What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-02-02 · 225 added, 422 removed, 339 unchanged (66% of the section changed)

1 unchanged sentence

MODINE MANUFACTURING COMPANY

CONSOLIDATED S TATEMENTS OF OPERATIONS

For the three and nine months ended December 31, 2022 and 2021

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended June 30, 2023 and 2022

(In millions, except per share amounts)

Three months ended

Three months ended June 30,

Cost of sales

1 unchanged sentence

Restructuring expenses

Impairment charges (reversals) – net

Loss on sale of assets

Operating income

9 unchanged sentences

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

For the three and nine months ended December 31, 2022 and 2021

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended June 30, 2023 and 2022

(In millions)

Three months ended

Three months ended June 30,

Other comprehensive income (loss), net of income taxes:

Foreign currency translation

benefit plans

Defined benefit plans, net of income taxes of $ 0.2 and $ 0 million

Cash flow hedges, net of income taxes of ($ 0.2 ) and $ 0 million

Total other comprehensive income (loss)

5 unchanged sentences

BALANCE SHEETS

December 31, 2022 and March 31, 2022

June 30, 2023 and March 31, 2023

(In millions, except per share amounts)

December 31, 2022

June 30, 2023

March 31, 2023

35 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF

For the nine months ended December 31, 2022 and 2021

For the three months ended June 30, 2023 and 2022

(In millions)

Nine months ended December 31,

Three months ended June 30,

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Impairment charges (reversals) – net

Loss on sale of assets

Stock-based compensation expense

7 unchanged sentences

Expenditures for property, plant and equipment

Proceeds from (payments for) disposition of assets

Disbursements for loan origination (see Note 1)

Net cash used for investing activities

3 unchanged sentences

Borrowings (repayments) on bank overdraft facilities – net

Financing fees paid

Purchases of treasury stock under share repurchase program

8 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three and nine months ended December 31,

2022 and 2021

For the three months ended June 30, 2023 and 2022

(In millions)

comprehensive

Treasury stock, at

Balance, March 31 ,

5 unchanged sentences

Balance, June 30 ,

Net earnings (loss)

Other comprehensive loss

Stock options and awards

Purchase of treasury stock

Stock-based compensation expense

Balance, September 30, 2022

Other comprehensive income

Stock options and awards

Purchase of treasury stock

Stock-based compensation expense

Balance, December 31 , 2022

comprehensive

Treasury stock, at

Balance, March 31 ,

Other comprehensive income

Other comprehensive loss

Stock options and awards

3 unchanged sentences

Balance, June 30 ,

Other comprehensive loss

Stock options and awards

Stock-based compensation expense

Balance, September 30, 2021

Other comprehensive income (loss)

Stock options and awards

Purchase of treasury stock

Stock-based compensation expense

Balance, December 31 , 2021

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

2 unchanged sentences

(In millions, except per share amounts)

The accompanying unaudited condensed consolidated financial statements of Modine Manufacturing Company

(“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10 -Q and Rule 10 - 01 of Regulation S-X.

Accordingly, they do not include all

of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements.

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 nine months of fiscal 2023 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 2.

Disposition of Austrian Air-cooled Automotive Business in Fiscal 2022

On April 30, 2021, the Company sold

its air-cooled automotive business in Austria 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 its pension plan.

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

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

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.

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

The buyer began borrowing

under this facility during the second quarter of fiscal 2022.

At both December 31, 2022 and March 31, 2022, the Company recorded a € 4.0

million 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.

Borrowings under the loan facility

currently bear interest at 4.6 percent.

Liquid-Cooled

Automotive Business Held for Sale in Fiscal 2022

The Company previously

agreed to sell its liquid-cooled automotive business.

During the first quarter of fiscal 2022, the Company and the prospective buyer modified the transaction perimeter to remove certain manufacturing operations.

GAAP requires companies

to measure asset groups that revert back to held and used classification at the lower of their (i) carrying value, as if held for sale classification had not been met;

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

the Company evaluated the long-lived assets of these businesses that no longer met the requirements to be classified as held for sale and reversed $ 7.4

million of previously-recorded impairment charges during the first quarter of fiscal 2022 to adjust the long-lived assets to their estimated fair value.

During the third

quarter of fiscal 2022, the Company and the prospective buyer terminated the sale agreement and the liquid-cooled automotive business reverted back to held and used classification.

As a result, the Company remeasured the long-lived assets

within the liquid-cooled automotive business and reversed $ 57.2 million of previously-recorded held for sale impairment charges

during the third quarter of fiscal 2022.

On a year-to-date

basis, the $ 64.6 million of impairment reversals described above were partially offset by $ 8.6 million of impairment charges related to the automotive assets while they were classified as held for sale during fiscal 2022, resulting in a net impairment reversal of

$ 56.0 million.

The Company reported all impairment charges and reversals during fiscal 2022 within the impairment charges

(reversals) line on the consolidated statements of operations.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Disposition of Previously-Closed Facility in Fiscal 2022

During the first quarter of fiscal 2022, the Company signed a definitive agreement to sell a previously-closed manufacturing facility in the U.S.

As a result, the Company recorded an impairment charge of $ 0.3 million within the Climate Solutions segment to write down the property

to fair value less costs to sell.

During July 2021, the sale was completed and the Company received net cash proceeds of $ 0.7 million.

New Accounting Guidance:

The accompanying unaudited condensed consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States

(“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial

position, results of operations and cash flows required by GAAP for complete financial statements.

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 three months of fiscal 2024 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, 2023.

Accounting Guidance:

Supplier Finance Programs

In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance that will require companies that use supplier finance

programs to disclose information about the programs, including key terms, outstanding obligations under such programs and where outstanding amounts are presented within their financial statements.

In addition, a roll forward of obligations

under supplier finance programs will be required annually.

The new guidance is effective for the Company’s fiscal 2024 financial statements, with the exception of the roll forward disclosure requirement, which will become effective one year

The Company is currently evaluating the new disclosures, but does not expect the guidance will have a material impact on its consolidated financial statements.

Revenue Recognition

Effective April 1, 2022, the Company began managing its operations under two operating segments, Climate Solutions and Performance Technologies.

The Climate Solutions segment includes the previously-reported Building HVAC Systems (“BHVAC”) and the Commercial

and Industrial Solutions (“CIS”) segments, with the exception of CIS Coatings.

The Performance Technologies segment includes the previously-reported Heavy Duty Equipment (“HDE”) and Automotive segments and the CIS Coatings business.

for additional segment financial information.

The Company’s operating segments and their principal revenue-generating activities are as follows:

Climate Solutions

The Climate Solutions segment provides energy-efficient, climate-controlled components and solutions for a wide array of

applications.

The Climate Solutions segment principally generates revenue from selling heat transfer products, heating, ventilating, air conditioning, and refrigeration (“HVAC & refrigeration”) products, and data center cooling solutions.

Heat transfer products include heat transfer coils used in commercial and residential HVAC and refrigeration applications.

HVAC and refrigeration products include commercial and residential unit heaters, vertical and horizontal unit ventilators,

air conditioning chillers, low global warming potential unit coolers, air-cooled condensers, and dry coolers.

Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, computer room air

conditioner and air handler units, and fan walls.

Performance Technologies

The Performance Technologies segment provides products and solutions that enhance the performance of customer applications.

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

Air-cooled products include radiators, charge air coolers, condensers, and engine cooling

Liquid-cooled products include engine oil coolers, charge air coolers, condensers, and exhaust gas recirculation coolers.

In addition, the Performance Technologies segment provides advanced solutions, which are designed to improve

battery range and vehicle life, to zero-emission and hybrid commercial vehicle and automotive customers.

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

The advanced solutions

provided by the segment also include coating products and application services that extend the life of equipment and components by protecting against corrosion.

In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding disclosure of supplier finance programs including the key terms, outstanding obligations, and where such obligations are

presented within the financial statements.

In addition, beginning for fiscal 2025, a roll forward of obligations under such programs will be required annually.

The new guidance does not impact the recognition, measurement or financial statement

presentation of supplier finance program obligations.

The Company adopted this guidance as of April 1, 2023.

The Company facilitates a voluntary supplier finance program through a financial institution that allows certain suppliers in the U.S.

and Europe to request early

payment for invoices, at a discount, from the financial institution.

The Company or the financial institution may terminate the supplier finance program upon 90 days’ notice.

The Company’s obligations to its suppliers, including amounts due and payment terms, are consistent, irrespective of whether a supplier participates in the program.

The Company is not party to

the arrangements between the participating suppliers and the financial institution.

Under this program, the Company confirms the validity of supplier invoices to the financial institution and remits payments to it based on the original payment

terms, which typically range from 60 to 120

The outstanding obligations under this program, included within accounts payable in the consolidated balance sheets, totaled

$ 18.5 million and $ 21.2

million at June 30, 2023 and March 31, 2023, respectively.

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

Revenue Recognition

Disaggregation of Revenue

The tables below present revenue for each of the Company’s operating segments.

Each segment’s revenue is disaggregated by product group, by geographic location and based upon the timing of revenue recognition.

The disaggregated revenue

information presented in the tables below for fiscal 2022 has been recast to be comparable with the fiscal 2023 presentation .

Three months ended December 31, 2022

Three months ended December 31, 2021

Product groups:

Heat transfer

HVAC & refrigeration

Data center cooling

Liquid-cooled

Advanced solutions

Inter-segment sales

Geographic location:

Timing of revenue recognition:

Products transferred at a point in time

Products transferred over time

Nine months ended December 31, 2022

months ended December 31, 2021

The table below presents revenue for each of the Company’s operating segments.

Each segment’s revenue is disaggregated by product group, by

geographic location and based upon the timing of revenue recognition.

Beginning in fiscal 2024

and in connection with the Company’s strategic transformation and continued application of 80/20 principles across its businesses, the Company has refined its reporting of disaggregated revenue within the Climate Solutions segment to be more

consistent with how the segment has aligned its teams around three market-based verticals:

i) heat transfer products;

ii) HVAC & refrigeration;

and iii) data center cooling.

For the refined fiscal 2024 presentation, the Company reports

revenue based upon the respective product lines and related customer relationships managed by each market-based vertical team.

The disaggregated revenue information presented in the table below for fiscal 2023 has been recast to be comparable with the fiscal 2024

presentation.

Three months ended June 30 , 2023

Three months ended June 30 , 2022

Product groups:

14 unchanged sentences

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

December 31, 2022

June 30, 2023

March 31, 2023

1 unchanged sentence

Contract liabilities

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 $ 3.0 million

decrease in contract assets during the first nine months of fiscal 2023 primarily resulted from a decrease in contract assets for revenue recognized over time.

liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling.

$ 0.1 million increase in contract liabilities during the first nine months of fiscal 2023 primarily resulted from payments received in

advance of the Company’s satisfaction of performance obligations.

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 $ 7.3 million inc rease in contract assets during the first three months of fiscal 2024

primarily resulted from 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 performance

obligations under customer contracts, including contracts for customer-owned tooling.

The $ 14.0 million increase in contract liabilities

during the first three months of fiscal 2024 primarily resulted from payments received in advance of the Company’s satisfaction of performance obligations.

Fair Value Measurements

21 unchanged sentences

Pension cost included the following components:

Three months ended

Nine months ended

Three months ended June 30,

Interest cost

2 unchanged sentences

Net periodic benefit cost

The Company’s funding policy is to contribute annually, at a minimum, the amount

necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations.

In connection with funding relief provisions within the American Rescue Plan Act of 2021, the Company does not expect to make cash

contributions to its U.S.

Company’s funding policy is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations.

In connection with funding relief provisions within the

American Rescue Plan Act of 2021, the Company does not expect to make cash contributions to its U.S.

pension plans during fiscal 2024.

1 unchanged sentence

The Company’s stock-based incentive programs consist of the following:

(1) a long-term incentive plan (“LTIP”) for officers and other executives that

consists of stock awards, stock options, and performance-based awards granted for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.

The Company calculates compensation expense based upon the fair value of the awards at the time of grant and subsequently recognizes expense ratably over

the respective vesting periods of the stock-based awards.

The Company recognized stock-based compensation expense of $ 1.5 million and $ 1.1 million for the three months ended December 31 , 2022 and 2021, respectively.

The Company recognized stock-based compensation expense of $ 5.0 million and $ 4.7 million for the nine months ended December 31, 2022 and 2021, respectively .

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

ended December 31 , 2022 and 2021 were as follows:

Nine months ended December 31 ,

Stock options

Restricted stock awards

Unrestricted stock awards

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

awards to the LTIP participants during the first nine months of fiscal 2023.

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 performance period ending March 31, 2025.

(1) a long-term incentive plan (“LTIP”) for officers and other executives that authorizes grants of

stock awards, stock options, and performance-based awards for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.

The Company calculates compensation expense based upon the fair value of the awards at the time of grant and subsequently recognizes expense ratably over the respective

vesting periods of the stock-based awards.

The Company recognized stock-based compensation expense of $ 1.5 million and $ 1.1 million f or the three months ended June 30, 2023 and 2022, respectively.

During the first quarter of fiscal 2024, the Company granted performance-based stock awards and restricted stock awards.

The performance metrics for

the performance-based stock 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 performance period ending March 31, 2026.

During the first quarter of fiscal 2023, the Company granted restricted stock awards, stock options, and

performance cash awards.

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

The Company used the following assumptions in

determining fair value for stock options:

Nine months ended December 31,

Expected life of awards in years

Risk-free interest rate

Expected volatility of the Company’s stock

Expected dividend yield on the Company’s stock

As of December 31, 2022, unrecognized compensation expense related to non-vested

stock-based compensation awards, which will be recognized as expense over the remaining service periods, was as follows:

The fair value of stock-based compensation awards granted during the three months ended June 30, 2023 and 2022 were as follows:

Three months ended June 30,

Performance stock awards

Restricted stock awards

Stock options

As of June 30, 2023, unrecognized compensation expense related to non-vested stock-based compensation awards,

which will be recognized as expense over the remaining service periods, was as follows:

Weighted-Average

1 unchanged sentence

Period in Years

Stock options

Performance stock awards

Restricted stock awards

Stock options

Restructuring Activities

the first nine months of fiscal 2023, restructuring and repositioning expenses primarily consisted of severance expenses related to targeted headcount reductions in Europe within the Performance Technologies segment.

In addition, the Company

incurred equipment transfer costs and closure costs related to a previously-leased facility in the Performance Technologies and Climate Solutions segments, respectively.

During the first nine months of fiscal 2022, restructuring and repositioning expenses primarily consisted

of severance-related expenses within the Climate Solutions and Performance Technologies segments and equipment transfer costs within the Performance Technologies segment.

During the first quarter of fiscal 2023, restructuring and repositioning expenses primarily consisted of severance expenses related to targeted headcount reductions in

Europe within the Performance Technologies segment.

Restructuring and repositioning expenses were as follows:

Three months ended

Nine months ended

Three months ended June 30,

Employee severance and related benefits

5 unchanged sentences

The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements.

Changes in accrued severance were as

Three months ended December 31,

Beginning balance

Reclassified from held for sale

Effect of exchange rate changes

Ending balance

Nine months ended December 31,

Changes in accrued severance were as follows:

Three months ended June 30,

Beginning balance

Reclassified from held for sale

Effect of exchange rate changes

2 unchanged sentences

Other income and expense consisted of the following:

Three months ended

Three months ended June 30,

Interest income

2 unchanged sentences

Total other expense – net

Foreign currency transactions primarily consist of foreign

currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses

on certain foreign currency exchange contracts.

Net periodic benefit cost for the Company’s pension and

postretirement plans is exclusive of service cost.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The Company’s effective tax rate for the three months ended December 31, 2022 and 2021 was 25.6 percent and 0.1 percent , respectively.

Company’s effective tax rate for the nine months ended December 31, 2022 and 2021 was 23.8 percent and 8.7 percent, respectively.

effective tax rates for the fiscal 2022 periods were significantly impacted by the Company’s accounting for the liquid-cooled automotive business, which had been previously classified as held for sale.

During the nine months ended December 31,

2021, 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 1 for additional

information regarding the net impairment reversals related to the liquid-cooled automotive business.

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 not be realized in the future.

Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and

determines whether valuation allowances or adjustments thereto are needed.

This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.

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

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

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.

addition, 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, which partially offset the $ 13.0 million of income tax benefits recorded during the first and third quarters.

Combined, these fiscal 2022 valuation allowance adjustments resulted in a net income tax

benefit of $ 11.4 million during the first nine months of fiscal 2022 .

At December 31, 2022, valuation allowances against deferred tax assets in the U.S.

and in certain foreign

jurisdictions totaled $ 84.9 million and $ 28.1 million, respectively.

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 allowances .

At present, the Company has recorded a full valuation allowance on its U.S.

deferred tax assets.

Based upon current and anticipated future

earnings in the U.S., the Company believes it is reasonably possible that in the fourth quarter of fiscal 2023 or in fiscal 2024, sufficient positive evidence may be available to conclude that a significant portion of the U.S.

valuation allowance

is not needed.

The Company estimates such valuation allowance release would result in a decrease to income tax expense of up to $ 65.0

million in the period recorded.

However, the ultimate timing of such a release, if any, and the resulting decrease to income tax expense, could differ from the Company’s current estimates.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each

quarter to be consistent with its estimated annual effective tax rate.

Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.

Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.

The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate

methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions.

The Company does not anticipate a significant change in unrecognized tax

benefits during the remainder of fiscal 2023.

Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the

re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on certain foreign currency exchange

Net periodic benefit cost for the Company’s pension and postretirement plans is exclusive of

service cost.

The Company’s effective tax rate for the three months ended June 30, 2023 and 2022 was 24.5 percent and 25.5 percent, respectively.

The effective tax rate for the first quarter of fiscal 2024 is lower than the first quarter of the prior year, primarily due to changes in the mix

and amount of foreign and U.S.

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 not be realized in the future.

Each quarter, the Company evaluates the probability that

its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed.

This determination involves judgement and the use of significant estimates and assumptions, including expectations of

future taxable income and tax planning strategies.

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

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

E arnings Per Share

At June 30, 2023, valuation allowances against deferred tax assets in the U.S.

and in certain foreign jurisdictions totaled $ 35.5 million and $ 27.6 million, respectively.

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 the

and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate.

Under this methodology, the Company applies its estimated annual income

tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter.

The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.

excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full

fiscal year in these jurisdictions.

The Company estimates a $ 2.1 million net decrease in unrecognized tax benefits during the

remainder of fiscal 2024 mainly due to lapses in statutes of limitations.

Earnings Per Share

The components of basic and diluted earnings per share were as follows:

Three months ended

Nine months ended

Three months ended June 30,

Net earnings attributable to Modine

5 unchanged sentences

Net earnings per share – diluted

For the three and nine months ended

December 31, 2022, the calculation of diluted earnings per share excluded 0.1 million and 0.6 million stock options, respectively, because they were anti-dilutive.

In addition, the calculation for the three and nine months ended December 31, 2022 excluded less

than 0.1 million and 0.2

million restricted stock awards, respectively, because they were anti-dilutive.

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

million stock options and restricted stock awards, respectively, because they were anti-dilutive.

For the three months ended June 30, 2023, the calculation of diluted earnings per share excluded 0.1 million restricted stock awards because they were anti-dilutive.

For the three months ended June 30, 2022, the calculation of diluted earnings per share excluded 0.9 million and 0.5 million stock options and restricted stock awards, respectively, because they were anti-dilutive .

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Cash, Cash Equivalents and Restricted Cash

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

December 31, 2022

June 30, 2023

March 31, 2023

4 unchanged sentences

contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Inventories consisted of the following:

December 31, 2022

June 30, 2023

March 31, 2023

5 unchanged sentences

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

December 31, 2022

June 30, 2023

March 31, 2023

5 unchanged sentences

Net property, plant and equipment

Goodwill and Intangible Assets

The following table presents a roll forward of the carrying value of goodwill from March 31, 2022 to December 31, 2022.

The Company has recast the March 31, 2022 goodwill balances to

be comparable with the current segment structure.

There was no impact to the underlying reporting units as a result of the segment realignment during fiscal 2023.

Goodwill, March 31 ,

Effect of exchange rate changes

Goodwill, December 31 ,

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

Goodwill and Intangible Assets

The following table presents a roll forward of the carrying value of goodwill from March 31, 2023 to June 30, 2023.

Goodwill, March 31 ,

Effect of exchange rate changes

Goodwill, June 30 ,

Intangible assets consisted of the following:

December 31, 2022

June 30, 2023

March 31, 2023

2 unchanged sentences

Total intangible assets

The Company recorded amortization expense of $ 2.0 million and $ 2.1 million for the three months ended December 31, 2022 and 2021, respectively .

The Company recorded amortization expense of $ 6.0 million and $ 6.3 million for the nine months ended December 31, 2022

and 2021, respectively.

The Company estimates that it will record approximately $ 2.0 million of amortization expense

during the remainder of fiscal 2023 and approximately $ 8.0 million of annual amortization expense in fiscal 2024 through 2028.

The Company recorded amortization expense of $ 2.0 million for

both the three months ended June 30, 2023 and 2022 .

The Company estimates that it will record approximately $ 6.0 million of amortization expense during the remainder of fiscal 2024.

The Company estimates that it will record approximately $ 8.0 million of annual amortization expense in fiscal 2025 through 2028 and approximately $ 7.0 million in fiscal 2029.

These estimates exclude amortization expense associated with the acquisition that closed during the second quarter of

fiscal 2024, as discussed in Note 20.

Product Warranties

Changes in accrued warranty costs were as follows:

Three months ended December 31,

Beginning balance

Warranties recorded at time of sale

Adjustments to pre-existing warranties

Reclassified from held for sale

Effect of exchange rate changes

Ending balance

ended December 31,

Three months ended June 30,

Beginning balance

1 unchanged sentence

Adjustments to pre-existing warranties

Reclassified from held for sale

Effect of exchange rate changes

4 unchanged sentences

Lease Assets and Liabilities

The following table provides a summary of leases recorded on

the consolidated balance sheets.

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

Balance Sheet Location

December 31, 2022

June 30, 2023

March 31, 2023

12 unchanged sentences

Long-term debt

Finance lease right-of-use (“ROU”) assets were recorded net of accumulated amortization of $ 3.0 million and $ 2.8 million as of December 31, 2022 and March 31, 2022, respectively .

Finance lease right-of-use (“ROU”) assets were recorded net of accumulated amortization of $ 3.3 million and $ 3.2 million as of June 30, 2023 and March 31, 2023, respectively.

Components of Lease Expense

The components of lease expense were as follows:

Three months ended

Nine months ended

December 31 ,

Operating lease

Finance lease

Depreciation of

lease liabilities

For the three and nine months ended December 31, 2022, operating lease expense included short-term lease expense of $ 1.4 million and $ 4.2 million, respectively.

For 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.

Variable lease expense was not significan t.

Three months ended June 30,

Operating lease expense (a)

Finance lease expense:

Depreciation of ROU assets

Interest on lease liabilities

Total lease expense

For the three months

ended June 30, 2023 and 2022, operating lease expense included short-term lease expense of $ 1.5 million and $ 1.3 million, respectively.

Variable lease expense was not significant.

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

In October 2022, the Company executed an

amended and restated credit agreement with a syndicate of banks that provides for a multi-currency $ 275.0 million revolving credit

facility and U.S.

dollar- and euro-denominated term loan facilities maturing in October 2027.

In addition, the credit agreement provides for shorter-duration swingline loans.

This credit agreement modified the Company’s then existing $ 250.0 million revolver and term loan facilities, which would have matured in June 2024.

In connection with the credit agreement

modification, the Company incurred $ 2.2 million of debt issuance costs.

Of these costs, the Company deferred $ 1.5 million, which will be amortized as interest expense over the term of the debt, and recorded $ 0.7 million as interest expense on the consolidated statement of operations during the third quarter of fiscal 2023.

The Company paid $ 0.6 million of the debt issuance costs during the third quarter of fiscal 2023 and the remaining issuance costs were added to the new term loan principal at the time of the modification.

Long-term debt consisted of the following:

Fiscal year of

December 31, 2022

June 30, 2023

March 31, 2023

Revolving credit facility

5.9 % Senior Notes

5.8 % Senior Notes

Revolving credit facility

current portion

6 unchanged sentences

2029 & beyond

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, 2022, the

weighted-average interest rates for revolving credit facility borrowings and the term loans were 4.1 and 5.6 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.

The Company maintains a credit agreement

with a syndicate of banks that provides for a multi-currency $ 275.0 million revolving credit facility and U.S.

euro-denominated term loan facilities maturing in October 2027.

In addition, the credit agreement provides for 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 June 30, 2023, the weighted-average interest rates for revolving credit facility borrowings and

the term loans were 6.3 and 6.4

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.

At June 30, 2023, the Company’s borrowings under its revolving credit and swingline facilities totaled $ 3.2

million and $ 8.0 million, respectively, and domestic letters of credit totaled $ 5.5 million.

As a result, available borrowing capacity under the Company’s revolving credit facility was $ 258.3 million as of June 30, 2023 .

At March 31, 2023, the Company had no outstanding borrowings under these facilities.

The Company also maintains credit agreements for its foreign subsidiaries.

outstanding short-term borrowings related to these foreign credit agreements totaled $ 3.7 million at March 31, 2023.

There were no short-term borrowings related to these agreements at June 30, 2023.

MODINE MANUFACTURING COMPANY

1 unchanged sentence

(In millions, except per share amounts)

At December 31, 2022, the Company’s borrowings under its revolving credit and swingline facilities totaled $ 27.5

million and $ 6.0 million, respectively, and domestic letters of credit totaled $ 5.3 million.

As a result, available borrowing capacity under the Company’s revolving credit facility was $ 236.2 million as of December 31, 2022 .

At March 31, 2022, the Company’s borrowings under its revolving credit and

swingline facilities totaled $ 64.9 million and $ 7.0 million, respectively.

The Company also maintains credit agreements for its foreign subsidiaries.

outstanding short-term borrowings related to these foreign credit agreements totaled $ 5.3 million and $ 0.7 million at December 31, 2022 and March 31, 2022, respectively.

Provisions in the Company’s credit agreement, Senior Note agreements, and various foreign credit agreements require the Company to maintain compliance with various

covenants and include certain cross-default clauses.

Under its primary debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.

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, the Company is required to represent to the lenders that there has been no material adverse effect, as

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

The leverage ratio covenant requires the Company to limit its consolidated indebtedness, less a portion of its cash balances, 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”).

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.

The Company was in compliance with its debt covenants as of December 31, 2022.

Indebtedness under the Company’s credit agreement and Senior Note agreements is secured by liens on substantially all domestic assets.

These agreements further require

compliance with various covenants that may limit the Company’s ability to incur additional indebtedness;

make investments, loans, or guarantees;

engage in certain transactions with affiliates;

and make restricted payments including

In addition, the agreements may require prepayment in the event of certain asset sales.

Financial covenants within its credit agreements require the Company to limit its consolidated indebtedness, less a portion of its cash balances, 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.”) The Company must also maintain a ratio of Adjusted EBITDA of at least three

times consolidated interest expense.

As of June 30, 2023, the Company was in compliance with its debt covenants.

The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable

As of December 31, 2022 and March 31, 2022, 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 $ 123.7 million and $ 138.9 million, respectively.

The fair value of

the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy.

Refer to Note 3 for the definition of a Level 2 fair value measurement.

As of June 30, 2023 and March 31, 2023, 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 $ 125.9 million at each reporting date.

The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy.

Refer to Note 3 for the

definition of a Level 2 fair value measurement.

Risks, Uncertainties, Contingencies and Litigation

Supply Chain Disruptions and Inflationary Market

Market and economic dynamics, including the impacts of the COVID-19 pandemic and the military conflict between Russia and the Ukraine, have contributed to global supply chain challenges and

inflationary market conditions.

The Company is focused on mitigating the negative impacts of labor shortages, supply chain challenges and inflationary market conditions, including changes in raw material, energy, logistic, and interest costs, as

well as delays and shortages in certain purchased commodities and components.

The Company cannot reasonably estimate the full impact that the ongoing

supply chain challenges and other related economic and market dynamics will have on

the Company’s business , results of operations and cash flows in the future .

Environmental

T he Company has recorded environmental investigation and remediation accruals related to manufacturing facilities in the U.S., one of which the Company currently owns and operates, and a former

manufacturing facility in the Netherlands.

T he Company has recorded environmental investigation and remediation accruals related to manufacturing facilities in the U.S., one of which the Company currently owns and operates, and at its

former manufacturing facility in the Netherlands.

These accruals primarily relate to soil and groundwater contamination at facilities where past operations followed practices and procedures that were considered acceptable under then-existing

4 unchanged sentences

$ 17.5 million and $ 17.6

million as of December 31, 2022 and March 31, 2022, respectively.

During the first quarter of fiscal 2023 and 2022, the Company increased its remediation accrual related to a former manufacturing facility in the U.S.

by $ 1.0 million and $ 3.4 million, respectively.

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.

million as of June 30, 2023 and March 31, 2023, respectively.

As additional information becomes available regarding environmental matters, the Company will re-assess the liabilities and revise the estimated accruals, if necessary.

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 December 31, 2022

ended December 31, 2022

Three months ended June 30, 2023

Beginning balance

2 unchanged sentences

Amortization of unrecognized net loss (a)

Realized losses – net (b)

Realized gains – net (b)

Total other comprehensive income (loss)

Ending balance

Three months ended December 31, 2021

ended December 31, 2021

Three months ended June 30, 2022

Beginning balance

3 unchanged sentences

Realized gains – net (b)

Unrecognized net pension loss in disposed business (c)

Total other comprehensive income (loss)

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 4 for additional information about the Company’s pension plans.

Amounts represent net gains and losses

associated with cash flow hedges that were reclassified to net earnings.

As a result of the sale of the

air-cooled automotive business in Austria, the Company wrote off $ 1.7 million of net actuarial losses related to its pension plan

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

See Note 1 for additional information.

A mounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings .

MODINE MANUFACTURING COMPANY

2 unchanged sentences

Segment Information

Effective April 1, 2022, the Company began managing its operations under two operating segments, Climate Solutions and Performance Technologies.

The Climate Solutions segment includes the previously-reported BHVAC and CIS

segments, with the exception of CIS Coatings.

The Performance Technologies segment includes the previously-reported HDE and Automotive segments and the CIS Coatings business.

See Note 2 for information regarding the primary operating activities of

each segment.

The Company’s new segment structure aligns businesses serving similar or complimentary end markets, products and technologies under common segment management.

believes this simplified segment structure allows it to better focus resources on targeted growth opportunities and better enables for an efficient application of 80/20 principles across all product lines to optimize profit margins and cash flow.

The segment realignment had no impact on the Company’s 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.

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

Three months ended December 31,

Inter-segment

Climate Solutions

Performance Technologies

Segment total

Corporate and eliminations

ended December 31,

Three months ended June 30,

External Sales

Inter-segment

External Sales

Inter-segment

3 unchanged sentences

Corporate and eliminations

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

Three months ended December 31,

ended December 31,

Three months ended June 30,

Gross profit:

3 unchanged sentences

Corporate and eliminations

Three months ended

Three months ended June 30,

Operating income:

4 unchanged sentences

Operating income

The following is a summary of segment assets, comprised entirely of trade

accounts receivable and inventories, and other assets:

December 31, 2022

MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

The following is a summary of segment

assets, comprised entirely of trade accounts receivable and inventories, and other assets:

June 30, 2023

March 31, 2023

1 unchanged sentence

Performance Technologies

Represents cash and cash equivalents,

other current assets, property plant and equipment, intangible assets, goodwill, deferred income taxes, and other noncurrent assets for the Climate Solutions and Performance Technologies segments and Corporate .

Represents cash and cash equivalents, other current assets, property

plant and equipment, intangible assets, goodwill, deferred income taxes, and other noncurrent assets for the Climate Solutions and Performance Technologies segments and Corporate.

Subsequent Event

On July 1, 2023, the Company acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for a purchase price of $ 5.3 million.

Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps primarily for the K-12 school

This acquisition expands the Company’s indoor air quality product portfolio and supports its growth strategy and mission of improving indoor air quality.

Napps has historical annual sales of approximately $ 5.0 million, and will be reported within the Company’s Climate Solutions segment beginning in the second quarter of fiscal 2024.

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