unchanged sentences

Net periodic benefit cost

During the six months ended September 30, 2021, the Company contribute d $ 3.5 million to its U.S.

During the nine months ended December 31, 2021, the Company contribute d $ 3.5 million to its U.S.

pension plans .

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and $ 2.1 million for the three months ended

September 30, 2021 and 2020, respectively.

The Company recognized stock-based compensation expense of $ 3.6 million and $ 2.1 million for the six months ended September 30, 2021 and 2020, respectively .

The fair value of stock-based compensation awards granted during the six months

ended September 30, 2021 were as follows:

December 31, 2021 and 2020, respectively.

The Company recognized stock-based compensation expense of $ 4.7 million and $ 4.2 million for the nine months ended December 31, 2021 and 2020, respectively .

The fair value of stock-based compensation awards granted during the nine months

ended December 31, 2021 and 2020 were as follows:

Nine months ended December 31,

Stock options

2 unchanged sentences

In lieu of performance-based stock awards, the Company granted performance cash

awards to the LTIP participants during the first six months of fiscal 2022.

awards to the LTIP participants during the first nine months of fiscal 2022.

The performance metrics for the cash awards are based upon a target three-year average cash flow return on invested capital and a target three-year average growth in consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA ” ) at the end of the three-year performance period ending March 31, 2024.

In fiscal 2021, the Company granted stock-based awards to officers and other executives during the third quarter of the fiscal year.

MODINE MANUFACTURING COMPANY

2 unchanged sentences

The Company used the following assumptions in

determining fair value for stock options for the six months

ended September 30, 2021 :

determining fair value for stock options:

Nine months ended December 31,

Expected life of awards in years

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Expected dividend yield on the Company’s stock

As of September 30, 2021 , unrecognized compensation expense related to

As of December 31, 2021 , unrecognized compensation expense related to

non-vested stock-based compensation awards, which will be amortized over the remaining service periods, was as follows:

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Restructuring Activities

D uring the first six months of fiscal 2022, restructuring and repositioning expenses primarily consisted of equipment transfer costs within the HDE segment and

severance-related costs associated with targeted headcount reductions in the Automotive and CIS segments.

first six months of fiscal 2021, the Company recorded $ 3.0 million of severance expenses related to plant consolidation activities in China within the

The Company also implemented targeted headcount reductions in the HDE and CIS segments .

D uring the first

nine months of fiscal 2022, restructuring and repositioning expenses primarily consisted of severance-related costs associated with targeted headcount reductions in the CIS and Automotive segments and equipment transfer costs within the HDE

first nine months of fiscal 2021, the Company recorded $ 3.1 million of severance expenses related to plant consolidation activities in China within the CIS segment.

The Company also implemented targeted headcount reductions in the HDE and

CIS segments .

Restructuring and repositioning expenses were as follows:

Three months ended

September 30,

Six months ended

September 30,

Nine months ended

Employee severance and related benefits

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Changes in accrued severance were as

Three months ended September 30,

Three months ended December 31,

Beginning balance

Reclassified from (to) held for sale

Effect of exchange rate changes

Ending balance

Six months ended September 30,

Nine months ended December 31,

Beginning balance

Reclassified from (to) held for sale

Effect of exchange rate changes

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Three months ended

September 30,

Six months ended

September 30,

Interest income

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(In millions, except per share amounts)

The Company’s effective tax rate for the three months ended September 30, 2021

The Company’s effective tax rate for the three months ended December 31, 2021

and 2020 was 0.1 percent and ( 71.7 ) percent , respectively.

The Company’s effective tax rate for the six months ended September 30, 2021 and 2020 was 68.2 percent and 96.5 percent, respectively .

The effective tax rate for the second quarter of fiscal 2022 was negatively impacted

by a $ 1.6 million income tax charge related to a valuation allowance established on deferred tax assets in a foreign jurisdiction.

effective tax rate for the first six months of fiscal 2022, however, was positively impacted by a net $ 3.2 million income tax benefit

related to valuation allowances on deferred tax assets in foreign jurisdictions.

Compared to the fiscal 2021 periods, the effective tax rates for the fiscal 2022 periods were negatively impacted by changes in the mix and amount of foreign and

The effective tax rates for the fiscal 2021 periods were negatively impacted by a $ 6.6 million income tax charge

related to a valuation allowance on deferred tax assets in the U.S.

The Company’s effective tax rate for the nine months ended December 31, 2021 and 2020 was 8.7 percent and ( 95.7 ) percent, respectively .

The effective tax rates in the fiscal 2021 and 2022 periods were significantly impacted by the Company’s accounting for the liquid-cooled automotive business.

During the third

quarter of fiscal 2021, the Company initially classified its liquid-cooled automotive business as held for sale and recorded $ 134.4

million of impairment charges.

The income tax benefits associated with these impairment charges totaled $ 37.7 million and increased

the deferred tax assets in the applicable jurisdictions.

Upon evaluating the deferred tax assets for realizability, the Company recorded income tax charges totaling $ 109.9 million related to valuation allowances in the third quarter of fiscal 2021.

In fiscal 2022, the Company recorded net impairment reversals totaling $ 56.0 million related to this business, primarily driven by the remeasurement of its property, plant and equipment assets upon reverting back to held

and used classification during the third quarter of fiscal 2022.

In addition, the effective tax rates for the third quarter and the first nine months of fiscal 2022 were favorably impacted by $ 8.2 million and $ 11.4 million, respectively, from income tax

benefits related to valuation allowances on deferred tax assets in foreign jurisdictions, as further described below.

See Note 2 for additional information regarding the impairment charges and reversals related to the liquid-cooled automotive

The Company records valuation allowances against its net deferred tax assets to the extent it determines it is more likely than not that such assets will

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In addition, the Company considers the duration of statutory carryforward periods and historical financial results.

Based upon the Company’s analysis as of June 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will be

As a result, the need for the valuation allowance recorded thereon was eliminated and the Company recorded an income tax benefit of $

4.8 million in the first quarter of fiscal 2022.

The Company’s analysis included consideration of the perimeter modifications for the liquid-cooled automotive business and the

associated reversal of $ 7.4 million of impairment

charges during the first quarter of fiscal 2022;

see Note 2 for additional information.

Based upon the Company’s

analysis as of September 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will not be realized.

As a result, the Company recorded an income tax charge of $ 1.6 million in the second quarter of fiscal 2022.

Combined, these fiscal 2022 valuation allowance adjustments resulted in a net income tax benefit of $ 3.2 million during the first six months of fiscal 2022 .

upon the Company’s analysis as of September 30, 2020, the Company recorded an income tax charge of $ 6.6 million to increase its valuation allowance on certain U.S.

deferred tax assets after determining it was more likely than not the deferred tax assets would not be realized based

upon finalized foreign tax credit regulations enacted during the quarter.

As of September 30, 2021, valuation allowances against deferred tax assets in the U.S.

Based upon its quarterly analyses in fiscal 2022, the Company determined it was more likely than not that the deferred tax assets in certain foreign

jurisdictions will be realized.

As a result, the need for the valuation allowances recorded thereon was eliminated and the Company recorded income tax benefits of $ 4.8

million and $ 8.2 million during the first and third quarters of fiscal 2022, respectively.

The Company’s analyses in these quarters included consideration

of the transaction perimeter modification during the first quarter and the termination of the sale agreement during the third quarter for the liquid-cooled automotive business and the related impairment reversals.

Based upon its analysis as of

September 30, 2021, the Company recorded an income tax charge of $ 1.6 million in the second quarter of fiscal 2022 since it determined it was more likely than not

that the deferred tax assets in a foreign jurisdiction would not be realized.

This income tax charge partially offset the $ 13.0 million

of income tax benefits recorded during the first and third quarters.

Together, these valuation allowance adjustments resulted in a net income tax benefit of $ 11.4

million during the first nine months of fiscal 2022.

Based upon its quarterly analyses for the first three quarters of fiscal 2021, the Company determined it was more likely than not that deferred tax assets in the U.S.

and in certain foreign

jurisdictions would not be realized and, as a result, recorded income tax charges of $ 6.6 million and $ 109.9 million during the second and third quarters of fiscal 2021, respectively.

These fiscal 2021 valuation allowance adjustments resulted in income

tax charges totaling $ 116.5 million during the first nine months of fiscal 2021.

As of December 31, 2021, valuation allowances against deferred tax assets in the

and in certain foreign jurisdictions totaled $ 90.1 million and $ 21.9 million , respectively.

These totals exclude the full valuation allowances recorded for net deferred tax assets classified as held for sale.

These totals include the valuation allowances recorded for certain net deferred tax assets of the liquid-cooled automotive business which was previously classified as held for sale.

The Company will maintain the valuation allowances in each

applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance.

Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in certain foreign jurisdictions, could necessitate the establishment of further valuation

Future events or circumstances, such as lower taxable income or

unfavorable changes in the financial outlook of the Company’s operations in certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

Accounting policies for interim reporting require the Company to adjust its

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Three months ended

September 30,

Six months ended

September 30,

Net earnings attributable to Modine

Nine months ended

Net earnings (loss) attributable to Modine

Weighted-average shares outstanding - basic

1 unchanged sentence

Weighted-average shares outstanding - diluted

Earnings per share:

Net earnings per share - basic

Net earnings per share - diluted

For both the three and six months ended September 30, 2021, the calculation of diluted earnings per share

excluded 0.6 million and 0.2 m illion stock options and restricted stock awards, respectively, because they were anti-dilutive.

For the three and six months ended September 30, 2020, the calculation of diluted earnings per share

excluded 1.0 million and 1.1 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for both the three and six months ended September

30, 2020 excluded 0.4 million restricted stock awards because they were anti-dilutive .

Earnings (loss) per share:

Net earnings (loss) per share - basic

Net earnings (loss) per share - diluted

For both the three and nine months ended December 31, 2021, the calculation of diluted earnings per share

excluded 0.6 million and 0.2 m illion stock options and restricted stock awards, respectively, because they were

anti-dilutive.

For the three and nine months ended December 31, 2020, the calculation of diluted earnings per share

excluded 1.4 million and 1.5 million stock

options, respectively, because they were anti-dilutive.

In addition, the calculation for the three and nine months ended December 31, 2020 excluded 0.5 million and 0.6 million restricted stock awards, respectively, because they were anti-dilutive .

For the three

months and nine months ended December 31, 2020, the total number of potentially-dilutive securities was 0.2 million and 0.1 million, respectively.

However, these securities were not included in the computation of diluted net loss per share since to do so would have

decreased the loss per share.

Cash, Cash Equivalents and Restricted Cash

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

September 30, 2021

December 31, 2021

March 31, 2021

9 unchanged sentences

Inventories consisted of the following:

September 30, 2021

December 31, 2021

March 31, 2021

3 unchanged sentences

Total inventories

Inventories in the table above exclude amounts classified as held for sale.

Inventories in the table above as of March 31, 2021 exclude amounts classified as held for sale.

See Note 2 for additional information.

1 unchanged sentence

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

September 30, 2021

December 31, 2021

March 31, 2021

5 unchanged sentences

Net property, plant and equipment

Property, plant and equipment in the table above excludes amounts classified as held for sale.

Property, plant and equipment in the table above as of March 31, 2021 exclude amounts classified as held for sale.

See Note 2 for additional information.

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To determine the amount of goodwill to be reassigned, the Company compared the estimated fair values of the businesses transferred to the BHVAC segment with the CIS reporting unit immediately prior to the segment change.

Company estimated the fair values of the affected businesses based upon the present value of their anticipated future cash flows.

Company estimated the fair values of the affected businesses based upon the present value of their estimated future cash flows.

The Company’s determination of fair value involved judgment and the use of significant estimates and assumptions,

including assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows, risk-adjusted discount rates, business trends and market conditions.

The following table presents a rollforward of the carrying value of goodwill from March 31, 2021 to September 30, 2021.

The following table presents a rollforward of the carrying value of goodwill from March 31, 2021 to December 31, 2021.

The Company has revised the March 31,

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Effect of exchange rate changes

Goodwill, September 30 , 2021

In conjunction with the goodwill reassignment evaluation described above, the Company tested its reporting units for potential impairment and concluded that

the estimated fair value of each reporting unit exceeded its respective carrying value.

Goodwill, December 31 , 2021

In conjunction with the goodwill reassignment evaluation described above, the Company tested its reporting units for potential impairment during the second

quarter of fiscal 2022 and concluded that the estimated fair value of each reporting unit exceeded its respective carrying value.

Although the Company concluded goodwill was not impaired, the Company identified that subsequent to the segment realignment, the estimated fair value of the Coils and Coolers

reporting unit within the CIS segment exceeds its carrying value by approximately 8.0 percent.

As such, there is a heightened risk of

a future impairment charge with respect to the $ 61.0 million of goodwill recorded in this reporting unit as of September 30, 2021.

estimating the fair value of the Coils and Coolers reporting unit, the Company calculated the present value of its anticipated future cash flows using a discounted cash flow model.

reporting unit within the CIS segment exceeded its carrying value by approximately 8.0 percent.

As such, there is a heightened risk

of a future impairment charge with respect to the $ 63.0 million of goodwill recorded in this reporting unit as of December 31, 2021.

In estimating the fair value of the Coils and Coolers reporting unit, the Company calculated the present value of its estimated future cash flows using a discounted cash flow model.

The most significant estimates and assumptions inherent in the

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These potential future events or circumstances could include lower than

forecasted revenues or earnings, market trends that fall below the Company’s current expectations, actions of key customers, or increases in the discount rate.

The Company cannot predict the occurrence of events or changes in circumstances that

could adversely affect the reporting unit’s future revenue and operating income margins or increase the discount rate, thereby resulting in an impairment charge which could be material to the Company’s consolidated financial statements.

forecasted revenues or earnings, market trends that fall below the Company’s current expectations, actions of key customers or suppliers, or increases in the discount rate.

The Company cannot predict the occurrence of events or changes in

circumstances that could adversely affect the reporting unit’s future revenue and operating income margins or increase the discount rate, thereby resulting in an impairment charge which could be material to the Company’s consolidated financial

MODINE MANUFACTURING COMPANY

2 unchanged sentences

Intangible assets consisted of the following:

September 30, 2021

December 31, 2021

March 31, 2021

2 unchanged sentences

Total intangible assets

The Company recorded amortization expense of $ 2.1 million for each of the three months ended September 30, 2021 and 2020.

The Company recorded amortization expense of $ 4.2

million for each of the six months ended September 30, 2021 and 2020.

The Company estimates that it will record $ 4.2 million of amortization

expense during the remainder of fiscal 2022 and approximately $ 8.0 million of annual amortization expense in fiscal 2023 through 2027 .

The Company recorded amortization expense of $ 2.1 million and $ 2.2 million for the three months ended December 31, 2021 and 2020, respectively.

The Company recorded amortization expense of $ 6.3 million and $ 6.4 million for the nine months ended December 31, 2021 and

2020, respectively.

The Company estimates that it will record $ 2.1

million of amortization expense during the remainder of fiscal 2022 and approximately $ 8.0 million of annual amortization expense in fiscal 2023 through 2027 .

Product Warranties

Changes in accrued warranty costs were as follows:

Three months ended September 30,

Three months ended December 31,

Beginning balance

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Adjustments to pre-existing warranties

Reclassified from (to) held for sale

Effect of exchange rate changes

Ending balance

Six months ended

September 30,

ended December 31,

Beginning balance

1 unchanged sentence

Adjustments to pre-existing warranties

Reclassified from (to) held for sale

Effect of exchange rate changes

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Lease Assets and Liabilities

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

The amounts exclude operating lease right of use (“ROU”) assets and liabilities, which each totaled $ 4.0 million and $ 6.1 million as

of September 30, 2021 and March 31, 2021, respectively, that are classified as held for sale on the Company’s consolidated balance sheets;

see Note 2 for additional information.

The following table provides a summary of leases recorded on

the consolidated balance sheets.

The amounts as of March 31, 2021 exclude operating lease right of use (“ROU”) assets and liabilities, which each totaled $ 6.1 million , that were classified as held for sale on the Company’s consolidated balance sheet;

see Note 2 for

additional information.

Balance Sheet Location

September 30, 2021

December 31, 2021

March 31, 2021

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amortization of $ 2.7 million and $ 2.4

million as of September 30 , 2021 and March 31, 2021, respectively.

million as of December 31 , 2021 and March 31, 2021, respectively.

Components of Lease Expense

1 unchanged sentence

Three months ended

September 30,

Six months ended

September 30 ,

Nine months ended

December 31 ,

Operating lease

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lease liabilities

F or the three and six months ended September 30 , 2021, operating lease expense included short-term lease expense of

F or the three and nine months ended December 31 , 2021, operating lease expense included short-term lease expense of

$ 1.0 million and $ 2.8 million, respectively.

For the three and six months ended September

For the three and nine months ended December

31 , 2020, operating lease expense included short-term lease expense of $ 0.9 million and $ 2.7 million, respectively.

5 unchanged sentences

Fiscal year of maturity

September 30, 2021

December 31, 2021

March 31, 2021

11 unchanged sentences

for a multi-currency $ 250.0 million revolving credit facility expiring in June 2024.

In addition, this credit agreement provides for both U.S.

dollar- and euro-denominated term loan facilities and

shorter-duration swingline loans.

Borrowings under the revolving credit, swingline and term loan facilities bear interest at a variable rate based upon the applicable reference rate and including a margin percentage dependent upon the Company’s

leverage ratio, as described below.

At September 30, 2021, the weighted-average interest rates for revolving credit facility borrowings and the term loans were each 1.6 percent.

Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and swingline facilities as long-term and short-term debt, respectively, on its

consolidated balance sheets.

In addition, this credit agreement provides for

dollar- and euro-denominated term loan facilities and shorter-duration swingline loans.

Borrowings under the revolving credit, swingline and term loan facilities bear interest at a variable rate based upon the applicable reference rate

and including a margin percentage dependent upon the Company’s leverage ratio, as described below.

At December 31, 2021, the weighted-average interest rates for revolving credit facility borrowings and the term loans were 1.7 and 1.8 percent,

respectively .

Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and swingline facilities as long-term and

short-term debt, respectively, on its consolidated balance sheets.

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

At September 30, 2021, the Company’s revolving credit facility borrowings totaled $ 67.2 million and domestic letters of credit totaled $ 5.7 million, resulting in

available borrowings under the revolving credit facility of $ 177.1 million.

At December 31, 2021, the Company’s revolving credit facility borrowings totaled $ 81.2 million and domestic letters of credit totaled $ 5.7 million,

resulting in available borrowings under the revolving credit facility of $ 163.1 million.

At March 31, 2021, swingline borrowings totaled $ 1.4 million .

There were no swingline borrowings outstanding as of December 31, 2021.

The Company also maintains credit agreements for its foreign subsidiaries.

The outstanding short-term borrowings related to these foreign credit agreements

totaled $ 15.2 million at September 30, 2021, of which $ 15.0 million was classified as held for sale.

The $ 5.0 million of

outstanding short-term foreign borrowings at March 31, 2021 were classified as held for sale.

There were no outstanding short-term borrowings related to these foreign credit agreements at December 31, 2021.

At March 31, 2021, $ 5.0 million of outstanding short-term foreign borrowings were classified as held for sale.

See Note 2 for additional information.

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certain other adjustments (“Adjusted EBITDA”.) The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.

As of September

As of December

31, 2021, the Company was in compliance with its debt covenants;

2 unchanged sentences

comparable maturities.

As of September 30, 2021 and March 31, 2021, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of $ 155.1 million and $ 146.0 million,

As of December 31, 2021 and March 31, 2021, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of $ 146.5 million and $ 146.0 million,

respectively.

2 unchanged sentences

Risks, Uncertainties, Contingencies and Litigation

The COVID-19 pandemic has broadly impacted the global economy and the Company’s key end markets, which were most severely impacted during the first quarter of

In connection with local government requirements or customer shutdowns, the Company suspended production at many of its manufacturing facilities in March and April 2020.

Beginning largely in April 2020 and to mitigate the negative

impacts of COVID-19, the Company took actions including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of the organization.

All of the temporarily-closed

facilities reopened in the first or second quarter of fiscal 2021 and have generally returned to more normal production levels.

However, since reopening, production at certain of our plants has been negatively affected at times by employee absences

due to COVID-19.

The Company is continuing to focus on protecting the health and wellbeing of its employees and the communities in which it operates, while also ensuring the continuity of its business operations and timely delivery of quality

products and services to its customers.

While the Company withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered, it remains focused on controlling operating and

administrative expenses.

The Company’s consolidated financial statements reflect estimates and assumptions made by management, including assumptions regarding the future impacts of

the COVID-19 pandemic, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the

reporting periods presented.

While the Company believes it used appropriate estimates and assumptions to prepare the consolidated financial statements, actual amounts could differ materially, and future events or circumstances could have a potential

negative effect on the assumptions used.

If the Company, its suppliers, or its customers experience additional shutdowns or other significant business disruptions associated with the COVID-19 pandemic, its ability to conduct business in the manner

and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

COVID- 19 Pandemic and Supply Chain Disruptions

The COVID-19 pandemic has broadly impacted the global economy and the Company’s key end markets, which were most severely impacted during the first quarter

of fiscal 2021.

During fiscal 2022, the direct effects on the Company from the COVID-19 pandemic have lessened.

Although the Company’s manufacturing locations are open and operating, production has been negatively affected at times by employee

absences due to COVID-19 .

The COVID- 19 pandemic and other market and economic dynamics have contributed to global supply chain challenges and inflationary market conditions.

The Company is focused on mitigating the negative impacts of

labor shortages and supply chain challenges, which have included rising raw material and logistic prices as well as delays and shortages in certain purchased commodities and components.

The Company has implemented selling price increases for its

products in response to raw material and other price increases and is engaged with suppliers to ensure availability of purchased commodities and components.

In addition, the Company’s Automotive segment has been impacted by lower order volume

associated with semiconductor shortages, which have caused lower global automotive production.

At this time, the Company cannot reasonably estimate the full

impact of the COVID- 19 pandemic or the ongoing supply chain challenges.

If the Company, its suppliers, or its customers experience prolonged

shutdowns or other significant business disruptions, it is possible that the Company’s ability to conduct business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse

effect on the Company’s business, financial position, results of operations and cash flows.

MODINE MANUFACTURING COMPANY

8 unchanged sentences

The Company’s accruals for

environmental matters totaled $ 18.9 million and $ 16.0 million as of September 30, 2021 and March 31, 2021, respectively.

During the first quarter of fiscal 2022, the Company increased its remediation accrual related to a former

manufacturing facility in the U.S.

environmental matters totaled $ 18.7 million and $ 16.0 million as of December 31, 2021 and March 31, 2021, respectively.

During the first quarter of fiscal 2022, the Company increased its remediation accrual related to a former manufacturing

facility in the U.S.

by $ 3.4 million.

As additional information becomes available regarding the environmental matters, the

Company will re-assess the liabilities and revise the estimated accruals, if necessary.

While it is possible that the ultimate environmental remediation costs may be in excess of amounts accrued, the Company believes, based upon currently available

information, that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.

However, these matters are subject to inherent uncertainties, and unfavorable outcomes

could occur, including significant monetary damages.

As additional information becomes available regarding the environmental matters, the Company will

re-assess the liabilities and revise the estimated accruals, if necessary.

While it is possible that the ultimate environmental remediation costs may be in excess of amounts accrued, the Company believes, based upon currently available information,

that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.

However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur,

including significant monetary damages.

Other Litigation

9 unchanged sentences

Changes in accumulated other comprehensive loss were as follows:

Three months ended September 30, 2021

Six months ended

September 30, 2021

Benefit Plans

Three months ended December 31, 2021

Nine months ended

December 31, 2021

Beginning balance

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Unrecognized net pension loss in disposed business (b)

Realized losses - net (c)

Realized gains - net (c)

Total other comprehensive income (loss)

Ending balance

Three months ended September 30, 2020

Six months ended

September 30, 2020

Benefit Plans

Three months ended December 31, 2020

Nine months ended

December 31, 2020

Beginning balance

2 unchanged sentences

Amortization of unrecognized net loss (a)

Realized losses - net (c)

Realized (gains) losses - net (c)

Total other comprehensive income

Ending balance

Amounts are included in the calculation

of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans.

Amounts are included in the calculation of

net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans.

See Note 5 for additional information about the Company’s pension plans.

As a result of the sale of the

air-cooled automotive business, the Company wrote-off $ 1.7 million of net actuarial losses related to the disposed business’s

pension plan as a component of the loss on sale recorded during the first quarter of fiscal 2022.

As a result of the sale of the air-cooled

automotive business, the Company wrote-off $ 1.7 million of net actuarial losses related to the disposed business’s pension plan as a

component of the loss on sale recorded during the first quarter of fiscal 2022.

See Note 1 for additional information.

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The following is a summary of net sales, gross profit, operating income, and total assets by segment:

Three months ended September 30,

Three months ended December 31,

Inter-segment

2 unchanged sentences

Corporate and eliminations

Six months ended

September 30,

ended December 31,

Inter-segment

5 unchanged sentences

(In millions, except per share amounts)

Three months ended September 30,

Six months ended

September 30,

Three months ended December 31,

ended December 31,

Gross profit:

1 unchanged sentence

Corporate and eliminations

Three months ended September 30,

Six months ended

September 30,

Three months ended December 31,

ended December 31,

Operating income:

1 unchanged sentence

Corporate and eliminations

Operating income

September 30, 2021

Operating income (loss)

December 31, 2021

March 31, 2021

1 unchanged sentence

Corporate and eliminations (a)

At September 30, 2021 and March 31,

At December 31, 2021 and March 31,

2021, Corporate assets totaled $ 21.4 million and $ 17.5 million, respectively and were more than offset by eliminations for intercompany balances, including accounts receivable .

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Subsequent Event

The Company has committed to restructuring actions intended to reduce SG&A and operational expenses, particularly within the Automotive segment.

this restructuring program, the Company is targeting approximately $ 20.0 million of annual cost savings on a consolidated basis.

Company is currently determining the specific actions necessary to achieve its objectives.

At this time, the Company is unable to precisely estimate the timing and amount of the associated costs, but currently expects to record approximately $ 20.0 million to $ 25.0 million of

restructuring expenses during either the fourth quarter of fiscal 2022 or early in fiscal 2023.

The Company expects most of the restructuring expenses will be related to severance for headcount reductions.

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, 2021 was the second quarter of fiscal 2022.

Recent Announcement

On October 25, 2021, we announced that we have agreed with Dana Incorporated (“Dana”) to terminate the definitive sale agreement for our liquid-cooled automotive business.

We have been actively engaged with Dana in the regulatory review

process in Germany for many months and mutually decided that it is no longer in the best interest of either party to pursue the transaction further.

As a result of terminating the sale agreement, we expect that the liquid-cooled automotive business will no longer meet the requirements to be classified as held for sale during the third quarter of fiscal 2022.

Accordingly, we expect to

adjust the underlying asset groups to the lower of their (i) carrying value, as if held for sale classification had not been met, or (ii) fair value.

At this time, we are unable to quantify or predict any adjustments to the carrying value of the

liquid-cooled automotive business’s long-lived assets to be recorded during the third quarter of fiscal 2022.

Our fiscal year ends on March 31 and, accordingly, all

references to quarters refer to our fiscal quarters.

The quarter ended December 31, 2021 was the third quarter of fiscal 2022.

COVID-19 Pandemic and Supply Chain Disruptions

During fiscal 2022, the effects on our company from the COVID-19 pandemic have lessened, particularly compared with the heavily-impacted first half of fiscal 2021.

manufacturing locations are open and operating, production has been negatively affected at times by employee absences due to COVID-19.

The COVID-19 pandemic and other market and economic dynamics have contributed to global supply chain challenges and inflationary market conditions.

We, like many companies, have

experienced labor shortages and negative impacts from supply chain challenges, including rising prices for raw materials and logistics, as well as delays and shortages in certain commodities and components we purchase from suppliers.

addition, our Automotive segment has been impacted by lower order volume associated with semiconductor shortages, which have caused lower global automotive production.

We are focused on mitigating the negative impacts of these supply chain

We have implemented selling price increases for our products in response to raw material and other price increases and are engaged with suppliers to ensure availability of key raw materials.

We expect temporary disruptions due to illness-related employee absences and the pressures associated with supply chain challenges will continue, at least in the near term.

reasonably estimate the full impact that the COVID-19 pandemic or the ongoing supply chain challenges could have on our business, results of operations, or cash flows in the future.

Liquid-cooled Automotive Business

On October 25, 2021, we announced that we agreed with Dana Incorporated (“Dana”) to terminate an agreement for the sale of the liquid-cooled automotive business.

We agreed that it was no

longer in the best interest of either party to pursue the sale transaction further after being actively engaged in the regulatory review process in Germany for many months.

In connection with the termination of the sale agreement, we determined that the liquid-cooled automotive business no longer met the requirements to be classified as held for sale during

the third quarter of fiscal 2022.

While held for sale, we had fully impaired the liquid-cooled automotive business’s long-lived assets, which primarily consisted of property, plant and equipment assets.

Upon reverting back to held and used

classification, we adjusted the long-lived assets to the lower of their (i) carrying value, as if held for sale classification had not been met;

or (ii) fair value.

As a result, we reversed $57.2 million of previous impairment charges during the

third quarter of fiscal 2022 within the Automotive segment.

In addition, we resumed depreciating the property, plant and equipment assets based upon the remeasured asset values during the third quarter of fiscal 2022.

Air-cooled Automotive Business

1 unchanged sentence

As a result of this transaction, we recorded a loss of $6.6 million during the first quarter of fiscal

The finalization of and payment for the

purchase price adjustment for net working capital and certain other items, as defined by the sale agreement, is pending.

While we do not expect a material adjustment, it is possible that the loss on sale may increase when the purchase price

adjustment is finalized.

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

The COVID-19 pandemic has broadly impacted the global economy and our key end markets, which were most severely impacted during the first quarter of fiscal 2021.

In an effort to mitigate the negative impacts of COVID-19 on our financial

results, we implemented cost-saving actions starting in the first quarter of fiscal 2021 that primarily impacted selling, general and administrative (“SG&A”) expenses and capital expenditures.

While we remain focused on controlling expenses,

we withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered.

As a result and as anticipated, compensation-related expenses, particularly SG&A expenses,

were higher in the first half of fiscal 2022 compared with the prior year.

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

Second Quarter Highlights

Net sales in the second quarter of fiscal 2022 increased $17.5 million, or 4 percent, from the second quarter of fiscal 2021, primarily due to higher sales volume in our Heavy Duty Equipment (“HDE”), Commercial Industrial Solutions (“CIS”),

and Building HVAC (“BHVAC”) segments, partially offset by lower sales in our Automotive segment.

Cost of sales increased $32.0 million, or 8 percent, compared with the second quarter of fiscal 2021, primarily due to higher sales volume and

higher raw material prices, including underlying metal prices and related premiums, fabrication, freight, tariff and packaging costs.

Gross profit decreased $14.5 million and gross margin declined 370 basis points to 13.8 percent.

expenses increased $1.1 million.

Higher compensation-related expenses were partially offset by lower severance expenses for executive management positions compared with the second quarter of fiscal 2021.

Operating income of $10.5 million during

the second quarter of fiscal 2022 decreased $18.0 million from the prior-year, primarily due to lower earnings in our Automotive and HDE segments.

Third Quarter Highlights

Net sales in the third quarter of fiscal 2022 increased $17.9 million, or 4 percent, from the third quarter of fiscal 2021, primarily due to higher sales in our Commercial Industrial

Solutions (“CIS”), Building HVAC Systems (“BHVAC”), and Heavy Duty Equipment (“HDE”) segments, partially offset by lower sales in our Automotive segment.

Cost of sales increased $26.0 million, or 6 percent, compared with the third quarter of

fiscal 2021, primarily due to higher raw material prices, including underlying metal prices and related premiums, fabrication, freight, and packaging costs.

Gross profit decreased $8.1 million and gross margin declined 220 basis points to 14.9

Selling, general and administrative (“SG&A”) expenses decreased $5.8 million, primarily due to lower expenses for our review of strategic alternatives for the Automotive segment and lower compensation-related expenses.

income of $79.4 million during the third quarter of fiscal 2022 represents an improvement of $188.1 million from the prior-year operating loss of $108.7 million.

The operating income and operating loss during the third quarters of fiscal 2022

and 2021 include $57.2 million of impairment reversals and $134.4 million of impairment charges, respectively, related to the liquid-cooled automotive business.

Year-to-date Highlights

Net sales in the first six months of fiscal 2022 increased $164.3 million, or 20 percent, from the same period last year, primarily due to higher sales in our HDE, CIS and BHVAC segments, partially offset by lower sales in our Automotive

Cost of sales increased $151.7 million, or 22 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices.

Gross profit increased $12.6 million and gross margin declined 140 basis points

to 14.3 percent.

SG&A expenses increased $15.8 million, primarily due to higher compensation-related expenses, as the prior-year benefitted from cost-saving measures implemented in response to COVID-19.

Operating income of $19.2 million

during the first six months of fiscal 2022 decreased $6.1 million from the same period in the prior-year, primarily due to the $6.6 million loss from the sale of the air-cooled automotive business and lower earnings in our Automotive and BHVAC

segments, partially offset by the higher earnings in our CIS and HDE segments.

Net sales in the first nine months of fiscal 2022 increased $182.2 million, or 14 percent, from the same period last year, primarily due to higher sales in our HDE, CIS and BHVAC segments,

partially offset by lower sales in our Automotive segment.

Cost of sales increased $177.7 million, or 16 percent, from the same period last year, primarily due to higher raw material prices and higher sales volume.

Gross profit increased $4.5

million and gross margin declined 170 basis points to 14.5 percent.

SG&A expenses increased $10.0 million, primarily due to higher compensation-related expenses as the prior-year benefitted from cost-saving actions implemented in response to

We withdrew most of these cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels.

Operating income of $98.6 million during the first nine months of fiscal 2022 represents an improvement of

$182.0 million from the prior-year operating loss of $83.4 million.

The operating income and operating loss during the year-to-date fiscal 2022 and 2021 periods include $55.7 million of impairment reversals and $134.4 million of impairment

charges, respectively, primarily related to the liquid-cooled automotive business.

Restructuring

We have committed to restructuring actions intended to reduce SG&A and operational expenses, particularly within the Automotive segment.

Under this restructuring program, we are

targeting approximately $20.0 million of annual cost savings on a consolidated basis.

We are currently determining the specific actions necessary to achieve our objectives.

At this time, we are unable to precisely estimate the timing and amount

of the associated costs, but currently expect to record approximately $20.0 million to $25.0 million of restructuring expenses during either the fourth quarter of fiscal 2022 or early in fiscal 2023.

We expect most of the restructuring expenses

will be related to severance for headcount reductions.

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, 2021 and 2020:

Three months ended September 30,

Six months ended September 30,

The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 2021 and 2020:

Three months ended December 31,

Nine months ended December 31,

(in millions)

2 unchanged sentences

Restructuring expenses

Impairment charges – net

Impairment charges (reversals) – net

Loss on sale of assets

Operating income

Operating income (loss)

Interest expense

Other expense – net

Earnings before income taxes

Earnings (loss) before income taxes

Provision for income taxes

Comparison of Three Months ended September 30, 2021 and 2020

Second quarter net sales of $478.9 million were $17.5 million, or 4 percent, higher than the second quarter of the prior year, primarily due to higher sales volume and favorable pricing adjustments in response to raw material price increases

in our HDE, CIS, and BHVAC segments, partially offset by lower sales volume in our Automotive segment.

Sales in the HDE, CIS, and BHVAC segments increased $30.2 million, $25.3 million, and $9.0 million, respectively.

Sales in the Automotive

segment decreased $44.5 million.

Second quarter cost of sales increased $32.0 million, or 8 percent, primarily due to higher sales volume and higher raw material prices, which increased approximately $43.0 million.

In addition, cost of sales in

the second quarter of fiscal 2021 was favorably impacted by cost-saving actions taken in response to the COVID-19 pandemic.

These factors, which caused an increase in cost of sales compared with the second quarter of the prior year, were

partially offset by lower depreciation expense in the Automotive segment and improved operating efficiencies.

As a percentage of sales, cost of sales increased 370 basis points to 86.2 percent.

As a result of higher sales and higher cost of sales as a percentage of sales, second quarter gross profit decreased $14.5 million and gross margin declined 370 basis points to 13.8 percent.

Second quarter SG&A expenses increased $1.1 million.

Higher compensation-related expenses in the second quarter of fiscal 2022, as expenses in the second quarter of fiscal 2021 were favorably impacted by cost-saving actions including

furloughs, shortened work weeks and temporary salary reductions that were implemented to mitigate the negative impacts of COVID-19, were partially offset by lower expenses at Corporate related to severance costs for executive management

positions, which decreased $3.9 million.

Restructuring expenses of $0.6 million in the second quarter of fiscal 2022 decreased $0.9 million compared with the second quarter of fiscal 2021, primarily due to lower severance expenses.

The impairment charges of $3.3 million in the second quarter of fiscal 2022 related to assets held for sale within the Automotive segment.

Operating income of $10.5 million in the second quarter of fiscal 2022 decreased $18.0 million compared with the second quarter of fiscal 2021 and was primarily due to lower earnings in our Automotive and HDE segments.

Interest expense in the second quarter of fiscal 2022 decreased $1.4 million compared with the second quarter of fiscal 2021, primarily due to lower long-term debt outstanding during the period and favorable changes in interest rates.

The provision for income taxes was $5.4 million and $13.9 million in the second quarter of fiscal 2022 and 2021, respectively.

The $8.5 million decrease was primarily due to the absence of a $6.6 million income tax charge for a valuation

allowance on certain U.S.

deferred tax assets recorded in the prior year and lower operating earnings in the current year, partially offset by a $1.6 million income tax charge recorded during the second quarter of fiscal 2022 for a valuation

allowance in a foreign jurisdiction.

Comparison of Six Months ended September 30, 2021 and 2020

Fiscal 2022 year-to-date net sales of $973.5 million were $164.3 million, or 20 percent, higher than the same period last year, primarily due to higher sales volumes and favorable pricing adjustments in response to raw material price increases

in our HDE, CIS and BHVAC segments.

Net earnings (loss)

Comparison of Three Months ended December 31, 2021 and 2020

Third quarter net sales of $502.2 million were $17.9 million, or 4 percent, higher than the third quarter of the prior year, primarily due to higher sales volume and favorable pricing

adjustments in response to raw material price increases in our CIS, BHVAC, and HDE segments, partially offset by lower sales volume in our Automotive segment.

Sales in the CIS, BHVAC, and HDE segments increased $23.7 million, $16.9 million, and

$15.2 million, respectively.

Sales in the Automotive segment decreased $41.5 million, primarily due to the disposition of the air-cooled automotive business in the first quarter of fiscal 2022 and the negative impacts of the semiconductor

shortages on the global automotive market.

Third quarter cost of sales increased $26.0 million, or 6 percent, primarily due to higher raw material prices, which increased approximately $39.0 million, and higher sales volume in our

CIS, BHVAC, and HDE segments.

These drivers, which increased cost of sales, were partially offset by lower sales volume in the Automotive segment and improved operating efficiencies.

As a percentage of sales, cost of sales increased 220 basis

points to 85.1 percent.

As a result of higher sales and higher cost of sales as a percentage of sales, third quarter gross profit decreased $8.1 million and gross margin declined 220 basis points to 14.9 percent.

Third quarter SG&A expenses decreased $5.8 million, primary driven by $2.6 million of lower costs at Corporate related to our review of strategic alternatives for the Automotive segment

businesses and lower compensation-related expenses, which decreased approximately $2.0 million.

The lower compensation-related expenses were primarily due to lower incentive compensation expenses at Corporate in the current year.

Restructuring expenses of $2.1 million in the third quarter of fiscal 2022 increased $1.2 million compared with the third quarter of fiscal 2021, primarily due to higher severance expenses

in the CIS segment.

During the third quarter of fiscal 2022 and in connection with the termination of the agreement to sell the liquid-cooled automotive business, we reversed $57.2 million of

previously-recorded impairment charges to adjust the business’s long-lived assets to the lower of their carrying or fair value.

During the third quarter of fiscal 2021, when the liquid-cooled automotive business was first classified as held for

sale, we recorded $134.4 million of impairment charges and reduced the carrying value of the disposal group’s long-lived assets to zero.

Operating income of $79.4 million in the third quarter of fiscal 2022 represents a $188.1 million improvement from the prior-year operating loss of $108.7 million.

The operating income and

operating loss during the third quarters of fiscal 2022 and 2021 included the significant impairment reversal and impairment charges, respectively, recorded within the Automotive segment.

In addition, as compared with the third quarter of fiscal

2021, operating income was unfavorably impacted by lower gross profit and favorably impacted by lower SG&A expenses.

Interest expense in the third quarter of fiscal 2022 decreased $0.8 million compared with the third quarter of fiscal 2021, primarily due to favorable changes in interest rates.

The provision for income taxes was $0.1 million and $81.6 million in the third quarter of fiscal 2022 and 2021, respectively.

The $81.5 million decrease was primarily due to the absence of

$109.9 million of income tax charges recorded in the prior year to increase the valuation allowances on deferred tax assets in the U.S.

and in certain foreign jurisdictions and an $8.2 million income tax benefit recorded in the current year

resulting from the reversal of tax valuation allowances in foreign jurisdictions.

These drivers, which decreased the provision for income taxes, were partially offset by the absence of $37.7 million of income tax benefits recorded during the

prior year related to the Automotive segment impairment charges.

Comparison of Nine Months ended December 31, 2021 and 2020

Fiscal 2022 year-to-date net sales of $1,475.7 million were $182.2 million, or 14 percent, higher than the same period last year, primarily due to higher sales volumes and favorable pricing

adjustments in response to raw material price increases in our HDE, CIS, and BHVAC segments.

Sales in these segments increased $123.7 million, $86.6 million, and $38.4 million, respectively.

Automotive segment sales decreased $61.9 million.

Fiscal 2022 year-to-date cost of sales of $834.0 million increased $151.7 million, or 22 percent, primarily due to higher sales volume and higher raw material prices, which increased approximately $78.0 million.

addition, cost of sales in the first six months of fiscal 2021 was favorably impacted by cost-saving actions taken in response to the COVID-19 pandemic.

These factors, which caused an increase in cost of sales compared with the same period in

the prior year, were partially offset by lower depreciation expense in the Automotive segment and improved operating efficiencies.

As a percentage of sales, cost of sales increased 140 basis points to 85.7 percent.

Fiscal 2022 year-to-date cost of sales of $1,261.6 million increased $177.7 million, or 16 percent, primarily due to higher raw material prices, which increased approximately $117.0

million, and higher sales volume.

In addition, cost of sales in the first nine months of fiscal 2021 was favorably impacted by cost-saving actions taken in response to the COVID-19 pandemic.

These factors, which caused an increase in cost of

sales compared with the same period in the prior year, were partially offset by lower depreciation expense in the Automotive segment and improved operating efficiencies.

As a percentage of sales, cost of sales increased 170 basis points to 85.5

As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $4.5 million and gross margin declined 170 basis points to 14.5 percent.

Fiscal 2022 year-to-date SG&A expenses increased $10.0 million.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, as the prior year was favorably impacted by cost-saving actions implemented to

mitigate the negative impacts of COVID-19.

In addition, we recorded $3.6 million of environmental charges at Corporate related to a previously-owned manufacturing facility in the U.S.

We also incurred $1.3 million of higher costs at Corporate

related to our review of strategic alternatives for the Automotive segment businesses.

These increases were partially offset by lower severance expenses for executive management positions, which decreased $3.9 million.

Restructuring expenses of $0.9 million in the first six months of fiscal 2022 decreased $5.2 million compared with the same period last year, primarily due to lower severance expenses in the CIS and HDE segments.

The net impairment charges of $1.5 million during the first six months of fiscal 2022 primarily related to assets held for sale in the Automotive segment.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, as the prior year was

favorably impacted by cost-saving actions implemented to mitigate the negative impacts of COVID-19.

In addition, environmental charges related to a previously-owned manufacturing facility in the U.S.

increased $3.2 million.

These increases were

partially offset by lower strategic reorganization costs and lower costs related to our review of strategic alternatives for the Automotive segment businesses, which decreased $2.8 million and $1.3 million, respectively.

The lower strategic

reorganization costs primarily resulted from lower severance expenses for executive management positions.

Restructuring expenses of $3.0 million in the first nine months of fiscal 2022 decreased $4.0 million compared with the same period last year, primarily due to lower severance expenses in

the CIS and HDE segments.

The net impairment reversals of $55.7 million during the first nine months of fiscal 2022 primarily related to the liquid-cooled automotive business within the Automotive segment.

prior year, we recorded $134.4 million of impairment charges to write down the long-lived assets in the liquid-cooled automotive business upon classification as held for sale.

In the current year, we adjusted the assets to the lower of carrying

or fair value once they no longer met the held for sale classification criteria.

We sold our air-cooled automotive business on April 30, 2021.

As a result of the sale, we recorded a $6.6 million loss on sale at Corporate during the first quarter of fiscal 2022.

Operating income of $19.2 million during the first six months of fiscal 2022 decreased $6.1 million compared with the same period last year and was primarily due to the $6.6 million loss on sale of the air-cooled automotive business and lower

earnings in our Automotive and BHVAC segments, partially offset by higher earnings in our CIS and HDE segments.

Interest expense during the first six months of fiscal 2022 decreased $2.6 million compared with the same period last year, primarily due to lower long-term debt outstanding during the period and favorable changes in interest rates.

The provision for income taxes was $7.3 million and $13.7 million during the first six months of fiscal 2022 and 2021, respectively.

The $6.4 million decrease was primarily due to the absence of a $6.6 million income tax charge for a

valuation allowance on certain U.S.

deferred tax assets recorded in the prior year, a net $3.2 million income tax benefit related to valuation allowances on deferred tax assets in foreign jurisdictions recorded during the first six months of

fiscal 2022, partially offset by changes in the mix and amount of foreign and U.S.

Operating income of $98.6 million during the first nine months of fiscal 2022 represents an improvement of $182.0 million from the prior-year operating loss of $83.4 million.

The operating

income and operating loss during the year-to-date fiscal 2022 and 2021 periods included the significant impairment reversal and impairment charges, respectively, related to the liquid-cooled automotive business.

In addition, as compared with the

first nine months of fiscal 2021, the year-to-date fiscal 2022 operating income was favorably impacted by higher gross profit and lower restructuring expenses.

Operating income was negatively impacted by higher SG&A expenses and the loss on

sale of the air-cooled automotive business.

Interest expense during the first nine months of fiscal 2022 decreased $3.4 million compared with the same period last year, primarily due to favorable changes in interest rates and lower

debt outstanding during the current-year.

The provision for income taxes was $7.4 million and $95.3 million during the first nine months of fiscal 2022 and 2021, respectively.

The $87.9 million decrease was primarily due to the

absence of $116.5 million of income tax charges recorded in the prior year to increase the valuation allowances on deferred tax assets in the U.S.

and in certain foreign jurisdictions and a net $11.4 million income tax benefit recorded in the

current year related to valuation allowances on deferred tax assets in foreign jurisdictions.

These drivers, which decreased the provision for income taxes, were partially offset by the absence of $37.7 million of income tax benefits recorded

during the prior year related to the Automotive segment impairment charges.

SEGMENT RESULTS OF OPERATIONS

Effective July 1, 2021, we aligned the data center businesses previously managed by and reported within the CIS segment under the BHVAC segment.

The BHVAC segment assumed management of our business in Guadalajara, Spain and a portion of our

business in Grenada, Mississippi.

Through this segment change, we have aligned our data center businesses under the BHVAC leadership team in order to accelerate commercial excellence, operational improvements, and organizational efficiencies.

The BHVAC segment assumed management of our

business in Guadalajara, Spain and a portion of our business in Grenada, Mississippi.

Through this segment change, we have aligned our data center businesses under the BHVAC leadership team in order to accelerate commercial excellence,

operational improvements, and organizational efficiencies.

As a result, we revised our reporting segments and are reporting the financial results of the transferred businesses within the BHVAC segment.

The segment realignment had no impact on the HDE and Automotive segments or on our consolidated

financial position, results of operations, and cash flows.

The segment realignment had no impact on

the HDE and Automotive segments or on our consolidated financial position, results of operations, and cash flows.

Segment financial information for the prior periods has been recast to conform to the current presentation.

As further described in Note 14 of the Notes to Condensed Consolidated Financial Statements and in connection with the segment realignment during the second quarter of fiscal 2022, we

reassigned $32.5 million of goodwill from the CIS segment to the BHVAC segment.

In addition, we tested our reporting units for potential impairment and concluded that goodwill was not impaired.

However, we identified that the Coils and Coolers

reporting unit within the CIS segment now exhibits a heightened risk of impairment since its excess estimated fair value over carrying value is relatively low, approximately 8.0 percent.

The goodwill attributable to the Coils and Coolers

reporting unit was $61.0 million as of September 30, 2021.

Key estimates and assumptions used in estimating the reporting unit’s fair value include forecasted financial results, primarily future revenue and operating income margins, a 3.0

percent terminal growth rate and a 12.4 percent discount rate.

Future events or circumstances, including lower than forecasted revenues or earnings, market trends that fall below our current expectations, actions of key customers, or increases

in the discount rate could negatively affect the reporting unit’s fair value and could trigger an impairment charge.

An approximately 100-basis point increase in the discount rate or an approximately 150-basis point decrease in the terminal

growth assumption could trigger an impairment charge.

The estimated fair values for our other reporting units substantially exceeded their carrying value.

The following is a discussion of our segment results of operations for the three months and six months ended September 30, 2021 and 2020:

As part of the July 1, 2021 segment realignment, we reassigned a portion of goodwill from the CIS segment to the BHVAC segment and tested our reporting units for potential impairment.

While we concluded that goodwill was not impaired, we identified that the Coils and Coolers reporting unit has a heightened risk of impairment.

See Note 14 of the Notes to Condensed Consolidated Financial Statements for further information.

The following is a discussion of our segment results of operations for the three months and nine months ended December 31, 2021 and 2020:

Building HVAC Systems

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

(in millions)

2 unchanged sentences

Operating income

Comparison of Three Months ended September 30, 2021 and 2020

BHVAC net sales increased $9.0 million, or 13 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser extent, favorable pricing adjustments in response to raw

material price increases and a $1.6 million favorable impact of foreign currency exchange rates.

Compared with the second quarter of the prior year, BHVAC sales to commercial HVAC&R customers increased $7.6 million, primarily due to higher

sales of heating and ventilation products.

Comparison of Three Months ended December 31, 2021 and 2020

BHVAC net sales increased $16.9 million, or 23 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher sales volume and, to a lesser

extent, favorable pricing adjustments in response to raw material price increases.

Compared with the third quarter of the prior year, BHVAC sales to data center customers increased $11.6 million.

In addition, sales to commercial HVAC customers

increased $5.2 million, primarily due to higher sales of ventilation and heating products in North America.

BHVAC cost of sales increased $14.9 million, or 31 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher sales volume, higher raw

material prices, which increased by approximately $4.0 million, and, to a lesser extent, higher labor costs.

As a percentage of sales, cost of sales increased 420 basis points to 69.7 percent, primarily due to the higher material costs.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $2.0 million and gross margin declined 420 basis points to 30.3 percent.

have been focused on adjusting selling prices in response to higher material costs, gross margin was unfavorably impacted due to the timing lag of such price adjustments as compared with material prices at the purchase date.

SG&A expenses increased $2.5 million, or 10 basis points as a percentage of sales, from the prior year.

The increase in SG&A expenses was primarily due to higher

compensation-related expenses.

Operating income of $14.4 million decreased $0.5 million from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher SG&A expenses, partially

offset by higher gross profit.

Comparison of Nine Months ended December 31, 2021 and 2020

BHVAC year-to-date sales increased $38.4 million, or 20 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, favorable pricing adjustments

in response to raw material price increases and a $5.7 million favorable impact of foreign currency exchange rates.

Sales to commercial HVAC customers increased $24.5 million, primarily due to higher sales of heating and air conditioning

In addition, sales to data center customers increased $13.0 million.

BHVAC cost of sales increased $10.7 million, or 24 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased by approximately $4.0

BHVAC year-to-date cost of sales increased $37.7 million, or 29 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased

by approximately $12.0 million.

In addition, cost of sales was unfavorably impacted by $4.8 million from foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 630 basis points to 72.2 percent, primarily due to the higher material

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $1.7 million and gross margin declined 630 basis points to 27.8 percent.

While we have been

focused on adjusting selling prices in response to higher material costs, gross margin was unfavorably impacted due to the timing lag of such price adjustments as compared with material prices at the purchase date.

SG&A expenses increased $1.8 million, or 50 basis points as a percentage of sales, from the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $1.3 million.

Operating income of $10.0 million decreased $3.5 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher SG&A expenses and lower gross profit.

Comparison of Six Months ended September 30, 2021 and 2020

BHVAC year-to-date sales increased $21.5 million, or 18 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, a $5.4 million favorable impact of foreign currency exchange rates and pricing

adjustments in response to increasing raw material costs.

Sales to commercial HVAC&R customers increased $19.3 million, primarily due to higher sales of heating and air conditioning products.

BHVAC year-to-date cost of sales increased $22.8 million, or 27 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased by approximately $8.0 million.

In addition, cost of

sales was unfavorably impacted by $4.6 million from foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 570 basis points to 73.8 percent, primarily due to the higher material costs.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $1.3 million and gross margin declined 570 basis points to 26.2 percent.

As a percentage of sales, cost of sales increased 510 basis points to 72.2 percent, primarily due

to the higher material costs.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $0.7 million and gross margin declined 510 basis points to 27.8 percent.

BHVAC year-to-date SG&A expenses increased $6.2 million, or 20 basis points as a percentage of sales, compared with the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which

increased $2.8 million.

Operating income of $15.7 million decreased $5.0 million from the same period last year, primarily due to higher SG&A expenses and lower gross profit.

The increase in SG&A expenses was primarily due

to higher compensation-related expenses, which increased approximately $4.0 million.

Operating income of $30.1 million decreased $5.5 million from the same period last year, primarily due to higher SG&A expenses.

Commercial and Industrial Solutions

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

(in millions)

3 unchanged sentences

Impairment charge

Operating income

Comparison of Three Months ended September 30, 2021 and 2020

CIS net sales increased $25.3 million, or 20 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and favorable product pricing adjustments in response to raw material price

CIS sales in the second quarter of fiscal 2021 were negatively impacted by the COVID-19 pandemic.

Compared with the second quarter of the prior year, sales to commercial HVAC&R customers increased $26.3 million.

CIS cost of sales increased $24.7 million, or 22 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased by approximately $16.0

As a percentage of sales, cost of sales increased 190 basis points to 88.1 percent, as the favorable impacts of the higher sales volume and improved operating efficiencies were more than offset by the impact of the higher material

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $0.6 million and gross margin declined 190 basis points to 11.9 percent.

SG&A expenses increased $1.3 million, yet decreased 50 basis points as a percentage of sales, compared with the second quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses,

which increased approximately $1.0 million.

Restructuring expenses decreased $1.3 million compared with the second quarter of fiscal 2021, primarily due to lower severance expenses.

The severance-related expenses in the second quarter of fiscal 2021 related to plant consolidation

activities in China.

Operating income increased $0.6 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower restructuring expenses and higher gross profit, partially offset by higher SG&A expenses.

Comparison of Six Months ended September 30, 2021 and 2020

CIS year-to-date net sales increased $62.9 million, or 26 percent, from the same period last year, primarily due to higher sales volume and favorable product pricing adjustments in response to raw material price increases.

In addition, sales

were favorably impacted by $7.9 million from foreign currency exchange rates.

CIS sales during the first six months of fiscal 2021 were negatively impacted by the COVID-19 pandemic.

Sales to commercial HVAC&R customers increased $63.0

million during the first six months of fiscal 2022, compared with the same period in the prior year.

CIS year-to-date cost of sales increased $55.7 million, or 26 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased by approximately $31.0 million.

In addition, cost of

sales was unfavorably impacted by $7.0 million from foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 30 basis points to 87.3 percent, as the favorable impacts of the higher sales volume and improved

operating efficiencies were more than offset by the impact of the higher material costs.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $7.2 million and gross margin declined 30 basis points to 12.7 percent.

Operating income (loss)

Comparison of Three Months ended December 31, 2021 and 2020

CIS net sales increased $23.7 million, or 19 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher sales volume and favorable product

pricing adjustments in response to raw material price increases.

Compared with the third quarter of the prior year, sales to commercial HVAC&R customers increased $24.5 million.

CIS cost of sales increased $18.9 million, or 17 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher sales volume and higher raw

material prices, which increased by approximately $12.0 million.

As a percentage of sales, cost of sales decreased 160 basis points to 88.1 percent, primarily due to the favorable impacts of the higher sales volume and improved operating

efficiencies, partially offset by higher material costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $4.8 million and gross margin improved 160 basis points to 11.9 percent.

SG&A expenses decreased $0.7 million compared with the third quarter of the prior year.

As a percentage of sales, SG&A expenses decreased by 200 basis points.

Restructuring expenses increased $1.4 million compared with the third quarter of fiscal 2021, primarily due to higher severance expenses.

The severance expenses in the third quarter of

fiscal 2022 primarily related to targeted headcount reductions in Europe and China.

Operating income of $3.4 million represents a $4.1 million improvement from the prior-year operating loss of $0.7 million and was primarily due to higher gross profit.

Comparison of Nine Months ended December 31, 2021 and 2020

CIS year-to-date net sales increased $86.6 million, or 23 percent, from the same period last year, primarily due to higher sales volume and favorable product pricing adjustments in response

to raw material price increases.

In addition, sales were favorably impacted by $5.7 million from foreign currency exchange rates.

The fiscal 2021 CIS sales were negatively impacted by the COVID-19 pandemic, primarily in the first half of the

Sales to commercial HVAC&R customers increased $87.5 million during the first nine months of fiscal 2022, compared with the same period in the prior year.

CIS year-to-date cost of sales increased $74.6 million, or 23 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased

by approximately $43.0 million.

In addition, cost of sales was unfavorably impacted by $5.1 million from foreign currency exchange rate changes.

As a percentage of sales, cost of sales decreased 40 basis points to 87.5 percent, primarily due to

the favorable impacts of the higher sales volume and improved operating efficiencies, partially offset by higher material costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $12.0 million and gross margin improved 40 basis points to 12.5 percent.

CIS year-to-date SG&A expenses increased $1.7 million, yet decreased 140 basis points as a percentage of sales, from the same period last year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses,

which increased approximately $2.0 million.

Restructuring expenses during the first six months of fiscal 2022 decreased $3.7 million, from the same period last year, primarily due to lower severance expenses.

The severance-related expenses during the first six months of fiscal 2021

primarily related to plant consolidation activities in China and targeted headcount reductions in North America.

During the first quarter of fiscal 2022, we recorded an impairment charge of $0.3 million to write-down a previously-closed manufacturing facility in the U.S to fair value less costs to sell.

We sold the facility and received net cash

proceeds of $0.7 million during July 2021.

Operating income during the first six months of fiscal 2022 increased $8.2 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

The increase in SG&A expenses was

primarily due to higher compensation-related expenses.

Restructuring expenses during the first nine months of fiscal 2022 decreased $2.3 million from the same period last year, primarily due to lower severance expenses.

The severance expenses

during the first nine months of fiscal 2022 primarily related to targeted headcount reductions in Europe and China.

The severance-related expenses during the first nine months of fiscal 2021 primarily related to plant consolidation activities in

China and targeted headcount reductions in North America.

During the first quarter of fiscal 2022, we recorded an impairment charge of $0.3 million to write down a previously-closed manufacturing facility in the U.S to fair value less costs to

We sold the facility and received net cash proceeds of $0.7 million during July 2021.

Operating income during the first nine months of fiscal 2022 increased $12.3 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses,

partially offset by higher SG&A expenses.

Heavy Duty Equipment

Three months ended September 30,

Six months ended September 30,

Three months ended December 31,

Nine months ended December 31,

(in millions)

3 unchanged sentences

Operating income

Comparison of Three Months ended September 30, 2021 and 2020

HDE net sales increased $30.2 million, or 18 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and pricing adjustments associated with raw material price increases.

Comparison of Three Months ended December 31, 2021 and 2020

HDE net sales increased $15.2 million, or 8 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to pricing adjustments associated with raw

material price increases and higher sales volume.

Sales to off-highway and commercial vehicle customers increased $12.3 million and $10.7 million, respectively.

HDE cost of sales increased $35.5 million, or 25 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased approximately $19.0

While we have provisions within many of our long-term customer contracts that provide for prospective selling price adjustments based upon changes in raw material costs, there is often a three-month to one-year lag until the time the

price adjustments take effect, and the contract provisions are typically limited to the underlying cost of the material and do not include related premiums or fabrication costs.

As a percentage of sales, cost of sales increased 480 basis points

to 90.6 percent, primarily due to the higher material prices.

Sales to automotive and light vehicle customers decreased $7.7 million.

HDE cost of sales increased $19.0 million, or 12 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to higher raw material prices, which

increased approximately $19.0 million, and to a lesser extent, higher sales volume.

These drivers, which increased cost of sales, were partially offset by improved operating efficiencies.

While we have provisions within many of our long-term

customer contracts that provide for prospective selling price adjustments based upon changes in raw material costs, there is often a three-month to one-year lag until the time the price adjustments take effect, and the contract provisions are

typically limited to the underlying cost of the material and do not include related premiums or fabrication costs.

As a percentage of sales, cost of sales increased 290 basis points to 88.9 percent, primarily due to the higher material prices.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit decreased $3.8 million and gross margin declined 290 basis points to 11.1 percent.

SG&A expenses increased $1.9 million, yet remained consistent at 6.2 percent of sales, compared with the second quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which

increased approximately $2.0 million.

Restructuring expenses during the second quarter of fiscal 2022 were $0.3 million, and primarily consisted of equipment transfer costs in North America.

Operating income decreased $7.5 million from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower gross profit and higher SG&A expenses.

Comparison of Six Months ended September 30, 2021 and 2020

HDE year-to-date net sales increased $108.5 million, or 38 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, pricing adjustments associated with raw material price increases.

fiscal 2021, primarily in the first quarter, were negatively impacted by the COVID-19 pandemic.

Sales to commercial vehicle and off-highway customers increased $48.3 million and $45.4 million, respectively.

HDE year-to-date cost of sales increased $102.5 million, or 40 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased approximately $34.0 million.

As a percentage of

sales, cost of sales increased 180 basis points to 89.7 percent, primarily due to the higher material prices.

SG&A expenses decreased $1.5 million, or 120 basis points as a percentage of sales, compared with the third quarter of the prior year.

The decrease in SG&A expenses was primarily

due to lower development costs and environmental charges.

These decreases were partially offset by higher compensation-related expenses, which increased approximately $1.0 million.

Restructuring expenses during the third quarter of fiscal 2022 were $0.2 million and primarily consisted of equipment transfer costs in North America.

Operating income decreased $2.5 million from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to lower gross profit, partially offset by lower SG&A

Comparison of Nine Months ended December 31, 2021 and 2020

HDE year-to-date net sales increased $123.7 million, or 26 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, pricing adjustments

associated with raw material price increases.

HDE sales in fiscal 2021, primarily in the first quarter, were negatively impacted by the COVID-19 pandemic.

Sales to commercial vehicle and off-highway customers increased $59.0 million and $57.7

million, respectively.

HDE year-to-date cost of sales increased $121.5 million, or 29 percent, from the same period last year, primarily due to higher sales volume and higher raw material prices, which increased

approximately $53.0 million.

As a percentage of sales, cost of sales increased 230 basis points to 89.5 percent, primarily due to the higher material prices.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $2.2 million and gross margin declined 230 basis points to 10.5 percent.

HDE year-to-date SG&A expenses increased $2.0 million, but decreased 120 basis points as a percentage of sales, compared with the same period in the prior year.

The increase in SG&A expenses was primarily due to higher

compensation-related expenses, which increased approximately $4.0 million.

Restructuring expenses decreased $1.4 million from the same period last year and primarily consisted of equipment transfer costs.

Operating income during the first six months of fiscal 2022 increased $3.9 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

Three months ended September 30,

Six months ended September 30,

The increase in

SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $5.0 million, partially offset by lower development and other administrative costs.

Restructuring expenses decreased $1.2 million from the same period last year, primarily due to lower severance expenses and equipment transfer costs.

Operating income during the first nine months of fiscal 2022 increased $1.4 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses,

partially offset by higher SG&A expenses.

Three months ended December 31,

Nine months ended December 31,

(in millions)

2 unchanged sentences

Restructuring expenses

Impairment charges – net

Operating (loss) income

Comparison of Three Months ended September 30, 2021 and 2020

Automotive net sales decreased $44.5 million, or 40 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to the disposition of the air-cooled automotive business, which closed on April 30, 2021,

and lower sales volume, largely associated with the negative impacts of the global semiconductor chip shortage on the automotive market.

The air-cooled automotive business’s sales were $18.0 million during the second

quarter of fiscal 2021.

Impairment charges (reversals) – net

Operating income (loss)

Comparison of Three Months ended December 31, 2021 and 2020

Automotive net sales decreased $41.5 million, or 36 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to the disposition of the air-cooled

automotive business, which closed on April 30, 2021, and lower sales volume, largely associated with the negative impacts of the semiconductor shortages on the global automotive market.

The air-cooled automotive sales were $18.0 million during

the third quarter of fiscal 2021.

Sales in Europe, North America, and Asia decreased $31.7 million, $6.8 million and $3.0 million, respectively.

Automotive cost of sales decreased $35.1 million, or 38 percent, from the second quarter of fiscal 2021 to the second quarter of fiscal 2022, primarily due to lower sales volume and, to a lesser extent, lower depreciation expenses, which

Automotive cost of sales decreased $30.6 million, or 32 percent, from the third quarter of fiscal 2021 to the third quarter of fiscal 2022, primarily due to lower sales volume.

decrease was partially offset by higher raw material prices, which increased approximately $4.0 million.

As a percentage of sales, cost of sales increased 570 basis points to 89.6 percent.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $10.9 million and gross margin declined 570 basis points to 10.4 percent.

SG&A expenses increased $1.2 million compared with the third quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses.

During the third quarter of fiscal 2022 and in connection with the termination of the agreement to sell the liquid-cooled automotive business, we reversed $57.2 million of

previously-recorded impairment charges to adjust the long-lived assets of the liquid-cooled automotive business to the lower of their carrying or fair value.

The $134.4 million of impairment charges in the same period last year also primarily

related to the liquid-cooled automotive business, which was first classified as held for sale during the third quarter of fiscal 2021.

Operating income of $55.0 million during the third quarter of fiscal 2022 represents a $179.9 million improvement from the prior-year operating loss of $124.9 million.

The operating income

and operating loss during the third quarters of fiscal 2022 and 2021 were driven by the significant impairment reversal and impairment charges, respectively, related to the liquid-cooled automotive business.

In addition, as compared with the

third quarter of fiscal 2021, operating income was unfavorably impacted by lower gross profit and higher SG&A expenses.

Comparison of Nine Months ended December 31, 2021 and 2020

Automotive year-to-date net sales decreased $61.9 million, or 22 percent, from the same period last year, primarily due to $40.0 million of lower sales from the air-cooled automotive

business that we sold earlier this fiscal year and lower sales volume, partially offset by a $6.4 million favorable impact of foreign currency exchange rate changes.

The fiscal 2021 year-to-date sales were negatively impacted by the COVID-19

pandemic, primarily in the first half of the fiscal year.

Fiscal 2022 year-to-date sales have been negatively impacted by the semiconductor shortages and its impact on the global automotive market.

Sales in Europe, North America, and Asia

decreased $37.8 million, $14.2 million, and $9.9 million, respectively.

Automotive year-to-date cost of sales decreased $50.0 million, or 20 percent, from the same period last year, primarily due to lower sales volume and lower depreciation expenses, which

decreased $9.9 million.

We ceased depreciating the long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021.

These decreases were partially offset

by higher raw material prices, which increased approximately $4.0 million.

We ceased depreciating the property, plant and equipment assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021.

Upon reverting

back to held and used classification during the third quarter of fiscal 2022, we resumed depreciating the property, plant and equipment assets in the liquid-cooled automotive business.

These decreases were partially offset by higher raw material

prices, which increased approximately $9.0 million, and a $5.3 million unfavorable impact of foreign currency exchange rate changes.

As a percentage of sales, cost of sales increased 150 basis points to 87.6 percent.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $11.9 million and gross margin declined 150 basis points to 12.4 percent.

SG&A expenses increased $0.8 million compared with the second quarter of the prior year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $1.0 million.

The impairment charges of $3.3 million in the second quarter of fiscal 2022 related to assets in our liquid-cooled automotive business, which was held for sale during the quarter.

The operating loss of $5.6 million during the second quarter of fiscal 2022 represents a $13.6 million decline from the prior-year operating income of $8.0 million and was primarily due to lower gross profit and higher impairment charges.

Comparison of Six Months ended September 30, 2021 and 2020

Automotive year-to-date net sales decreased $20.4 million, or 12 percent, from the same period last year, primarily due to $22.0 million of lower sales from the air-cooled automotive business that we sold earlier this fiscal year and lower

sales volume, partially offset by a $7.9 million favorable impact of foreign currency exchange rate changes.

Fiscal 2021 year-to-date sales were negatively impacted by the COVID-19 pandemic.

Fiscal 2022 year-to-date sales have been negatively

impacted by the impact of the global semiconductor chip shortage on the automotive market.

Sales in North America, Asia, and Europe decreased $7.4 million, $6.9 million and $6.1 million, respectively.

Automotive year-to-date cost of sales decreased $19.4 million, or 13 percent, from the same period last year, primarily due to lower sales volume and lower depreciation expenses, which decreased $9.0 million.

We ceased depreciating the

long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021.

These decreases were partially offset by a $6.7 million unfavorable impact of foreign

currency exchange rate changes and higher raw material prices, which increased approximately $5.0 million.

As a percentage of sales, cost of sales decreased 90 basis points to 86.6 percent.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit decreased $1.0 million and gross margin improved 90 basis points to 13.4 percent.

Automotive year-to-date SG&A expenses increased $4.6 million compared with the same period last year.

The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $2.0 million,

and a $1.0 million unfavorable impact of foreign currency exchange rate changes.

The year-to-date net impairment charges of $1.2 million primarily related to assets in our liquid-cooled automotive business.

During the first two quarters of fiscal 2022, we recorded a total of $8.6 million of non-cash impairment charges

related to the Automotive segment’s held for sale assets.

These impairment charges were partially offset by a $7.4 million impairment reversal recorded during the first quarter of fiscal 2022 related to certain manufacturing operations that no

longer met the requirements to be classified as held for sale due to a modification to the transaction perimeter.

The operating loss of $1.4 million during the first six months of fiscal 2022 represents a $5.6 million decline from the operating income of $4.2 million in the same period last year and was primarily due to higher SG&A expenses and

impairment charges.

The increase in SG&A expenses was primarily due to higher compensation-related

expenses, which increased approximately $2.0 million, and a $0.7 million unfavorable impact of foreign currency exchange rate changes.

The year-to-date net impairment reversal of $56.0 million primarily related to assets in our liquid-cooled automotive business.

The $57.2 million impairment reversal during the third

quarter of fiscal 2022 was partially offset by $1.2 million of net impairment charges recorded during the first six months of fiscal 2022.

During the first two quarters of fiscal 2022, we recorded a total of $8.6 million of non-cash impairment

charges related to the Automotive segment’s held for sale assets.

These impairment charges were partially offset by a $7.4 million impairment reversal related to certain manufacturing operations that no longer met the requirements to be

classified as held for sale due to a modification in the sale perimeter during the first quarter of fiscal 2022.

Operating income of $53.6 million during the first nine months of fiscal 2022 represents a $174.3 million improvement from the operating loss of $120.7 million in the same period last

The operating income and operating loss during the year-to-date fiscal 2022 and 2021 periods were driven by the significant impairment reversal and impairment charges, respectively, related to the liquid-cooled automotive business.

addition, as compared with the first nine months of fiscal 2021, year-to-date fiscal 2022 operating income was unfavorably impacted by lower gross profit and higher SG&A expenses.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents of $56.0 million as of September 30, 2021 and an available borrowing capacity of $177.1 million under our revolving credit facility.

our extensive international operations, approximately $54.0 million of our cash and cash equivalents is held by our non-U.S.

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents of $61.1 million as of December 31, 2021 and an available borrowing capacity of

$163.1 million under our revolving credit facility.

Given our extensive international operations, approximately $59.0 million of our cash and cash equivalents is 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.

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.

Net Cash Provided by Operating Activities

Net cash used for operating activities for the six months ended September 30, 2021 was $19.0 million, which represents a $106.3 million decrease compared with net cash provided by operating activities in the same period in the prior year.

This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, including higher inventory levels and higher payments for incentive compensation and employee benefits as compared with the same period in the

The higher inventory levels in fiscal 2022 have largely resulted from both increased raw material prices and strategic safety stock builds in connection with global supply chain constraints and challenges.

Net cash provided by operating activities for the nine months ended December 31, 2021 was $7.4 million, which represents a $139.1 million decrease compared with the same period in the prior

in the prior year.

Inventory, including amounts held for sale, increased $57.8 million from March 31, 2021 to December 31, 2021.

The higher inventory levels in fiscal 2022 have largely resulted from both increased raw material prices and

strategic safety stock builds in connection with global supply chain constraints and challenges.

Capital Expenditures

Capital expenditures of $20.4 million during the first six months of fiscal 2022 increased $5.8 million compared with the same period in the prior year.

In fiscal 2021, we delayed certain projects and the purchase of certain program-related

equipment and tooling to preserve our financial liquidity in response to the COVID-19 pandemic.

Capital expenditures of $30.7 million during the first nine months of fiscal 2022 increased $7.0 million compared with the same period in the prior year.

In fiscal 2021, we delayed certain

projects and the purchase of certain program-related equipment and tooling to preserve our financial liquidity in response to the COVID-19 pandemic.

Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below.

Also, as specified in the credit agreement, the term

loans may require prepayments in the event of certain asset sales.

In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as

defined in the credit agreement, on our business, property, or results of operations.

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”).

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, 2021, our leverage ratio and interest coverage ratio were 2.5 and 10.1, respectively.

We expect to remain in compliance with our debt covenants during fiscal 2022 and

Also, as specified in the credit agreement, the term loans may require prepayments in the event of certain asset sales.

In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders

that there has been no material adverse effect, as defined in the credit agreement, on our business, property, or results of operations.

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”).

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 December 31, 2021, our leverage ratio and interest coverage ratio were 2.5 and 10.0, respectively.

We expect to remain in

compliance with our debt covenants during the remainder of fiscal 2022 and beyond.

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.

Company’s Annual Report on Form 10-K for the year ended March 31, 2021.

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.

of the Company’s Annual Report on Form 10-K for the year ended March 31, 2021.

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

Market Risks:

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

Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency

exchange rate fluctuations;

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

Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and

compete, including, in particular, foreign currency exchange rate fluctuations;

supply chain disruptions;

tariffs (and any potential trade war resulting from tariffs or retaliatory actions);

changes in interest rates;

recession and recovery therefrom;

restrictions and uncertainty associated with

cross-border trade or public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic;

and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and

trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S.

or abroad, as well as continuing uncertainty regarding the short- and long-term implications of “Brexit”;

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, fabrication, or freight costs.

These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and

significant fluctuations in demand.

This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through our quotation process or through contract

provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;

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

environmental and/or energy standards and objectives.

and recovery therefrom;

restrictions and uncertainty associated with cross-border trade or public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic;

and the general uncertainties about the impact of

regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S.

or abroad, as well as continuing uncertainty regarding the implications

The impact of 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, fabrication, or freight costs.

These prices may be impacted by a variety of factors, including changes in trade laws and

tariffs, the behavior of our suppliers and significant fluctuations in demand.

This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through

our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;

The impact of current and future environmental laws and regulations on our business and the businesses of our customers, including our ability to take advantage of opportunities to

supply alternative new technologies to meet environmental and/or energy standards and objectives.

Operational Risks:

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

our major customers;

The impact of any 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;

Our ability to maintain current customer relationships and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service

pressures from customers, particularly in the face of macro-economic instability;

The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in

response to the COVID-19 pandemic;

The impact of any delays or modifications initiated by major customers with respect to the timing of projects, program launches, product applications or volume requirements, including order volume changes associated with supply chain

challenges, such as the global semiconductor chip shortage;

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 modify our cost structure in response to sales volume increases or decreases and to complete restructuring activities and realize the anticipated benefits of those activities;

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

deterioration in the stability or performance of any of our major customers;

The impact of any 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;

Our ability to maintain current customer relationships and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures

from competitors and price reduction and overall service pressures from customers, particularly in the face of macro-economic instability;

The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or

inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic;

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

including order volume changes associated with supply chain challenges, such as semiconductor shortages;

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 modify our cost structure in response to sales volume increases or decreases and to complete restructuring activities and realize the

anticipated benefits of those activities;

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

particularly when related to the actions or inactions of others and/or facilities over which we have no control;

particularly when related to the actions or inactions of others and/or facilities over

which we have no control;

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

2 unchanged sentences

Increasingly complex and restrictive laws and regulations, including those associated with being a U.S.

public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith;

public company and others present in various jurisdictions in which we

operate, and the costs associated with compliance therewith;

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

2 unchanged sentences

Strategic Risks:

Our ability to successfully realize anticipated benefits from strategic initiatives and the implementation of our 80/20 strategy, through which we are focused on growing businesses with strong market drivers;

Our ability to successfully realize anticipated benefits from strategic initiatives and the implementation of our 80/20 strategy, through which we are focused on growing businesses

with strong market drivers;

Our ability to identify and execute strategies in our automotive businesses to reduce costs and improve operating margins;

2 unchanged sentences

Financial Risks:

Our ability to fund our global liquidity requirements efficiently for Modine’s 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 potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to our variable-rate debt obligations, and of the continued uncertainty around the utilization of

LIBOR or alternative reference rates;

Our ability to fund our global liquidity requirements efficiently for Modine’s 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 potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to our variable-rate debt obligations;

The impact of changes in federal, state or local tax regulations 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);

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;

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements