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Item 7. Management’s Discussion and Analysis

2025-05-21 compared with 2024-05-22 · 285 added, 480 removed, 193 unchanged (80% of the section changed)

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At Modine, we are Engineering a Cleaner, Healthier World ™ .

We provide trusted products and technologies that help improve our world.

Our broad portfolio of systems and solutions support

our mission of improving indoor air quality, conserving natural resources, lowering harmful emissions, enabling cleaner running vehicles, and using environmentally friendly refrigerants.

We operate in four

continents, in 16 countries, and employ approximately 11,400 persons worldwide.

We sell innovative and environmentally responsible thermal management products and solutions to diversified customers in a wide array of commercial,

industrial, and building HVAC&R markets.

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

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

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

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

Our primary product groups

include i) heat transfer;

ii) HVAC& R ;

iii) data center cooling;

Our primary product groups include i) data center cooling;

ii) heat transfer;

iv) air-cooled;

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Company Strategy

Our purpose is to engineer a cleaner, healthier world by providing products and services that improve indoor air quality, reduce water and energy consumption, lower harmful emissions, enable cleaner running vehicles, and use environmentally friendly

refrigerants.

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

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

We are strategically investing in end markets where we see the highest growth prospects.

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

In fiscal 2025, we continued our strategic transformation.

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

In fiscal 2022, we

onboarded seasoned leaders with the requisite experience to drive transformative change, including new segment presidents for our Climate Solutions and Performance Technologies segments.

Since that time, we have simplified and segmented our

organization, aligning teams, led by general managers, around specific strategies and market-based verticals within our company.

Our leadership teams have created a high-performance culture and are prioritizing resources on products and markets with

the highest growth opportunities and best return profiles.

We have been focused on growth opportunities in the Data Center Cooling and Indoor Air Quality businesses and have strategically expanded our product offerings in these businesses.

second quarter of fiscal 2024, we acquired substantially all of the assets of

Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, which expanded our indoor air quality product portfolio.

Additionally, during the fourth quarter of fiscal 2024, we completed the acquisition of

Scott Springfield Mfg.

Inc (“Scott Springfield Manufacturing”), a leading manufacturer of air handling units serving the data center cooling and indoor air quality markets in the U.S.

and Canada, and also purchased liquid immersion cooling technology

from TMGcore, Inc.

We also recently purchased a new manufacturing site in the U.K., with plans to expand our production capacity to support our data center customers.

Simultaneously,

we are rapidly growing our Advanced Solutions business, which provides systems and solutions for zero-emission and hybrid vehicles in the commercial vehicle and off-highway machine markets.

Through our initiatives based upon 80/20 principles, we

have achieved significant improvements in our profit margins since we started our transformational journey.

Entering fiscal 2025, we are focused on organic and inorganic growth opportunities in the key markets we serve and the incremental value we believe we can unlock in Modine by applying 80/20 principles across our

We are strengthening key customer relationships and pursuing strategic growth opportunities, particularly in the data center cooling, commercial HVAC&R, and specialty electric vehicle markets where we see the best

opportunities for profitable growth.

In addition, we will continue to utilize an 80/20 mindset within our manufacturing facilities and expect to achieve production efficiency improvements as a result.

Our ultimate objective for our transformational strategy is to accelerate profitable growth.

We expect to change our mix of business, as we grow certain areas and strategically deemphasize others.

We expect these changes will fuel improvements in

both earnings and cash flow, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.

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

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

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

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

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

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

We are focused on leveraging our product portfolio to accelerate growth, with particular focus on long-term growth drivers tied to secular mega-trends.

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

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

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

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

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

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

Development of New Products and Technology

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We partner with our customers and use a systems-based approach to ensure our solutions work seamlessly with their other components.

Our thermal solutions enable our customers to stay ahead of new and emerging

regulations, particularly those involving increasingly stringent energy efficiency, emissions, and fuel economy standards.

Our thermal solutions enable our customers to stay ahead of new and emerging regulations, particularly those involving increasingly stringent energy efficiency, emissions, and fuel economy standards.

We maintain numerous state-of-the-art technology centers, dedicated to the development and testing of products and technologies.

The centers are located in Racine, Wisconsin;

The technology centers are located in Racine, Wisconsin;

Grenada, Mississippi;

Allen, Texas;

United Kingdom;

Leeds, United Kingdom;

Pocenia, Italy;

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

During fiscal 2024, we acquired Scott Springfield Manufacturing, a leading manufacturer of air

handling units serving customers in the U.S.

and Canada, and purchased liquid immersion cooling technology from TMGcore, Inc.

Earlier in the fiscal year, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing

units, and heat pumps.

These investments have expanded our data center cooling and indoor air quality product portfolios and are accelerating our strategic growth.

We are actively engaged in integration activities and expect to realize cost and

revenue synergies.

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

In addition, we have a dedicated team focused on products and

solutions for electric vehicles, supporting demands for climate-friendly alternative powertrains.

We have provided our general managers with the tools that they need to be successful, including dedicated resources to create an entrepreneurial

environment and to challenge the status quo.

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

and Canada, into our Modine businesses.

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

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

Operational and Financial Discipline

We are using 80/20 principles to guide our path forward toward commercial excellence.

Through closely analyzing our customer and product data with our 80/20 mindset, we focus our commercial and operational actions in areas

that drive our profitability and also in areas requiring improvement.

Our Climate Solutions and Performance Technologies segments have strategically aligned their teams around their primary market-based verticals and are driving transformative

The general manager for each vertical is working toward strategic objectives specifically tailored to his or her business and we expect these strategies will continue to generate earnings and cash flow improvements.

Through closely analyzing our customer and product data, we are focusing our commercial and operational actions in areas that drive increased profitability and also in areas requiring improvement.

Our Climate Solutions and Performance Technologies segments have embraced the tenets of 80/20 and are driving transformative change.

Our fiscal 2025 annual cash incentive plan for our management team was based upon two performance metrics:

growth in net earnings before interest, taxes, depreciation, amortization, and certain other adjustments

(“Adjusted EBITDA”) and Adjusted EBITDA margin as a percentage of net sales .

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

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

In addition, we

provide a long-term incentive compensation plan for officers and certain key leaders throughout our organization to attract, retain, and motivate these employees who are responsible for driving the long-term success of our company.

The fiscal 2024

plan is comprised of restricted stock awards and performance-based share awards.

The performance-based awards for the fiscal 2024 through 2026 performance period are based upon a target three-year average growth

in Adjusted EBITDA and a target three-year average cash flow return on invested capital.

In addition, we provide a long-term incentive compensation plan for officers and certain key leaders throughout our organization to attract, retain, and motivate these employees who are responsible for driving the long-term success of our Company.

The fiscal 2025 plan is comprised of performance-based share awards and restricted stock awards.

The performance-based awards for the fiscal 2025 through 2027 performance period are based upon a target three-year average growth in Adjusted EBITDA and a target three-year average cash flow return on invested capital.

Segment Information – Strategy, Market Conditions and Trends

Each of our operating segments is managed by a segment president and has separate strategic and financial plans and financial results which are reviewed by our chief operating decision maker.

These plans and results are used by management to

evaluate the performance of each segment and to make decisions on the allocation of resources.

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 HVAC&R markets and customers.

expect that unifying these compl e mentary businesses will allow us to better focus

resources on targeted growth and allow for a more efficient application of 80/20 principles to optimize profit margins and cash flow.

Each of our operating segments has separate strategic and financial plans.

Segment financial results are reviewed by our CODM.

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

Climate Solutions (55 percent of fiscal 2025 net sales)

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

The Climate Solutions

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

Heat transfer products include heat

transfer coils used in commercial and residential HVAC &R applications.

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, CRAC and CRAH units, and fan walls.

We sell our products and solutions both directly to commercial and industrial OEM and end user customers and through wholesalers,

distributors, consulting engineers, contractors and data center operators for applications such as data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing facilities, and other commercial and industrial

applications.

During fiscal 2024, Climate Solutions segment sales increased compared with the prior year, primarily driven by higher sales of data center cooling products, partially offset by lower sales of heat transfer products, largely due to market weakness

and our strategic exit from lower margin business in connection with 80/20 product rationalization initiatives.

We executed on strategic growth opportunities in areas where we see the best return profiles, including for our Data Center Cooling and

Indoor Air Quality businesses.

During the fourth quarter of fiscal 2024, we completed the acquisition of Scott Springfield Manufacturing, a leading manufacturer of air handling units serving customers in the U.S.

and Canada, and purchased liquid

immersion cooling technology from TMGcore, Inc.

Earlier in the fiscal year, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units, and heat pumps.

These investments have expanded our data center cooling and

indoor air quality product portfolios and are accelerating our strategic growth.

Looking ahead, we are excited about the growth opportunities in key markets served by the Climate Solutions segment.

We expect particularly strong growth in the data center markets during fiscal 2025, as the need for digital infrastructure

continues to expand.

Through our recent acquisition and investment in liquid immersion cooling technology, we are expanding our product portfolio to support our customers with data center cooling solutions as they manage the demands of high

performance computing.

In addition, we are working to expand our production capacity for data center cooling products and have purchased a new manufacturing site in the U.K.

We also expect the North American

school and commercial HVAC markets, to which we sell our indoor air quality products, will experience strong growth during fiscal 2025, driven by federal and local funding for ventilation improvements for schools.

In addition, after European

regulatory changes and delays this past year, we expect stronger growth in the residential heat pump market in the second half of fiscal 2025 and our manufacturing facilities are poised to support higher production levels.

In fiscal 2025, we will continue to utilize an 80/20 mindset across our Climate Solutions businesses.

We are focused on engaging with key customers and are pursuing strategic growth opportunities to gain market share, particularly within the North

American data center, school and commercial HVAC markets.

We are also focused on growing our refrigeration sales and believe we can become a market leader in more environmentally friendly carbon dioxide gas coolers and adiabatic solutions in North

America and Europe.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Performance Technologies (45 percent of fiscal 2025 net sales)

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

mission critical power (Gensets), increase fuel economy and lower emissions in light of increasingly stringent government regulations.

The Performance Technologies segment designs and manufactures air- and liquid-cooled heat exchangers for vehicular,

stationary power, and industrial applications.

The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that provide mission critical energy for a variety of end market applications.

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

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

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

Liquid-cooled

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

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

range and vehicle life, to zero-emission and hybrid commercial vehicle, off-highway machine and automotive customers.

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

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

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

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

During fiscal 2024, Performance Technologies segment sales increased compared with the prior year, primarily driven by higher average selling prices and the favorable impact of foreign currency exchange rates.

Compared with the prior

year, sales of air-cooled, liquid-cooled, and advanced solutions products each increased.

In fiscal 2024, we focused on applying 80/20 principles to our businesses.

The Performance Technologies team sharpened their commercial acumen and made strong

progress in simplifying their businesses, and achieved improvements in the segment’s profit margins as a result.

We also completed the sale of three automotive businesses based in Germany to support our strategic prioritization of resources towards higher-margin technologies, and also sold two coatings spray application facilities in the U.S.

In addition, we are working towards closing a technical service center

in Germany to optimize the utilization of our global technical service center capacity.

Looking ahead, we are excited about the growth opportunities in key markets served by the Performance Technologies segment and the

benefits expected to be achieved as management continues to apply 80/20 principles across the segment’s businesses.

Our Advanced Solutions business is dedicated to increasing the performance, durability, and longevity of zero-emission vehicles.

The Advanced Solutions business is focused on market penetration and recently announced an important partnership with Bosch Rexroth, a recognized leader in drive and

control technologies, to bring our EV antage™ thermal management systems to their portfolio of products to provide solutions for electrified off-highway machinery.

believe government policies in the U.S.

and Europe will drive customer investments in electric and alternative powertrains and will support market growth in this area.

In addition, our Air-Cooled Applications business is focused on growing the sales

of Gensets and are offering both aluminum and copper-brass heat exchanger modules.

We believe our aluminum Gensets have both a cost and performance advantage and are prioritizing resources to capitalize on sales growth opportunities related to new

data center construction and demand for Gensets for hospitals and airports.

We will continue applying an 80/20 mindset to achieve further manufacturing efficiencies and to further simplify our business.

We are focusing our resources on higher margin

products and actively working on product line simplification initiatives and expect to achieve incremental improvements to the Performance Technologies segment’s profit margins as a result.

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

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

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

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

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

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

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

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

Consolidated Results of Operations

Fiscal 2024 acquisitions

On July 1, 2023, we acquired substantially all of the net operating assets of Napps for consideration totaling $6 million.

Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps.

This acquisition

expands our indoor air quality product portfolio and supports our growth strategy and mission of improving indoor air quality.

Napps has historical annual sales of approximately $5 million.

Since the date of the acquisition, we have reported the

financial results of the Napps business within the Climate Solutions segment.

On March 1, 2024, we acquired all of the issued and outstanding shares in the capital of Scott Springfield Manufacturing for consideration totaling $184 million.

Scott Springfield Manufacturing is a Canadian-based manufacturer of air- handling

This acquisition expands our data center and indoor air quality product portfolios and manufacturing footprint and supports our growth strategy.

Prior to being acquired by us, Scott Springfield Manufacturing reported $110 million of net sales

during the year ended December 31, 2023.

Since the date of the acquisition, we have reported the financial results of the Scott Springfield Manufacturing within the Climate Solutions segment.

Fiscal 2024 dispositions

On September 19, 2023, we sold two coatings facilities, located in California and Florida, to Protecall, LLC.

These facilities provide aftermarket application services, in which HVAC units are sprayed with an anti-corrosion protective coating.

other coatings businesses continue to own and license spray-applied coatings used in aftermarket applications and are strategically pursuing growth through product licensing arrangements.

Prior to the disposition, we reported the financial results of

these businesses within the Performance Technologies segment.

In fiscal 2023, net sales of these two businesses totaled $6 million.

As a result of this transaction, we recorded a gain on sale of less than $1 million during the second quarter of

On October 31, 2023, we sold three automotive businesses based in Germany to affiliates of Regent, L.P.

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.

Prior to the disposition, we reported the financial results of these businesses within the Performance Technologies segment.

During fiscal 2024

and 2023, net sales of these three businesses totaled $54 million and $79 million, respectively.

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

Acquisitions and dispositions

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

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

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

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

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

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

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

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

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

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

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

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

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

We paid $11 million upon transaction closing.

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

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

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

Fiscal 2025 highlights

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

Cost of sales decreased $27 million, or 1 percent, primarily due to lower

material costs and improved operating efficiencies.

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

Cost of sales increased $58 million, or 3 percent.

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

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

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

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

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

Fiscal 2024 highlights

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

Cost of sales increased $168 million, or 10 percent, primarily due to

higher sales volume and higher raw material costs.

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

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

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

Operating income of $150 million during fiscal 2023 increased $31 million from the prior year, primarily due to higher gross profit, partially offset by the absence of a $56 million net impairment reversal recorded in the prior year related to the

liquid-cooled automotive business.

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

The following table presents our consolidated financial results on a comparative basis for fiscal years 2025, 2024 and 2023.

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Restructuring expenses

Impairment charges (reversals) - net

(Gain) loss on sale of assets

Gain on sale of assets

Operating income

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

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

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

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

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

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

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

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

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

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

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

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

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

These increases were partially offset by lower environmental charges related to a previously-closed manufacturing facility in the U.S.

and lower costs directly associated with the acquisition and integration of Scott Springfield Manufacturing.

The environmental charges and acquisition-related costs were recorded at Corporate and both decreased $2 million compared with the prior year.

Restructuring expenses during 2025 increased $13 million compared with the prior year, primarily due to higher severance expenses and product line transfer costs in the Performance Technologies and Climate Solutions segments.

We recorded a $4 million gain on sale at Corporate during fiscal 2024 as a result of the sale of three automotive businesses based in Germany.

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

Interest expense in fiscal 2025 increased $2 million compared with the prior 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 $69 million and $51 million in fiscal 2025 and 2024, respectively.

The $18 million increase was primarily due to higher earnings and the absence of a $3 million income tax benefit recorded in fiscal 2024 related to the sale of three automotive businesses in Germany.

These drivers, which increased the provision for income taxes, were partially offset by changes in the mix and amount of foreign and U.S.

earnings in the current year compared to the prior year.

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

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

Sales in the Performance

Technologies and Climate Solutions segments increased $62 million and $43 million, respectively.

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

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

These decreases were partially

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

In addition, cost of sales was negatively impacted by an inventory purchase accounting adjustment of $2 million recorded at

Corporate related to the acquisition of Scott Springfield Manufacturing.

As a percentage of sales, cost of sales decreased 490 basis points to 78.2 percent, primarily due to the favorable impact of higher sales, lower material costs, and improved

operating efficiencies, partially offset by higher labor and inflationary costs.

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

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

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

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

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

The increase in SG&A expenses was primarily driven by higher compensation-related expenses, which

increased approximately $22 million, and increases across other general and administrative expenses, such as higher product development costs, professional service fees, and employee travel expenses.

The compensation-related expenses included higher

incentive compensation expenses driven by improved financial results, as compared with the prior year.

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

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

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

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

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

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

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

acquisition of Scott Springfield Manufacturing, partially offset by the absence of $1 million of costs recorded in the prior year related to a credit agreement amendment.

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

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

The $79 million change was primarily due to the absence of a $57 million income tax benefit recorded in the prior

year related to the reversal of the valuation allowance on certain deferred tax assets in the U.S.

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

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

These drivers, which increased the provision for income taxes, were partially

offset by a $3 million income tax benefit recorded in fiscal 2024 related to the sale of three automotive businesses in Germany.

Year ended March 31, 2023 compared with year ended March 31, 2022

Fiscal 2023 net sales of $2,298 million were $248 million, or 12 percent, higher than the prior year, primarily due to higher sales volume in both of our segments and higher average selling prices, including adjustments in response to raw material

price increases.

These increases were partially offset by a $111 million unfavorable impact of foreign currency exchange rates.

Sales in the Performance Technologies and Climate Solutions segments increased $144 million and $101 million,

respectively.

Fiscal 2023 cost of sales of $1,909 million increased $168 million, or 10 percent, primarily due to higher sales volume and higher raw material prices, which increased $34 million.

These increases were partially offset by a $95 million favorable

impact of foreign currency exchange rates.

As a percentage of sales, cost of sales decreased 180 basis points to 83.1 percent, primarily due to the favorable impact of higher sales, partially offset by higher material, labor and other inflationary

As a result of higher sales and lower cost of sales as a percentage of sales, fiscal 2023 gross profit increased $80 million and gross margin improved 180 basis points to 16.9 percent.

Fiscal 2023 SG&A expenses increased $19 million, yet decreased 30 basis points as a percentage of sales.

The higher SG&A expenses were primarily driven by higher compensation-related expenses, which increased $20 million and included higher

incentive compensation and commission-related expenses, and, to a lesser extent, increases in other general and administrative expenses that have been impacted by inflationary market conditions.

These increases were partially offset by an $8 million

favorable impact of foreign currency exchange rates.

In addition, strategic reorganization costs, costs associated with our review of strategic alternatives for our automotive businesses, and environmental charges related to a previously-closed

manufacturing facility in the U.S., which are each recorded at Corporate, decreased $3 million, $2 million, and $2 million, respectively, during fiscal 2023 compared with the prior year.

Restructuring expenses of $5 million in fiscal 2023 decreased $19 million compared with the prior year, primarily due to lower severance-related expenses in the Performance Technologies segment.

The net impairment reversal of $56 million during fiscal 2022 primarily related to the liquid-cooled automotive business within the Performance Technologies segment.

In connection with the termination of an agreement to sell this business, we

reversed a significant amount of previously-recorded impairment charges during fiscal 2022.

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

As a result of the sale, we recorded a $7 million loss on sale at Corporate during fiscal 2022.

Operating income of $150 million during fiscal 2023 increased $31 million from the prior year, primarily due to an $80 million increase in gross profit, a $19 million decrease in restructuring expenses, and the absence of the $7 million loss on the

sale of the Austrian air-cooled automotive business in the prior year.

These drivers, which favorably impacted operating income in fiscal 2023, were partially offset by the absence of the $56 million net impairment reversal recorded in the prior year

and higher SG&A expenses.

Interest expense in fiscal 2023 increased $5 million compared with the prior year, primarily due to unfavorable changes in interest rates.

In addition, we amended and extended our U.S.

credit agreement that provides for a multi-currency revolving

credit facility and U.S.

dollar- and euro- denominated term loans maturing in October 2027, along with shorter-duration swingline loans.

In connection with this credit agreement modification, we recorded $1 million of costs as interest expense during

The benefit for income taxes was $28 million in fiscal 2023, compared with a provision for income taxes of $15 million in fiscal 2022.

The $43 million change was primarily due to a $57 million income tax benefit recorded in fiscal 2023 related to

the reversal of the valuation allowance on certain deferred tax assets in the U.S., partially offset by the absence of a net $11 million income tax benefit related to valuation allowances on deferred tax assets in foreign jurisdictions in the prior

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

Segment Results of Operations

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

leadership of the Climate Solutions segment.

Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar HVAC&R markets and customers.

expect that unifying these compl e mentary businesses will allow us to better focus resources on targeted growth and allow for a more efficient application of 80/20

principles to optimize profit margins and cash flow.

Beginning for fiscal 2025, we will report financial results under the new segment structure.

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

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

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

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

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

Climate Solutions

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

Climate Solutions net sales increased $43 million, or 4 percent, in fiscal 2024 compared with the prior year, primarily due to higher sales volume and a $14

million favorable impact of foreign currency exchange rates.

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

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

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

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

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

These increases were partially offset by lower warranty expense, which decreased $4 million, and improved operating efficiencies.

As a percentage of sales, cost of sales decreased 210 basis points to 71.1 percent, primarily due to favorable sales mix and the favorable impact of commercial pricing settlements.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $119 million and gross margin improved 210 basis points to 28.9 percent.

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

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

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

Restructuring expenses increased $3 million in fiscal 2025, primarily due to higher severance expenses and costs related to transferring production and warehousing for certain product lines.

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

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

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

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

Compared with the prior year, sales of data

center cooling products increased $120 million, primarily due to higher sales to both hyperscale and colocation customers.

Sales of heat transfer and HVAC& R

products decreased $77 million and $1 million, respectively.

The decrease in sales of heat transfer products was largely due to market weakness and lower customer demand compared with the prior year and the strategic exit from lower-margin business

in connection with 80/20 product rationalization initiatives.

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

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

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

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

These decreases were partially offset by increases

resulting from higher sales volume, a $10 million unfavorable impact of foreign currency exchanges rates, and higher labor and inflationary costs and warranty expenses.

As a percentage of sales, cost of sales decreased 400 basis points to 73.9

percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.

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

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

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

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

The increase in SG&A expenses includes higher compensation-related expenses and

increases across other general and administrative expenses.

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

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

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

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

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

Year ended March 31, 2023 compared with year ended March 31, 2022

Climate Solutions net sales increased $101 million, or 11 percent, in fiscal 2023 compared with the prior year, primarily due to higher sales volume and

higher average selling prices.

These increases were partially offset by a $52 million unfavorable impact of foreign currency exchange rates.

Compared with the prior year, sales of data center cooling, heat transfer, and HVAC& R products increased $36 million, $36 million, and $30 million, respectively.

Climate Solutions cost of sales increased $44 million, or 6 percent, in fiscal 2023, primarily due to higher sales volume, partially offset by a $44 million favorable impact of foreign currency exchange rates.

As a percentage of sales, cost of

sales decreased 380 basis points to 77.9 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies, partially offset by higher labor and inflationary costs.

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $58 million and gross margin improved 380 basis points to 22.1 percent.

Climate Solutions SG&A expenses increased $7 million compared with the prior year, yet decreased 30 basis points as a percentage of sales.

The increase in SG&A expenses was primarily due to a $5 million increase in compensation-related

expenses, including commission expenses, and increases in other general and administrative expenses that have been impacted by inflationary market conditions.

These increases were partially offset by a $4 million favorable impact of foreign currency

exchange rate changes.

Restructuring expenses totaling $2 million during fiscal 2023 were consistent with the prior year and primarily consisted of severance-related expenses.

Operating income in fiscal 2023 increased $51 million to $124 million, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Performance Technologies

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Restructuring expenses

Impairment charges (reversals) - net

Operating income

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

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

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

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

Sales of advanced solutions products increased $3 million.

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

In addition, cost of sales was favorably impacted, to a lesser extent, by improved operating efficiencies and lower raw material costs, which decreased $9 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 240 basis points to 80.2 percent, primarily due to higher average selling prices, improved operating efficiencies, lower material costs, and the favorable impact of 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 margin improved 240 basis points to 19.8 percent.

Gross profit of $230 million was consistent compared with the prior year.

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

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

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

Restructuring expenses during fiscal 2025 totaled $20 million, an increase of $8 million compared with the prior year, primarily due to higher severance expenses in North America and product line transfer costs.

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

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

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

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

Sales of advanced solutions, air-cooled and liquid-cooled products increased $37

million, $23 million, and $8 million, respectively.

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

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

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

These decreases were partially offset by higher labor and

inflationary costs and a $12 million unfavorable impact of foreign currency exchange rates.

As a percentage of sales, cost of sales decreased 560 basis points to 81.8 percent, primarily due to the favorable impact of higher sales and lower material

costs, partially offset by higher labor and inflationary costs.

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

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

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

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

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

compensation-related expenses, which increased $10 million, and increases across other general and administrative expenses.

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

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

Operating income in fiscal 2024 increased $54 million to $112 million, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.

Year ended March 31, 2023 compared with year ended March 31, 2022

Performance Technologies net sales increased $144 million, or 12 percent, in fiscal 2023 compared with the prior year, primarily due to higher sales volume and higher average selling prices, including adjustments in response to raw material price

These increases were partially offset by a $59 million unfavorable impact of foreign currency exchange rates and, to a lesser extent, the absence of sales from the Austrian air-cooled automotive business, which we sold on April 30, 2021.

Sales of air-cooled, liquid-cooled, and advanced solutions products increased $86 million, $36 million, and $25 million, respectively.

Performance Technologies cost of sales increased $120 million, or 12 percent, primarily due to higher sales volume and higher raw material prices, which increased $29 million.

In addition, to a lesser extent, higher labor costs and higher

depreciation expenses negatively impacted cost of sales.

During fiscal 2022, we did not depreciate the held for sale property, plant and equipment assets within the liquid-cooled automotive business until they reverted back to held and used

classification during the third quarter of fiscal 2022.

These increases were partially offset by a $52 million favorable impact of foreign currency exchange rates.

As a percentage of sales, cost of sales decreased 50 basis points to 87.4 percent, primarily due to the favorable impact of higher sales volume and higher average selling prices, partially offset by higher material, labor and inflationary costs .

As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $24 million and gross margin improved 50 basis points to 12.6 percent.

Performance Technologies SG&A expenses decreased $1 million compared with the prior year.

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

The decrease in SG&A expenses was primarily due to a $4 million favorable

impact of foreign currency exchange rate changes and, to a lesser extent, lower compensation-related expenses, partially offset by higher general and administrative expenses that have been impacted by inflationary market conditions.

Restructuring expenses during fiscal 2023 totaled $3 million, a decrease of $19 million compared with the prior year.

This decrease was primarily driven by lower severance expenses in Europe for targeted headcount reductions.

The net impairment reversal of $56 million in fiscal 2022 primarily related to assets in our liquid-cooled automotive business.

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

Operating income in fiscal 2023 decreased $11 million to $66 million, primarily due to the absence of the significant net impairment reversal recorded in the prior year, partially offset by higher gross profit and lower restructuring expenses.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of March 31, 2025 of $72 million, and an available borrowing capacity of $239 million under our revolving credit facility.

extensive international operations, approximately $53 million of our cash and cash equivalents are held by our non-U.S.

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

subsidiaries.

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subsidiaries are available for general corporate use;

however, these funds may be subject to

foreign withholding taxes if repatriated.

however, these funds may be subject to foreign withholding taxes if repatriated.

We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.

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

contribute approximately $9 million to our global pension plans during fiscal 2025.

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

pension plan.

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

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

Operating activities

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

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

This increase in operating cash flow was primarily due to the favorable impact of higher earnings and, to a

lesser extent, favorable net changes in working capital as compared with the prior year.

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

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

Net cash provided by operating activities in fiscal 2023 was $108 million, an increase of $96 million from $12 million in the prior year.

This increase in operating cash flow was primarily due to the favorable impact of higher earnings and

favorable net changes in working capital, as compared with the prior year.

Investing activities

Capital expenditures

Capital expenditures of $88 million during fiscal 2024 increased $37 million compared with fiscal 2023.

Our capital spending in fiscal 2024 in the Climate Solutions and Performance Technologies segments totaled $51 million and $36 million,

respectively.

Capital spending in the Climate Solutions segment includes investments supporting our strategic growth initiatives.

We are growing our data center business and recently purchased a new manufacturing site in the U.K., where we plan to

expand production capacity for data center cooling products.

In addition, we opened a second facility in Serbia and are manufacturing coils for commercial and residential heat pump applications.

Capital expenditures in the Performance Technologies

segment include tooling and equipment purchases in conjunction with new and renewal programs with customers.

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

Our capital spending in fiscal 2025 in the Climate Solutions and Performance Technologies segments totaled $53 million and $30 million, respectively.

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

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

Business and asset acquisitions

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

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

These investments

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

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

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

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

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

Financing activities

Our total debt outstanding increased $79 million to $432 million at March 31, 2024 compared with the prior year, primarily due to incremental borrowings on our revolving credit facility, which we used to fund a portion of the purchase price of Scott

Springfield Manufacturing.

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

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

Indebtedness under our credit agreements is

secured by liens on substantially all domestic assets.

Indebtedness under our credit agreements is secured by liens on substantially all domestic assets.

These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness;

make investments, loans, or guarantees;

certain transactions with affiliates;

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.

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.

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 March 31, 2025, we were in compliance with our debt covenants.

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

Share repurchase program

We repurchased $13 million and $7 million of our common stock during fiscal 2024 and 2023, respectively.

As of March 31, 2024, we had $32 million of authorized share repurchases remaining under our current repurchase program, which expires in

November 2024.

Share repurchase programs

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

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

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

Our decision whether and to what extent to repurchase additional shares depends on a number of factors, including business conditions, other cash priorities, and stock price.

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The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.

Application of these policies results in accounting estimates that have the greatest potential

for a significant impact on our financial statements.

Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.

The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.

addition, recently issued accounting pronouncements that either have or could materially impact our financial statements are disclosed in Note 1 of the Notes to Consolidated Financial Statements.

In addition, recently issued accounting pronouncements that either have or could materially impact our financial statements are disclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue recognition

We recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.

The majority of our revenue is

recognized at a point in time, based upon shipment terms.

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

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

For these contracts, we recognize revenue over time based upon our

estimated progress toward the satisfaction of the contract’s performance obligations.

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

We record an allowance for credit losses and we accrue for estimated warranty costs at the time of sale.

We base these estimates upon historical experience, current

business trends and economic conditions, and risks specific to the underlying accounts receivable or warranty claims.

We base these estimates upon historical experience, current business trends and economic conditions, and risks specific to the underlying accounts receivable or warranty claims.

Impairment of long-lived assets

We perform impairment evaluations of long-lived assets, including property, plant and equipment and intangible assets, whenever business conditions or events indicate that those assets may be impaired.

We consider factors such as operating losses,

declining financial outlooks and market conditions when evaluating the necessity for an impairment analysis.

In the event the net asset values exceed undiscounted cash flows expected to be generated by the assets, we write down the assets to fair

value and record an impairment charge.

We consider factors such as operating losses, declining financial outlooks and market conditions when evaluating the necessity for an impairment analysis.

In the event the net asset values exceed undiscounted cash flows expected to be generated by the assets, we write down the assets to fair value and record an impairment charge.

We estimate fair value in various ways depending on the nature of the underlying assets.

Fair value is generally based upon appraised value, estimated salvage value, or selling prices under negotiation, as

Fair value is generally based upon appraised value, estimated salvage value, or selling prices under negotiation, as applicable.

The most significant long-lived assets we evaluated for impairment indicators were property, plant and equipment and intangible assets, which totaled $391 million and $147 million, respectively, at March 31, 2025.

Within property, plant and

equipment, the most significant assets evaluated are buildings and improvements and machinery and equipment.

Our most significant intangible assets evaluated are customer relationships, trade names, and acquired technology.

The majority of our

intangibles assets are related to our Climate Solutions segment and include $102 million of intangibles recently recorded from our acquisition of Scott Springfield Manufacturing.

We evaluate impairment at the lowest level of separately identifiable

cash flows, which is generally at the manufacturing plant level.

Within property, plant and equipment, the most significant assets evaluated are buildings and improvements and machinery and equipment.

Our most significant intangible assets evaluated are customer relationships, trade names, and acquired technology, all of which are related to our Climate Solutions segment.

We evaluate impairment at the lowest level of separately identifiable cash flows, which is generally at the manufacturing plant level.

We monitor manufacturing plant financial performance to determine whether indicators exist that would require an impairment evaluation for the facility.

This includes significant

adverse changes in plant profitability metrics;

This includes significant adverse changes in plant profitability metrics;

substantial changes in the mix of customer products manufactured in the plant;

changes in manufacturing strategy;

and the shifting of programs to other facilities under a manufacturing realignment

and the shifting of programs to other facilities under a manufacturing realignment strategy.

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

During fiscal 2022, we recorded a net impairment reversal of $56 million, primarily related to assets that were held for sale in the Performance Technologies segment.

In fiscal 2022, we adjusted the long-lived assets in the liquid-cooled automotive

business to the lower of carrying or fair value when they no longer met the held for sale classification criteria.

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

Impairment of goodwill

We perform goodwill impairment tests annually, as of March 31, unless business events or other conditions exist that require a more frequent evaluation.

We consider factors such as operating losses, declining financial and market outlooks, and

market capitalization when evaluating the necessity for an interim impairment analysis.

We perform goodwill impairment tests annually, as of the end of February, unless business events or other conditions exist that require a more frequent evaluation.

We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.

We test goodwill for impairment at a reporting unit level.

Goodwill resulting from recent acquisitions generally represents the highest risk of impairment, which

typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.

Goodwill resulting from recent acquisitions generally represents the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.

We test goodwill for impairment by comparing the fair value of each reporting unit with its carrying value.

determine the fair value of a reporting unit based upon the present value of estimated future cash flows.

We determine the fair value of a reporting unit based upon the present value of estimated future cash flows.

If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, goodwill is not impaired.

However, if the

carrying value of the reporting unit’s net assets exceeds its fair value, we would conclude goodwill is impaired and would record an impairment charge equal to the amount that the reporting unit’s carrying value exceeds its fair value.

Determining the fair value of a reporting unit involves judgment and the use of estimates and assumptions, which include assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows and

risk-adjusted discount rates.

We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our

expectations of future business performance.

However, if the carrying value of the reporting unit’s net assets exceeds its fair value, we would conclude goodwill is impaired and would record an impairment charge equal to the amount that the reporting unit’s carrying value exceeds its fair value.

The discount rates used in determining discounted cash flows are rates corresponding to our cost of capital, adjusted for country- and business-specific risks where appropriate.

While we believe the

assumptions used in our goodwill impairment tests are appropriate and result in a reasonable estimate of the fair value of each reporting unit, future events or circumstances could have a potential negative effect on the estimated fair value of our

reporting units.

While we believe the assumptions used in our goodwill impairment tests are appropriate and result in a reasonable estimate of the fair value of each reporting unit, future events or circumstances could have a potential negative effect on the estimated fair value of our reporting units.

These events or circumstances include lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and continued inflationary market conditions.

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

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

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

We conducted goodwill impairment tests as of March 31, 2024 by applying a fair value-based test and determined the fair value of the reporting units in each of our operating segments exceeded

their respective book value.

We conducted goodwill impairment tests as of February 28, 2025 by applying a fair value-based test and determined the fair value for each of our reporting units exceeded the respective book value.

A 10 percent decrease in the estimated fair value of each reporting unit would not have resulted in a different conclusion.

From time to time, we make strategic acquisitions that have a material impact on our consolidated results of operations or financial position.

We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets

acquired and liabilities assumed in the transaction based upon their estimated fair values as of the acquisition date.

We determine the estimated fair values using information available to us and engage third-party valuation specialists when

We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed in the transaction based upon their estimated fair values as of the acquisition date.

We determine the estimated fair values using information available to us and engage third-party valuation specialists when necessary.

The estimates we use to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments.

While we use our best estimates and assumptions, our estimates are inherently uncertain and

subject to refinement.

While we use our best estimates and assumptions, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon conclusion

of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statement of operations.

We also estimate the useful lives of

intangible assets to determine the amount of amortization expense to record in future periods.

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

During fiscal 2024, we acquired Scott Springfield Manufacturing and Napps.

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

Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statement of operations.

We also estimate the useful lives of intangible assets to determine the amount of amortization expense to record in future periods.

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

Pension obligations

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At March 31, 2025, our global pension liabilities totaled $30 million.

The most significant assumptions include the discount rate, expected

return on plan assets, and mortality rates.

We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.

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

We base our selection of these assumptions on historical trends and economic and market conditions at the time of valuation.

In accordance with U.S.

GAAP, actual results that differ from these assumptions are

accumulated and amortized over future periods.

GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.

These differences impact future pension expense.

Our domestic pension plans are closed to new participants;

therefore, participants in these plans are not accruing benefits based upon their current

service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

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

The primary non-U.S.

plans are maintained in Germany and

Italy and are also closed to new participants and are substantially unfunded.

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

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

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

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

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

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

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

To determine the expected rate of return on pension plan assets, we consider such factors as ( i ) the actual return earned on plan assets, ( ii ) historical rates of return on the various asset classes in the plan portfolio, ( iii ) projections of returns on those asset classes, ( iv ) the amount of active

management of the assets, ( v ) capital market conditions and economic forecasts, and ( vi )

administrative expenses paid with the plan assets.

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

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

For fiscal 2025, we have assumed a rate of 5.5 percent.

A change of 25 basis

points in the expected rate of return on plan assets would impact our fiscal 2025 pension expense by less than $1 million.

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

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

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

For fiscal 2024 and 2023, for purposes of determining pension expense, we used a discount rate of 5.2 percent and 3.9

percent, respectively.

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

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

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

change in the assumed discount rate of 25 basis points would impact our fiscal 2025 pension expense and projected benefit obligation by less than $1 million and approximately $4 million, respectively.

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

We operate in numerous taxing jurisdictions;

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taxing authorities.

Due to the application of complex and sometimes ambiguous tax laws and rulings in the jurisdictions in

which we do business, there is an inherent level of uncertainty within our worldwide tax provisions.

Despite our belief that our tax return positions are consistent with applicable tax laws, it is possible that taxing authorities could challenge

certain positions.

Due to the application of complex and sometimes ambiguous tax laws and rulings in the jurisdictions in which we do business, there is an inherent level of uncertainty within our worldwide tax provisions.

Despite our belief that our tax return positions are consistent with applicable tax laws, it is possible that taxing authorities could challenge certain positions.

Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes.

We adjust these amounts to reflect changes in tax rates expected to be in effect when the

temporary differences reverse.

We adjust these amounts to reflect changes in tax rates expected to be in effect when the temporary differences reverse.

We record a valuation allowance if we determine it is more likely than not that the net deferred tax assets in a particular jurisdiction will not be realized.

This determination, which is made on a legal entity-by-legal

entity basis, involves judgment and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.

We believe the assumptions that we used are appropriate and result in a reasonable

determination regarding the future realizability of deferred tax assets.

However, future events or circumstances, such as lower-than-expected taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions,

could cause us to record additional valuation allowances.

This determination, which is made on a legal entity-by-legal entity basis, involves judgment and the use of estimates and assumptions, including expectations of future taxable income and tax planning strategies.

We believe the assumptions that we used are appropriate and result in a reasonable determination regarding the future realizability of deferred tax assets.

However, future events or circumstances, such as lower-than-expected taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could cause us to record additional valuation allowances.

See Note 8 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

Loss reserves

We maintain liabilities and reserves for a number of loss exposures, including environmental remediation costs, product warranties, self-insurance costs, estimated credit losses associated with trade receivables, regulatory compliance matters, and

Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.

We estimate these reserve requirements by using consistent and suitable

methodologies for the particular type of loss reserve being calculated.

We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.

See Notes 15 and 20 of the Notes to Consolidated Financial Statements for additional information regarding product warranties and contingencies and litigation, respectively.

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This report, including, but not limited to, the discussion under Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance,

accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995.

Modine’s actual results,

performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A.

of this report

and identified in our other public filings with the U.S.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995.

Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A.

of this report and identified in our other public filings with the U.S.

Securities and Exchange Commission.

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

The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, supply chain challenges, tariffs, sanctions and other trade issues or cross-border

trade restrictions (and any potential resulting trade war), and military conflicts, including the current conflicts in Ukraine and in the Middle East and heightened 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;

increases in interest rates;

● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, government incentive or funding programs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions, and military conflicts, including the conflicts in Ukraine and in the Middle East and tension in the Red Sea;

● The impact of other economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including foreign currency exchange rate fluctuations;

changes in interest rates;

recession and recovery therefrom;

and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented

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.

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 in order to differentiate ourselves from our competitors and provide innovative products and services to our customers, and 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 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.

● 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 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, such as COVID-19, on the national and global economy, our business, suppliers (and the supply chain), customers, and employees;

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.

● The impact of public health threats on the national and global economy, our business, suppliers (and the supply chain), customers, and employees;

● 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 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;

● 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;

● The impact of delays or modifications initiated by major customers with respect to product or program launches, product applications or requirements, or timing of construction or development projects that incorporate our products and services;

● Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine;

● Our ability to effectively and efficiently manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring activities and realizing the anticipated benefits thereof;

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

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● Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;

The impact of a substantial disruption or material breach of our information technology 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;

● The impact of a substantial disruption, including any prolonged service outage, or material breach of our IT systems, and any related delays, problems or costs;

● 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 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;

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.

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

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● Our ability to accelerate growth by identifying and executing on organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses;

● Our ability to successfully exit portions of our business that do not align with our strategic plans.

Business dispositions involve risks, including transaction-related and other costs, damage to or the loss of customer relationships, the diversion of management’s attention from other business concerns, and other effects of litigation, claims, or other obligations, including those that may be asserted against us in connection with disposed businesses.

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;

● 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;

Costs arising from the integration of Scott Springfield Manufacturing and the timing and impact of potential purchase accounting adjustments;

Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by

interest expense, as defined in our credit agreements);

● The impact of changes in federal, state or local tax regulations that could have the effect of increasing our income tax expense;

● Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);

● The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results;

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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-K

Item 7. Management’s Discussion and Analysis