Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended December 31, 2024 was the third quarter of fiscal 2025.
Acquisitions and dispositions
On March 1, 2024, we acquired Scott Springfield Mfg. Inc. (“Scott Springfield Manufacturing”), a Canadian-based manufacturer of air handling units, for consideration totaling $184.1 million. On July 1, 2023, we acquired Napps Technology Corporation (“Napps”), a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, for consideration totaling $5.8 million. These acquisitions expanded our data center and indoor air quality product portfolios and support our growth strategy and mission of improving indoor air quality. We have reported the financial results of these businesses within the Climate Solutions segment since the acquisition dates.
In October 2023, we sold three automotive businesses based in Germany. The sale of these businesses, which produce air- and liquid-cooled products for internal combustion, diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies.
In December 2024, we signed a definitive agreement to sell our technical service center and administrative support facility in Germany to a real estate investment firm for €11.5 million ($11.9 million). Earlier this fiscal year, we closed the technical service center and reduced headcount in light of the sale of the three automotive businesses in Germany. We expect the sale transaction will close during the first half of fiscal 2026, subject to remaining closing conditions. We expect to record a gain on sale, net of costs to sell, of approximately $3.0 million when the transaction is completed.
See Note 2 of the Notes to Consolidated Financial Statements for further information.
Third quarter highlights
Net sales in the third quarter of fiscal 2025 increased $55.4 million, or 10 percent, from the third quarter of fiscal 2024, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. The higher Climate Solutions segment sales included $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business. The lower Performance Technologies segment sales included an $8.0 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024. Cost of sales increased $33.1 million, or 8 percent. Gross profit increased $22.3 million and gross margin improved 160 basis points to 24.3 percent. Selling, general and administrative (“SG&A”) expenses increased $14.0 million and included higher compensation-related expenses and incremental expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets. Operating income of $59.3 million during the third quarter of fiscal 2025 decreased $2.4 million from the prior year, primarily due to higher SG&A and restructuring expenses and the absence of a $4.0 million gain on sale of three automotive businesses in Germany in the third quarter of fiscal 2024, partially offset by higher gross profit.
Year-to-date highlights
Net sales in the first nine months of fiscal 2025 increased $132.0 million, or 7 percent, from the same period last year, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. The higher Climate Solutions segment sales included $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses. The lower Performance Technologies segment sales included a $54.2 million impact of the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024. Cost of sales increased $44.5 million, or 3 percent, from the same period last year. Gross profit increased $87.5 million and gross margin improved 310 basis points to 24.7 percent. SG&A expenses increased $52.3 million and included higher compensation-related expenses and incremental expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets. Operating income of $209.0 million during the first nine months of fiscal 2025 increased $15.1 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4.0 million gain on sale of three automotive businesses in Germany in fiscal 2024.
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CONSOLIDATED RESULTS OF OPERATIONS
The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 2024 and 2023:
Three months ended December 31,
Nine months ended December 31,
2024
2023
2024
2023
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
616.8
100.0
%
$
561.4
100.0
%
$
1,936.3
100.0
%
$
1,804.3
100.0
%
Cost of sales
467.2
75.7
%
434.1
77.3
%
1,458.5
75.3
%
1,414.0
78.4
%
Gross profit
149.6
24.3
%
127.3
22.7
%
477.8
24.7
%
390.3
21.6
%
Selling, general and administrative expenses
82.0
13.3
%
68.0
12.1
%
250.6
12.9
%
198.3
11.0
%
Restructuring expenses
8.3
1.3
%
1.6
0.3
%
18.2
0.9
%
2.1
0.1
%
Gain on sale of assets
—
—
(4.0)
(0.7)
%
—
—
(4.0)
(0.2)
%
Operating income
59.3
9.6
%
61.7
11.0
%
209.0
10.8
%
193.9
10.7
%
Interest expense
(6.2)
(1.0)
%
(5.8)
(1.0)
%
(21.1)
(1.1)
%
(17.8)
(0.9)
%
Other income (expense) – net
1.1
0.2
%
(0.5)
(0.1)
%
(0.7)
—
(1.0)
(0.1)
%
Earnings before income taxes
54.2
8.8
%
55.4
9.9
%
187.2
9.7
%
175.1
9.7
%
Provision for income taxes
(13.0)
(2.1)
%
(10.3)
(1.8)
%
(51.8)
(2.7)
%
(37.8)
(2.1)
%
Net earnings
$
41.2
6.7
%
$
45.1
8.0
%
$
135.4
7.0
%
$
137.3
7.6
%
Comparison of the three months ended December 31, 2024 and 2023
Third quarter net sales of $616.8 million were $55.4 million, or 10 percent, higher than the third quarter of the prior year, primarily due to $106.8 million of higher sales in our Climate Solutions segment, driven by $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation data center customers. The higher sales in Climate Solutions were partially offset by lower sales in our Performance Technologies segment, which decreased $48.7 million, largely due to market weakness and an $8.0 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.
Third quarter cost of sales increased $33.1 million, or 8 percent, primarily due to higher sales volume and, to a lesser extent, higher raw material costs, which increased approximately $4.0 million, and higher labor and inflationary costs. These drivers, which increased cost of sales, were partially offset by improved operating efficiencies. As a percentage of sales, cost of sales decreased 160 basis points to 75.7 percent, primarily due to favorable sales mix.
As a result of higher sales and lower cost of sales as a percentage of sales, third quarter gross profit increased $22.3 million and gross margin improved 160 basis points to 24.3 percent.
Third quarter SG&A expenses increased $14.0 million, or 21 percent. As a percentage of sales, SG&A expenses increased by 120 basis points. The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $11.0 million and included incremental expenses from the acquired Scott Springfield Manufacturing business and increased incentive compensation resulting from improved financial results. In addition, SG&A expenses in the third quarter of fiscal 2025 included $4.6 million of incremental amortization expense for acquired intangible assets. These increases were partially offset by lower environmental charges related to previously-owned facilities in the U.S., which decreased $1.0 million.
Restructuring expenses increased $6.7 million compared with the third quarter of fiscal 2024, primarily due to higher severance expenses in the Performance Technologies segment.
We recorded a $4.0 million gain on sale at Corporate during the third quarter of fiscal 2024 as a result of the sale of three automotive businesses based in Germany.
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Operating income of $59.3 million in the third quarter of fiscal 2025 decreased $2.4 million compared with the third quarter of fiscal 2024, primarily due to higher SG&A and restructuring expenses and the absence of the $4.0 million gain on the sale of the automative businesses in Germany. These drivers, which negatively impacted operating income, were partially offset by higher gross profit.
Interest expense during the third quarter of fiscal 2025 increased $0.4 million compared with the third quarter of fiscal 2024, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing, partially offset by favorable changes in interest rates.
The provision for income taxes was $13.0 million and $10.3 million in the third quarter of fiscal 2025 and 2024, respectively. The $2.7 million increase was primarily due to the absence of a $3.1 million tax benefit related to the sale of the automotive businesses in Germany during the third quarter of fiscal 2024.
Comparison of the nine months ended December 31, 2024 and 2023
Fiscal 2025 year-to-date net sales of $1,936.3 million were $132.0 million, or 7 percent, higher than the same period last year, primarily due to $254.6 million of higher sales in our Climate Solutions segment, including $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses and organic sales growth to hyperscale and colocation data center customers. The higher sales in Climate Solutions were partially offset by $122.6 million of lower sales in our Performance Technologies segment, including a $54.2 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024.
Fiscal 2025 year-to-date cost of sales of $1,458.5 million increased $44.5 million, or 3 percent, primarily due to higher sales volume and higher labor and inflationary costs, partially offset by lower raw material costs, which decreased approximately $2.0 million, and improved operating efficiencies. In addition, we recorded $1.6 million of cost of sales at Corporate during the first quarter of fiscal 2025 related to an inventory purchase accounting adjustment for the acquisition of Scott Springfield Manufacturing. As a percentage of sales, cost of sales decreased 310 basis points to 75.3 percent, primarily due to favorable sales mix, higher average selling prices, improved operating efficiencies, and the favorable impact of commercial pricing settlements and the recognition of sales tax credits in Brazil within the Climate Solutions and Performance Technologies segments, respectively.
As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $87.5 million and gross margin improved 310 basis points to 24.7 percent.
Fiscal 2025 year-to-date SG&A expenses increased $52.3 million, or 26 percent. As a percentage of sales, SG&A expenses increased by 190 basis points. The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $37.0 million and included incremental expenses from the acquired businesses and increased incentive compensation resulting from improved financial results. In addition, SG&A expenses in the first nine months of fiscal 2025 included $13.9 million of incremental amortization expense for acquired intangible assets.
Restructuring expenses during the first nine months of fiscal 2025 increased $16.1 million compared with the same period last year, primarily due to higher severance expenses and product line transfer costs in the Performance Technologies and Climate Solutions segments, respectively.
We recorded a $4.0 million gain on sale at Corporate during the third quarter of fiscal 2024 as a result of the sale of three automotive businesses based in Germany.
Operating income of $209.0 million in the first nine months of fiscal 2025 increased $15.1 million compared with the same period last year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of the $4.0 million gain on the sale of the automative businesses in Germany.
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Interest expense during the first nine months of fiscal 2025 increased $3.3 million compared with the same period last year, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing.
The provision for income taxes was $51.8 million and $37.8 million during the first nine months of fiscal 2025 and 2024, respectively. The $14.0 million increase was primarily due to higher earnings and changes in the mix and amount of foreign and U.S. earnings in the current year, as compared with the same period in the prior year. In addition, the provision for income taxes in the prior year was favorably impacted by both the release of a $1.8 million unrecognized tax benefit during the second quarter as well as a $3.1 million tax benefit related to the sale of the automotive businesses in Germany during the third quarter.
SEGMENT RESULTS OF OPERATIONS
Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment. Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets and customers. We believe that unifying these complementary businesses is allowing us to better focus resources on targeted growth opportunities and more efficiently apply 80/20 principles to optimize profit margins and cash flow. Segment financial information for fiscal 2024 has been recast to conform to the current presentation.
The following is a discussion of our segment results of operations for the three and nine months ended December 31, 2024 and 2023:
Climate Solutions
Three months ended December 31,
Nine months ended December 31,
2024
2023
2024
2023
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
360.8
100.0
%
$
254.0
100.0
%
$
1,084.5
100.0
%
$
829.9
100.0
%
Cost of sales
257.7
71.4
%
183.9
72.4
%
774.3
71.4
%
607.1
73.2
%
Gross profit
103.1
28.6
%
70.1
27.6
%
310.2
28.6
%
222.8
26.8
%
Selling, general and administrative expenses
39.6
11.0
%
28.3
11.1
%
120.5
11.1
%
85.0
10.2
%
Restructuring expenses
1.1
0.3
%
1.4
0.6
%
2.8
0.3
%
1.7
0.2
%
Operating income
$
62.4
17.3
%
$
40.4
15.9
%
$
186.9
17.2
%
$
136.1
16.4
%
Comparison of the three months ended December 31, 2024 and 2023
Climate Solutions net sales increased $106.8 million, or 42 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher sales volume. The higher sales volume includes $73.6 million of incremental sales from the acquired Scott Springfield Manufacturing business. Compared with the third quarter of the prior year, sales of data center cooling and HVAC&R products increased $106.4 million and $13.7 million, respectively. The increase in sales of data center cooling products includes sales from Scott Springfield Manufacturing and organic sales growth to hyperscale and colocation customers. Sales of heat transfer products decreased $13.4 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications.
Climate Solutions cost of sales increased $73.8 million, or 40 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher sales volume and, to a lesser extent, higher raw material costs, which increased approximately $4.0 million. As a percentage of sales, cost of sales decreased 100 basis points to 71.4 percent, primarily due to favorable sales mix and the impact of higher sales volume.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $33.0 million and gross margin improved 100 basis points to 28.6 percent.
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Climate Solutions SG&A expenses increased $11.3 million compared with the third quarter of the prior year. As a percentage of sales, SG&A expenses decreased by 10 basis points. The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $6.0 million and included expenses from the acquired Scott Springfield Manufacturing business, and $4.6 million of incremental amortization expense related to acquired intangible assets.
Restructuring expenses decreased $0.3 million compared with the third quarter of fiscal 2024, primarily due to lower equipment transfer costs and severance expenses.
Operating income of $62.4 million increased $22.0 million from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Comparison of the nine months ended December 31, 2024 and 2023
Climate Solutions year-to-date net sales increased $254.6 million, or 31 percent, from the same period last year, primarily due to higher sales volume, including $168.1 million of incremental sales from the acquired Scott Springfield Manufacturing and Napps businesses. Compared with the same period in the prior year, sales of data center cooling and HVAC&R products increased $280.9 million and $31.7 million, respectively. The increase in sales of data center cooling products includes sales from the acquired Scott Springfield Manufacturing business and organic sales growth to hyperscale and colocation customers. Sales of heat transfer products decreased $58.2 million, largely due to lower sales of heat transfer coils for heat pumps and other commercial and residential applications, partially offset by commercial pricing settlements with heat pump customers in Europe.
Climate Solutions year-to-date cost of sales increased $167.2 million, or 28 percent, from the same period last year, primarily due to higher sales volume, and, to a lesser extent, higher raw material costs, which increased approximately $7.0 million and higher labor and inflationary costs. These increases were partially offset by lower warranty expense, which decreased approximately $3.0 million, and improved operating efficiencies. As a percentage of sales, cost of sales decreased 180 basis points to 71.4 percent, primarily due to favorable sales mix and the favorable impact of the commercial pricing settlements during the second quarter.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $87.4 million and gross margin improved 180 basis points to 28.6 percent.
Climate Solutions year-to-date SG&A expenses increased $35.5 million and increased 90 basis points as a percentage of sales. The increase in SG&A expenses includes higher compensation-related expenses, which increased approximately $16.0 million, and $13.9 million of incremental amortization expense related to acquired intangibles assets.
Restructuring expenses during the first nine months of fiscal 2025 increased $1.1 million compared with the same period last year, primarily due to higher costs related to transferring production and warehousing for certain product lines.
Operating income of $186.9 million during the first nine months of fiscal 2025 increased $50.8 million from the same period last year, primarily due to higher gross profit, partially offset by higher SG&A expenses.
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Performance Technologies
Three months ended December 31,
Nine months ended December 31,
2024
2023
2024
2023
(in millions)
$’s
% of sales
$’s
% of sales
$’s
% of sales
$’s
% of sales
Net sales
$
262.2
100.0
%
$
310.9
100.0
%
$
868.7
100.0
%
$
991.3
100.0
%
Cost of sales
215.5
82.2
%
253.9
81.7
%
698.4
80.4
%
824.8
83.2
%
Gross profit
46.7
17.8
%
57.0
18.3
%
170.3
19.6
%
166.5
16.8
%
Selling, general and administrative expenses
25.4
9.7
%
27.3
8.8
%
78.5
9.0
%
77.8
7.9
%
Restructuring expenses
5.5
2.1
%
0.2
—
13.7
1.6
%
0.4
—
Operating income
$
15.8
6.0
%
$
29.5
9.5
%
$
78.1
9.0
%
$
88.3
8.9
%
Comparison of the three months ended December 31, 2024 and 2023
Performance Technologies net sales decreased $48.7 million, or 16 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower sales volume to automotive, off-highway and commercial vehicle customers, largely due to market-related declines. In addition, the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024 negatively impacted sales by $8.0 million. Compared with the third quarter of the prior year, sales of air-cooled, liquid-cooled, and advanced solutions products decreased $28.1 million, $20.8 million and $2.4 million, respectively.
Performance Technologies cost of sales decreased $38.4 million, or 15 percent, from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies. These drivers, which decreased cost of sales, were partially offset by higher labor and inflationary costs. As a percentage of sales, cost of sales increased 50 basis points to 82.2 percent, primarily due to the impact of lower sales volume.
As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $10.3 million and gross margin declined 50 basis points to 17.8 percent.
Performance Technologies SG&A expenses decreased $1.9 million compared with the third quarter of the prior year. As a percentage of sales, SG&A expenses increased by 90 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $1.0 million, and decreases across other general and administrative expenses.
Restructuring expenses increased $5.3 million compared with the third quarter of the prior year, primarily due to higher severance expenses in North America and Europe.
Operating income of $15.8 million decreased $13.7 million from the third quarter of fiscal 2024 to the third quarter of fiscal 2025, primarily due to lower gross profit and higher restructuring expenses, partially offset by lower SG&A expenses.
Comparison of the nine months ended December 31, 2024 and 2023
Performance Technologies year-to-date net sales decreased $122.6 million, or 12 percent, from the same period last year, primarily due to lower sales volume, including a $54.2 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024. These decreases were partially offset by higher average selling prices and, to a lesser extent, the recognition of sales tax credits in Brazil. Compared with the same period in the prior year, sales of liquid-cooled and air-cooled products decreased $78.8 million and $50.3 million, respectively. Sales of advanced solutions products increased $6.7 million.
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Performance Technologies year-to-date cost of sales decreased $126.4 million, or 15 percent, from the same period last year, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies and lower raw material costs, which decreased approximately $9.0 million. These drivers, which decreased cost of sales, were partially offset by higher labor and inflationary costs. As a percentage of sales, cost of sales decreased 280 basis points to 80.4 percent, primarily due to higher average selling prices, improved operating efficiencies, lower material costs, and the favorable impact of the sales tax credits recognized in Brazil, partially offset by higher labor and inflationary costs.
As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit increased $3.8 million and gross margin improved 280 basis points to 19.6 percent.
Performance Technologies year-to-date SG&A expenses increased $0.7 million, or 1 percent, compared with the same period last year. As a percentage of sales, year-to-date SG&A expenses increased by 110 basis points. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased approximately $4.0 million. This increase was partially offset by decreases across other general and administrative expenses.
Restructuring expenses during the first nine months of fiscal 2025 increased $13.3 million compared with the same period last year, primarily due to higher severance expenses in Europe and North America and product line transfer costs.
Operating income of $78.1 million during the first nine months of fiscal 2025 decreased $10.2 million from the same period last year, primarily due to higher restructuring expenses, partially offset by higher gross profit.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of December 31, 2024 of $83.8 million, and available borrowing capacity of $210.8 million under our revolving credit facility. Given our extensive international operations, approximately $80.0 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated. We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.
Net cash provided by operating activities
Net cash provided by operating activities for the nine months ended December 31, 2024 was $158.5 million, which represents a $16.5 million decrease compared with the same period in the prior year. This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, as compared with the same period in the prior year, partially offset by the favorable impact of higher operating earnings. The unfavorable changes in working capital include a decrease in customer deposits associated with sales contracts with long inventory lead times and higher payments for incentive compensation, as compared with the same period in the prior year. These unfavorable changes in working capital were partially offset by the favorable impact of lower inventory levels.
Capital expenditures
Capital expenditures of $56.3 million during the first nine months of fiscal 2025 increased $12.5 million compared with the same period in the prior year. The fiscal 2025 capital expenditures include investments supporting several of our strategic growth initiatives, including increasing production capacity for data center products.
Debt
Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant, which are discussed further below. Indebtedness under our credit agreements is secured by liens on substantially all domestic assets. These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; or make restricted payments, including dividends. Also, the credit agreements may require prepayments in the event of certain asset sales.
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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, 2024, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during the remainder of fiscal 2025 and beyond.
U.S. pension plan termination
In June 2024, we approved the termination of our U.S. pension plan, subject to approvals from the Internal Revenue Service and the Pension Benefit Guaranty Corporation. We intend to offer certain participants the option to receive their pension benefits in the form of a lump-sum distribution prior to purchasing annuity contracts to transfer our remaining obligations under the plan. In connection with the plan termination, we expect to make additional cash contributions in the range of $10.0 million to $20.0 million to fully fund the plan, on a plan termination basis, and to record non-cash pension settlement charges totaling approximately $115.0 million to $125.0 million during fiscal 2026. The timing and amount of the final cash contribution and settlement charges could materially differ from our estimates due to the nature and timing of participant settlements, prevailing market and economic conditions, the duration of the termination process, or other factors.
Share repurchase program
Our share repurchase program expired in November 2024. We did not repurchase any common stock under the program during fiscal 2025. During the first nine months of fiscal 2024, we repurchased $13.3 million of our common stock under the share repurchase program.
Forward-looking statements
This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. Other risks and uncertainties include, but are not limited to, the following:
Market risks:
● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, government incentive or funding programs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and military conflicts, including the conflicts in Ukraine and in the Middle East and tension in the Red Sea;
● The impact of other economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including foreign currency exchange rate fluctuations; changes in interest rates; recession and recovery therefrom; and the general uncertainties about the impact of statutory, regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented in the U.S. or abroad;
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● The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs. These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and significant fluctuations in demand. This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, including through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;
● Our ability to be at the forefront of technological advances to differentiate ourselves from our competitors and provide innovative products and services to our customers, the impacts of any changes in or the adoption rate of technologies that we expect to drive sales growth, including those related to data center cooling and electric vehicles, and the impacts of any threats or changes to the market growth prospects for our customers;
● Our ability to mitigate increases in labor costs and labor shortages;
● The impact of public health threats on the national and global economy, our business, suppliers (and the supply chain), customers, and employees; and
● The impact of legislation, regulations, and government incentive programs, including those addressing climate change, on demand for our products and the markets we serve, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives.
Operational risks:
● The impact of problems, including logistic and transportation challenges, associated with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;
● The overall health of and pricing pressure from our customers in light of economic and market-specific factors and the potential impact on us from any deterioration in the stability or performance of any of our major customers;
● Our ability to maintain current customer relationships and compete effectively for new business, including our ability to achieve profit margins acceptable to us by offsetting or otherwise addressing any cost increases associated with supply chain challenges and inflationary market conditions;
● The impact of product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and warranty claims;
● The impact of delays or modifications initiated by major customers with respect to product or program launches, product applications or requirements;
● Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine;
● Our ability to effectively and efficiently manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring activities and realizing the anticipated benefits thereof;
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● Costs and other effects of the investigation and remediation of environmental contamination; including when related to the actions or inactions of others and/or facilities over which we have no control;
● Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions;
● Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;
● The impact of a substantial disruption, including any prolonged service outage, or material breach of our information technology (“IT”) systems, and any related delays, problems or costs;
● The impact of the material weakness identified in our internal control over financial reporting related to IT system access in Europe on our financial reporting process;
● Increasingly complex and restrictive laws and regulations and the costs associated with compliance therewith, including state and federal labor regulations, laws and regulations associated with being a U.S. public company, and other laws and regulations present in various jurisdictions in which we operate;
● Increasing emphasis by global regulatory bodies, customers, investors, and employees on environmental, social and corporate governance matters may impose additional costs on us, adversely affect our reputation, or expose us to new risks;
● Work stoppages or interference at our facilities or those of our major customers and/or suppliers;
● The constant and increasing pressures associated with healthcare and associated insurance costs; and
● Costs and other effects of litigation, claims, or other obligations, including those that may be asserted against us in connection with divested businesses.
Strategic risks:
● Our ability to successfully realize anticipated benefits, including improved profit margins and cash flow, from strategic initiatives and our continued application of 80/20 principles across our businesses; and
● Our ability to accelerate growth by identifying and executing on organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses.
Financial risks:
● Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
● The impact of increases in interest rates in relation to our variable-rate debt obligations;
● The impact of changes in federal, state or local taxes that could have the effect of increasing our income tax expense;
● Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);
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● The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and
● Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.
Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. The Company’s market risks have not materially changed since the fiscal 2024 Form 10-K was filed.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.