UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549


FORM 10-Q


☑QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended December 31, 20172022


or


☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to ____________


Commission file number 1-1373


MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)


WISCONSIN
Wisconsin		 
39-0482000
(State or other jurisdiction of incorporation or organization)  (I.R.S.(I.R.S. Employer Identification No.)


1500 DeKoven Avenue, Racine, Wisconsin
 
53403
(Address of principal executive offices) (Zip Code)


Registrant'sRegistrant’s telephone number, including area code (262) 636‑1200(262) 636-1200


Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.625 par valueMODNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑    No ☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑    No ☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer  ☐
 
Accelerated Filer  ☑
   
Non-accelerated Filer     ☐
(Do not check if a smaller reporting company)
Smaller reporting company  ☐
   
  
Emerging growth company  ☐


If an emerging growth company, indicate by checkmarkcheck mark if the registrant has elected not elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐    No ☑


The number of shares outstanding of the registrant'sregistrant’s common stock, $0.625 par value, was 50,461,19052,120,189 at January 26, 2018.27, 2023.

Table of Contents
MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS

PART I.FINANCIAL INFORMATION 
 
Item 1.
Financial Statements.
1
 
Item 2.
Management's Management’s Discussion and Analysis of Financial Condition and Results of Operations.
2123
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
3034
 
Item 4.
Controls and Procedures.
3034
   
PART II.OTHER INFORMATION 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
3135
 
Item 5. Other Information.
35
Item 6.
Item 6. Exhibits.
3236
   
SIGNATURE
3337

Table of Contents
PART I.
PART I. FINANCIAL INFORMATION
Item 1.
Item 1. Financial Statements.


MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 31, 20172022 and 20162021
(In millions, except per share amounts)
(Unaudited)


 
Three months ended
December 31,
  
Nine months ended
December 31,
  
Three months ended
December 31,
  
Nine months ended
December 31,
 
 2017  2016  2017  2016  2022  2021  2022  2021 
Net sales $512.7  $349.8  $1,536.5  $1,014.7  $560.0  $502.2  $1,679.8  $1,475.7 
Cost of sales  427.3   290.8   1,276.5   845.4   462.4   427.6   1,402.6
   1,261.6
 
Gross profit  85.4   59.0   260.0   169.3   97.6   74.6   277.2
   214.1
 
Selling, general and administrative expenses  60.8   50.7   182.2   143.1   58.0   50.3   173.1
   161.6
 
Restructuring expenses  9.4   1.6   11.5   6.0   0.1   2.1   2.2
   3.0
 
Impairment charge  1.3   -   1.3   - 
Gain on sale of facility  -   -   -   (1.2)
Impairment charges (reversals) – net  -   (57.2)  -   (55.7)
Loss on sale of assets  -   -   -
   6.6 
Operating income  13.9   6.7   65.0   21.4   39.5   79.4   101.9   98.6 
Interest expense  (6.3)  (4.5)  (19.5)  (10.5)  (5.9)  (3.8)  (14.7)  (11.8)
Other expense – net  (0.3)  (1.0)  (2.3)  (2.8)  (0.4)  (1.1)  (4.1)  (1.6)
Earnings before income taxes  7.3   1.2   43.2   8.1   33.2   74.5   83.1   85.2 
(Provision) benefit for income taxes  (35.2)  0.7   (37.4)  (1.3)
Net (loss) earnings  (27.9)  1.9   5.8   6.8 
Provision for income taxes  (8.5)  (0.1)  (19.8)  (7.4)
Net earnings
  24.7   74.4   63.3   77.8 
Net earnings attributable to noncontrolling interest  (0.4)  (0.2)  (1.2)  (0.6)  (0.2)  (0.3)  (0.1)  (1.0)
Net (loss) earnings attributable to Modine $(28.3) $1.7  $4.6  $6.2 
Net earnings attributable to Modine $24.5  $74.1  $63.2  $76.8 
                                
Net (loss) earnings per share attributable to Modine shareholders:                
Net earnings per share attributable to Modine shareholders:
                
Basic $(0.57) $0.04  $0.09  $0.13  $0.47  $1.42  $1.21  $1.48 
Diluted $(0.57) $0.04  $0.09  $0.13  $0.46  $1.41  $1.20  $1.46 
                                
Weighted-average shares outstanding:                                
Basic  50.0   47.9   49.8   47.3   52.3   52.0   52.2
   51.9
 
Diluted  50.0   48.5   50.6   47.7   52.9   52.4   52.7
   52.5
 


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

1
Table of Contents
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended December 31, 20172022 and 20162021
(In millions)
(Unaudited)


 
Three months ended
December 31,
  
Nine months ended
December 31,
  
Three months ended
December 31,
  
Nine months ended
December 31,
 
 2017  2016  2017  2016  2022  2021  2022  2021 
Net (loss) earnings $(27.9) $1.9  $5.8  $6.8 
Other comprehensive income (loss):                
Net earnings
 $24.7  $74.4  $63.3  $77.8 
Other comprehensive income (loss), net of income taxes:
                
Foreign currency translation  5.0   (14.8)  32.8   (17.7)  23.1   (3.3)  (24.7)  (6.1)
Defined benefit plans, net of income taxes of $0.4, $0.4, $1.3 and $1.3 million  0.9   0.9   2.6   2.6 
Cash flow hedges, net of income taxes of $0.2, $0, $0.2 and $0 million  0.4   -   0.4   - 
Defined benefit plans
  1.3   1.6   4.0
   6.6
 
Cash flow hedges  1.5   0.2   (0.1)  (0.2)
Total other comprehensive income (loss)  6.3   (13.9)  35.8   (15.1)  25.9   (1.5)  (20.8)  0.3 
                                
Comprehensive income (loss)  (21.6)  (12.0)  41.6   (8.3)  50.6   72.9   42.5   78.1 
Comprehensive (income) loss attributable to noncontrolling interest  (0.8)  0.4   (1.6)  (0.1)  (0.8)  (0.4)  0.2   (0.9)
Comprehensive income (loss) attributable to Modine $(22.4) $(11.6) $40.0  $(8.4) $49.8  $72.5  $42.7  $77.2 


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

2
Table of Contents
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 20172022 and March 31, 20172022
(In millions, except per share amounts)
(Unaudited)


 December 31, 2017  March 31, 2017  December 31, 2022  March 31, 2022 
ASSETS
            
Cash and cash equivalents $47.8  $34.2  $82.2  $45.2 
Trade accounts receivable – net  289.0   295.2   347.4   367.5 
Inventories  186.8   168.5   313.6   281.2 
Other current assets  60.0   55.4   64.6   63.7 
Total current assets  583.6   553.3   807.8   757.6 
Property, plant and equipment – net  491.3   459.0   301.0   315.4 
Intangible assets – net  132.5   134.1   82.8   90.3 
Goodwill  172.2   165.1   164.8   168.1 
Deferred income taxes  95.6   108.4   25.6   27.2 
Other noncurrent assets  27.0   29.6   65.0   68.4 
Total assets $1,502.2  $1,449.5  $1,447.0  $1,427.0 
                
LIABILITIES AND SHAREHOLDERS' EQUITY
        
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Short-term debt $53.5  $73.4  $11.3  $7.7 
Long-term debt – current portion  37.9   31.8   19.6   21.7 
Accounts payable  243.7   230.3   302.2   325.8 
Accrued compensation and employee benefits  89.0   74.8   83.2   85.1 
Other current liabilities  44.9   45.1   49.6   54.2 
Total current liabilities  469.0   455.4   465.9   494.5 
Long-term debt  394.5   405.7   358.9   348.4 
Deferred income taxes  9.4   9.7   4.4   5.9 
Pensions  105.7   119.4   43.6   47.2 
Other noncurrent liabilities  52.0   38.1   72.7   72.9 
Total liabilities  1,030.6   1,028.3   945.5   968.9 
Commitments and contingencies (see Note 15)        
Shareholders' equity:        
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none  -   - 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 52.3 million and 51.8 million shares  32.7   32.4 
Commitments and contingencies (see Note 17)  
   
 
Shareholders’ equity:        
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none
  -   - 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 55.3 million and 54.8 million shares
  34.6   34.2 
Additional paid-in capital  227.2   216.4   268.8   261.6 
Retained earnings  377.3   372.4   407.6   344.4 
Accumulated other comprehensive loss  (146.4)  (181.8)  (170.0)  (149.5)
Treasury stock, at cost, 1.8 million and 1.7 million shares  (27.1)  (25.4)
Total Modine shareholders' equity  463.7   414.0 
Treasury stock, at cost, 3.2 million and 2.8 million shares
  (46.1)  (40.0)
Total Modine shareholders’ equity  494.9   450.7 
Noncontrolling interest  7.9   7.2   6.6   7.4 
Total equity  471.6   421.2   501.5   458.1 
Total liabilities and equity $1,502.2  $1,449.5  $1,447.0  $1,427.0 


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

3
Table of Contents
MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31, 20172022 and 20162021
(In millions)
(Unaudited)


 Nine months ended December 31,  Nine months ended December 31, 
 2017  2016  2022  2021 
Cash flows from operating activities:            
Net earnings $5.8  $6.8  $63.3  $77.8 
Adjustments to reconcile net earnings to net cash provided by operating activities:                
Depreciation and amortization  56.8   39.9   40.7   40.4 
Impairment charges (reversals) – net  -   (55.7)
Loss on sale of assets  -   6.6 
Stock-based compensation expense  7.6   6.1   5.0   4.7 
Impairment charge  1.3   - 
Gain on sale of facility  -   (1.2)
Deferred income taxes  10.1   (9.1)  (0.9)  (4.7)
Other – net  6.6   1.5   4.0   2.0 
Changes in operating assets and liabilities:                
Trade accounts receivable  22.3   33.2   5.4   5.8 
Inventories  (10.5)  -   (40.0)  (66.6)
Accounts payable  2.2   (21.1)  (9.3)  24.9 
Other assets and liabilities  3.4   (21.1)  (0.3)  (27.8)
Net cash provided by operating activities  105.6   35.0   67.9   7.4 
                
Cash flows from investing activities:                
Expenditures for property, plant and equipment  (55.0)  (46.0)  (35.2)  (30.7)
Acquisition of Luvata HTS – net of cash acquired  -   (363.9)
Proceeds from dispositions of assets  0.1   4.3 
Proceeds from (payments for) disposition of assets  0.1   (7.6)
Disbursements for loan origination (see Note 1)  -   (4.7)
Other – net  (0.9)  0.4   (0.1)  1.3 
Net cash used for investing activities  (55.8)  (405.2)  (35.2)  (41.7)
                
Cash flows from financing activities:                
Borrowings of debt  121.5   475.4   233.8   278.6 
Repayments of debt  (162.5)  (113.2)  (226.4)  (221.9)
Borrowings (repayments) on bank overdraft facilities – net  4.6   (5.0)
Financing fees paid
  (0.6)  (0.2)
Purchases of treasury stock under share repurchase program  (4.7)  - 
Dividend paid to noncontrolling interest  (0.9)  -   (0.6)  (0.9)
Financing fees paid  -   (8.5)
Other – net  2.7   (0.3)  1.3   (0.4)
Net cash (used for) provided by financing activities  (39.2)  353.4 
Net cash provided by financing activities  7.4   50.2 
                
Effect of exchange rate changes on cash  3.0   (2.1)  (3.1)  (0.7)
Net increase (decrease) in cash and cash equivalents  13.6   (18.9)
Net increase in cash, cash equivalents, and restricted cash
  37.0   15.2 
                
Cash and cash equivalents – beginning of period  34.2   68.9 
Cash and cash equivalents – end of period $47.8  $50.0 
Cash, cash equivalents, and restricted cash – beginning of period  45.4   46.1 
Cash, cash equivalents, and restricted cash – end of period $82.4  $61.3 


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

4
Table of Contents
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three and nine months ended December 31, 2022 and 2021
(In millions)
(Unaudited)

 Common stock  
Additional
paid-in
  Retained  
Accumulated
other
comprehensive
  Treasury stock, at  
Non-
controlling
    
 Shares  Amount   capital  earnings   loss  cost  interest  Total 
Balance, March 31, 2022
  54.8  $34.2  $261.6  $344.4  $(149.5) $(40.0) $7.4  $458.1 
Net earnings
  -   -   -   14.3   -   -   -   14.3 
Other comprehensive loss
  -   -   -   -   (23.8)  -   (0.4)  (24.2)
Stock options and awards  0.1   0.1   -   -   -   -   -   0.1 
Purchase of treasury stock  -   -   -   -   -   (1.7)  -   (1.7)
Stock-based compensation expense  -   -   1.1   -   -   -   -   1.1 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.6)  (0.6)
Balance, June 30, 2022
  54.9  $34.3  $262.7  $358.7  $(173.3) $(41.7) $6.4  $447.1 
Net earnings (loss)
  -   -   -   24.4   -   -   (0.1)  24.3 
Other comprehensive loss
  -   -   -   -   (22.0)  -   (0.5)  (22.5)
Stock options and awards  0.2   0.1   0.9   -   -   -   -   1.0 
Purchase of treasury stock
  -   -   -   -   -   (1.6)  -   (1.6)
Stock-based compensation expense  -   -   2.4   -   -   -   -   2.4 
Balance, September 30, 2022
  55.1  $34.4  $266.0  $383.1  $(195.3) $(43.3) $5.8  $450.7 
Net earnings
  -   -   -   24.5   -   -   0.2   24.7 
Other comprehensive income
  -   -   -   -   25.3  -   0.6   25.9
Stock options and awards  0.2   0.2   1.3   -   -   -   -   1.5 
Purchase of treasury stock  -   -   -   -   -   (2.8)  -   (2.8)
Stock-based compensation expense  -   -   1.5   -   -   -   -   1.5 
Balance, December 31, 2022
  55.3  $34.6  $268.8  $407.6  $(170.0) $(46.1) $6.6  $501.5 

 Common stock  
Additional
paid-in
  Retained  
Accumulated
other
comprehensive
  Treasury stock, at  
Non-
controlling
    
 Shares  Amount   capital  earnings   loss   cost  interest  Total 
Balance, March 31, 2021
  54.3  $33.9  $255.0  $259.2  $(161.2) $(38.2) $7.4  $356.1 
Net earnings
  -   -   -   2.3   -   -   0.5   2.8 
Other comprehensive income
  -   -   -   -   8.0   -   0.2   8.2 
Stock options and awards  0.2   0.1   0.7   -   -   -   -   0.8 
Purchase of treasury stock  -   -   -   -   -   (1.0)  -   (1.0)
Stock-based compensation expense  -   -   1.2   -   -   -   -   1.2 
Dividend paid to noncontrolling interest
  -   -   -   -   -   -   (0.9)  (0.9)
Balance, June 30, 2021
  54.5  $34.0  $256.9  $261.5  $(153.2) $(39.2) $7.2  $367.2 
Net earnings
  -   -
   -
   0.4   -
   -
   0.2
   0.6 
Other comprehensive loss
  -   -
   -
   -
   (6.0)  -
   (0.4)  (6.4)
Stock options and awards  -   0.1   0.1   -   -   -   -   0.2 
Stock-based compensation expense  -   -
   2.4
   -
   -
   -
   -
   2.4
 
Balance, September 30, 2021
  54.5
  $34.1  $259.4  $261.9  $(159.2) $(39.2) $7.0  $364.0 
Net earnings
  -   -
   -
   74.1   -
   -
   0.3
   74.4 
Other comprehensive income (loss)
  -   -
   -
   -
   (1.6)  -
   0.1
   (1.5)
Stock options and awards
  0.1   0.1   -   -   -   -   -   0.1 
Purchase of treasury stock
  -   -   -   -   -   (0.5)  -   (0.5)
Stock-based compensation expense  -   -
   1.1
   -
   -
   -
   -
   1.1
 
Balance, December 31, 2021
  54.6
  $34.2  $260.5  $336.0  $(160.8) $(39.7) $7.4  $437.6 

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

5
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Note 1:
Note 1: General


The accompanying unaudited condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States applied on a basis consistent with those principles used in the preparation of the annual consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the fiscal year ended March 31, 2017, except in regardsinstructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the new accounting guidance adopted, as described below.information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements.  The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.  Results for the first nine months of fiscal 20182023 are not necessarily indicative of the results to be expected for the full year.  These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine'sModine’s Annual Report on Form 10-K10-K for the year ended March 31, 2017.2022.


United States Tax ReformDisposition of Austrian Air-cooled Automotive Business in Fiscal 2022
In December 2017, U.S. tax reform legislation was enacted and included various changesOn April 30, 2021, the Company sold its air-cooled automotive business in Austria to existing U.S. tax regulations.Schmid Metall GmbH.  As a result of these changes,this transaction, the Company recorded income taxa loss of $6.6 million during the first quarter of fiscal 2022, which included the write-off of $1.7 million of net actuarial losses related to its pension plan.  The Company reported this loss within the loss on sale of assets line on the consolidated statement of operations.  Upon transaction closing, $5.9 million of cash within the business transferred to the buyer. During the third quarter of fiscal 2022, a purchase price adjustment for net working capital and certain other items was finalized and the Company paid the buyer $2.4 million.

In connection with the sale of this business, the Company provided the buyer with a 5-year, €4.0 million loan facility.  The buyer began borrowing under this facility during the second quarter of fiscal 2022. At both December 31, 2022 and March 31, 2022, the Company recorded a €4.0 million loan receivable within other noncurrent assets on its consolidated balance sheet because the Company expects to receive the principal repayment more than twelve months from the balance sheet date. Borrowings under the loan facility currently bear interest at 4.6 percent.

Liquid-Cooled Automotive Business Held for Sale in Fiscal 2022
The Company previously agreed to sell its liquid-cooled automotive business.  During the first quarter of fiscal 2022, the Company and the prospective buyer modified the transaction perimeter to remove certain manufacturing operations.  U.S. GAAP requires companies to measure asset groups that revert back to held and used classification at the lower of their (i) carrying value, as if held for sale classification had not been met; or (ii) fair value at the date of the decision not to sell.  As a result, the Company evaluated the long-lived assets of these businesses that no longer met the requirements to be classified as held for sale and reversed $7.4 million of previously-recorded impairment charges totaling $35.7during the first quarter of fiscal 2022 to adjust the long-lived assets to their estimated fair value.

During the third quarter of fiscal 2022, the Company and the prospective buyer terminated the sale agreement and the liquid-cooled automotive business reverted back to held and used classification.  As a result, the Company remeasured the long-lived assets within the liquid-cooled automotive business and reversed $57.2 million of previously-recorded held for sale impairment charges during the third quarter of fiscal 2018.  See Note 8 for additional information regarding the recently-enacted tax reform legislation.2022.

Acquisition of Luvata HTS
On November 30, 2016,a year-to-date basis, the Company completed the acquisition$64.6 million of 100 percentimpairment reversals described above were partially offset by $8.6 million of the shares of multiple companies held by Luvata Heat Transfer Solutions II AB, a company incorporated in Sweden.  Combined, these acquired companies represented the Luvata Heat Transfer Solutions (“Luvata HTS”) business.  See Note 2 for additional information.

New Accounting Guidance

Derivatives and Hedging
In August 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to hedge accounting.  The main objectives of the new guidance include aligning hedge accounting with companies’ risk management strategies and increasing disclosure transparency regarding both the scope and results of hedging programs.  The Company early adopted the new guidance in the third quarter of fiscal 2018.  This new guidance did not have a material impact on the Company’s consolidated financial statements.

Pension Costs
In March 2017, the FASB issued new guidanceimpairment charges related to the income statement presentationautomotive assets while they were classified as held for sale during fiscal 2022, resulting in a net impairment reversal of pension$56.0 million.  The Company reported all impairment charges and postretirement costs.  This guidance requires companies to continue to present the service cost component of net periodic benefit costreversals during fiscal 2022 within the same financial statementimpairment charges (reversals) line item as other employee compensation costs; however, other componentson the consolidated statements of net benefit cost are required to be presented outside of results from operations.  The Company adopted this guidance, on a retrospective basis, beginning in its first quarter of fiscal 2018.  As a result, the Company recorded $0.6 million and $2.2 million of net periodic benefit cost within other income and expense for the three and nine months ended December 31, 2017, respectively, and reclassified the net periodic benefit cost, exclusive of service cost, to other income and expense for the comparative periods in fiscal 2017.  For the three and nine months ended December 31, 2016, the Company reclassified net periodic benefit cost totaling $0.7 million ($0.3 million from cost of sales and $0.4 million from selling, general and administrative (“SG&A”) expenses) and $2.2 million ($0.9 million from cost of sales and $1.3 million from SG&A expenses), respectively, to other income and expense.

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

Share-based Compensation
In March 2016, the FASB issued new guidance to simplify several aspects of accounting for share-based payment transactions.  The Company adopted this guidance beginning in its first quarter of fiscal 2018.  The Company elected to account for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to equity.  In addition, the Company prospectively adopted the guidance requiring all excess tax benefits or deficiencies to be recognized as income tax expense or benefit when share-based awards are settled.  The provisions of this guidance did not have a material impact on the Company's consolidated financial statements.  As a result of adopting this new guidance, the Company recorded a $0.4 million increase to both deferred tax assets and equity as of April 1, 2017.

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance. Upon adoption of this new guidance, the Company will be required to recognize most leases on its balance sheet. This guidance is effective for the Company’s first quarter of fiscal 2020. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

Revenue Recognition
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers. This new guidance will be effective for the Company’s first quarter of fiscal 2019, and the Company plans to adopt it using a modified-retrospective transition method.

The Company is currently in the process of assessing customer contracts and evaluating contractual provisions that may result in a change in the timing of revenue recognized in comparison with current guidance.  Under current guidance, the Company generally recognizes revenue when products are shipped and risk of loss has transferred to the customer.  The Company is evaluating whether provisions in certain customer contracts may provide an enforceable right to payment for customized products, which may require revenue recognition prior to the product being shipped to the customer.  In addition, the Company is evaluating pricing provisions contained in certain of its customer contracts to determine the appropriate timing of revenue recognition based upon the new guidance.  The Company continues to evaluate the impact this new guidance will have on its consolidated financial statements and its revenue recognition policies.

Note 2:Acquisition of Luvata HTS

On November 30, 2016, the Company completed its acquisition of a 100 percent ownership interest in the Luvata HTS business for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  Operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings to the heating, ventilation, air conditioning, and refrigeration industry.  For the nine months ended December 31, 2017, the Company included $451.6 million of net sales and operating income of $14.3 million within its consolidated statement of operations attributable to CIS operations.  For the nine months ended December 31, 2016, the Company included $34.7 million of net sales and an operating loss of $0.3 million attributable to one month of CIS operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)

The Company has completed the purchase price allocation for its acquisition of Luvata HTS.  During the first and second quarters of fiscal 2018, the Company recorded measurement-period adjustments which resulted in an increase in goodwill totaling $1.3 million, primarily due to increases to income tax reserves and changes in liabilities for product warranties.

The Company’s allocation of the purchase price for its acquisition of Luvata HTS is as follows:

Cash and cash equivalents $27.4 
Trade accounts receivable  86.1 
Inventories  55.0 
Property, plant and equipment  120.4 
Intangible assets  130.2 
Goodwill  151.9 
Other assets  39.1 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.5)
Pensions  (14.3)
Other liabilities  (42.7)
Purchase price $415.6 

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016.  This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated.

  
Three months ended
December 31, 2016
  
Nine months ended
December 31, 2016
 
Net sales $439.5  $1,393.3 
Net earnings attributable to Modine  8.5   26.8 
Net earnings per share attributable to Modine shareholders:        
Basic $0.17  $0.54 
Diluted  0.17   0.53 
The supplemental pro forma financial information includes adjustments for: (i) quarterly amortization and depreciation expense totaling $3.2 million for acquired tangible and intangible assets, (ii) estimated quarterly interest expense of $3.5 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions.  In addition, the pro forma financial information assumes that both $8.6 million of fiscal 2017 acquisition-related transaction costs and a $2.9 million inventory purchase accounting adjustment recorded in the third quarter of fiscal 2017 were incurred during fiscal 2016.  The pro forma financial information does not reflect achieved or expected cost and revenue synergies.
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Disposition of Previously-Closed Facility in Fiscal 2022
During the first quarter of fiscal 2022, the Company signed a definitive agreement to sell a previously-closed manufacturing facility in the U.S.  As a result, the Company recorded an impairment charge of $0.3 million within the Climate Solutions segment to write down the property to fair value less costs to sell.  During July 2021, the sale was completed and the Company received net cash proceeds of $0.7 million.

New Accounting Guidance: Supplier Finance Programs
In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance that will require companies that use supplier finance programs to disclose information about the programs, including key terms, outstanding obligations under such programs and where outstanding amounts are presented within their financial statements.  In addition, a roll forward of obligations under supplier finance programs will be required annually.  The new guidance is effective for the Company’s fiscal 2024 financial statements, with the exception of the roll forward disclosure requirement, which will become effective one year later.  The Company is currently evaluating the new disclosures, but does not expect the guidance will have a material impact on its consolidated financial statements.

Note 2: Revenue Recognition

Effective April 1, 2022, the Company began managing its operations under two operating segments, Climate Solutions and Performance Technologies.  The Climate Solutions segment includes the previously-reported Building HVAC Systems (“BHVAC”) and the Commercial and Industrial Solutions (“CIS”) segments, with the exception of CIS Coatings.  The Performance Technologies segment includes the previously-reported Heavy Duty Equipment (“HDE”) and Automotive segments and the CIS Coatings business.  See Note 19 for additional segment financial information.



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



Climate Solutions

The Climate Solutions segment provides energy-efficient, climate-controlled components and solutions for a wide array of applications.  The Climate Solutions segment principally generates revenue from selling heat transfer products, heating, ventilating, air conditioning, and refrigeration (“HVAC & refrigeration”) products, and data center cooling solutions.  Heat transfer products include heat transfer coils used in commercial and residential HVAC and refrigeration applications.  HVAC and refrigeration products include commercial and residential unit heaters, vertical and horizontal unit ventilators, air conditioning chillers, low global warming potential unit coolers, air-cooled condensers, and dry coolers.  Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, computer room air conditioner and air handler units, and fan walls.



Performance Technologies

The Performance Technologies segment provides products and solutions that enhance the performance of customer applications.  The Performance Technologies segment designs and manufactures air- and liquid-cooled technology for vehicular, stationary power, and industrial applications.  Air-cooled products include radiators, charge air coolers, condensers, and engine cooling modules.  Liquid-cooled products include engine oil coolers, charge air coolers, condensers, and exhaust gas recirculation coolers.  In addition, the Performance Technologies segment provides advanced solutions, which are designed to improve battery range and vehicle life, to zero-emission and hybrid commercial vehicle and automotive customers.  These solutions include battery thermal management systems, electronics cooling packages, and battery chillers.  The advanced solutions provided by the segment also include coating products and application services that extend the life of equipment and components by protecting against corrosion.


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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Disaggregation of Revenue

The tables below present revenue for each of the Company’s operating segments.  Each segment’s revenue is disaggregated by product group, by geographic location and based upon the timing of revenue recognition.  The disaggregated revenue information presented in the tables below for fiscal 2022 has been recast to be comparable with the fiscal 2023 presentation.

  Three months ended December 31, 2022  Three months ended December 31, 2021 

 
Climate
Solutions
  
Performance
Technologies
  
Segment
Total
  
Climate
Solutions
  
Performance
Technologies
  
Segment
Total
 
Product groups:                  
Heat transfer
 $119.3  $-  $119.3  $116.5  $-  $116.5 
HVAC & refrigeration  89.0   -   89.0   86.8   -   86.8 
Data center cooling  40.3   -   40.3   24.0   -   24.0 
Air-cooled  -   158.9   158.9   -   138.1   138.1 
Liquid-cooled
  -   117.3   117.3   -   106.8   106.8 
Advanced solutions
  -   35.2   35.2   -   30.0   30.0 
Inter-segment sales
  -   6.4   6.4   -   7.1   7.1 
Net sales $248.6  $317.8  $566.4  $227.3  $282.0  $509.3 
                         
Geographic location:                        
Americas $148.5  $167.2  $315.7  $126.1  $141.2  $267.3 
Europe  94.4   97.6   192.0   95.2   85.8   181.0 
Asia  5.7   53.0   58.7   6.0   55.0   61.0 
Net sales $248.6  $317.8  $566.4  $227.3  $282.0  $509.3 
                         
Timing of revenue recognition:                        
Products transferred at a point in time $233.3  $301.0  $534.3  $223.2  $263.5  $486.7 
Products transferred over time  15.3   16.8   32.1   4.1   18.5   22.6 
Net sales $248.6  $317.8  $566.4  $227.3  $282.0  $509.3 

  Nine months ended December 31, 2022  Nine months ended December 31, 2021 

 
Climate
Solutions
  
Performance
Technologies
  
Segment
Total
  
Climate
Solutions
  
Performance
Technologies
  
Segment
Total
 
Product groups:                  
Heat transfer $394.7  $-  $394.7  $353.4  $-  $353.4 
HVAC & refrigeration  256.8   -   256.8   237.9   -   237.9 
Data center cooling  97.1   -   97.1   59.5   -   59.5 
Air-cooled  -   481.2   481.2   -   415.8   415.8 
Liquid-cooled  -   347.2   347.2   -   322.6   322.6 
Advanced solutions  -   102.8   102.8   -   86.5   86.5 
Inter-segment sales  0.3   20.9   21.2   0.2   25.0   25.2 
Net sales $748.9  $952.1  $1,701.0  $651.0  $849.9  $1,500.9 
                         
Geographic location:                        
Americas $444.2  $514.3  $958.5  $348.0  $424.0  $772.0 
Europe  284.3   285.0   569.3   281.0   270.5   551.5 
Asia  20.4   152.8   173.2   22.0   155.4   177.4 
Net sales $748.9  $952.1  $1,701.0  $651.0  $849.9  $1,500.9 
                         
Timing of revenue recognition:                        
Products transferred at a point in time $707.1  $892.6  $1,599.7  $640.5  $791.6  $1,432.1 
Products transferred over time  41.8   59.5   101.3   10.5   58.3   68.8 
Net sales $748.9  $952.1  $1,701.0  $651.0  $849.9  $1,500.9 

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Contract Balances

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


 December 31, 2022  March 31, 2022 
Contract assets $23.8  $26.8 
Contract liabilities  11.9   11.8 

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed.  The $3.0 million decrease in contract assets during the first nine months of fiscal 2023 primarily resulted from a decrease in contract assets for revenue recognized over time.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling.  The $0.1 million increase in contract liabilities during the first nine months of fiscal 2023 primarily resulted from payments received in advance of the Company’s satisfaction of performance obligations.

Note 3:
Note 3: Fair Value Measurements


Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Fair value measurements are classified under the following hierarchy:


·Level 1 – Quoted prices for identical instruments in active markets.
·Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
·Level 3 – Model-derived valuations in which one or more significant inputs are not observable.


When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value based upon valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates.  These measurements are classified as Level 3.


The carrying values of cash, and cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments.  The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans. The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy. The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trusts.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.7 million and $5.0 million at December 31, 2017 and March 31, 2017, respectively.  The fair value of the Company’s long-term debt is disclosed in Note 14.16.

Note 4:Pensions

Pension cost included the following components:

  
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2017  2016  2017  2016 
Service cost $0.1  $0.1  $0.4  $0.4 
Interest cost  2.5   2.5   7.4   7.3 
Expected return on plan assets  (2.9)  (3.1)  (8.9)  (9.2)
Amortization of unrecognized net loss  1.4   1.4   4.2   4.2 
Curtailment gain (a)  (0.3)  -   (0.3)  - 
Net periodic benefit cost $0.8  $0.9  $2.8  $2.7 
(a)During the third quarter of fiscal 2018, the Company recorded a curtailment gain as a result of the closure of a manufacturing facility in Austria (CIS segment).  See Note 6 for additional information regarding the closure of this facility.

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
During
Note 4: Pensions

Pension cost included the nine months ended December 31, 2017following components:


 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022
  2021
  2022
  2021
 
Service cost $0.1  $0.1  $0.2  $0.2 
Interest cost  2.0   1.8   6.0   5.5 
Expected return on plan assets  (2.9)  (3.2)  (8.7)  (9.6)
Amortization of unrecognized net loss  1.4   1.7   4.3   5.1 
Net periodic benefit cost $0.6  $0.4  $1.8  $1.2 

The Company’s funding policy is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and 2016,regulations. In connection with funding relief provisions within the American Rescue Plan Act of 2021, the Company contributed $11.1 million and $6.3 million, respectively,does not expect to make cash contributions to its U.S. pension plans.plans during fiscal 2023.


Note 5:
Note 5: Stock-Based Compensation


The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation programplan (“LTIP”) for officers and other executives that consists of stock awards, stock options, and performance-based stock awards granted for retention and performance, (2) a discretionary equity program for other management and key employees, and (3) stock awards for non-employee directors.


The Company calculates compensation expense based upon the fair value of the instrumentsawards at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards. The Company recognized stock-based compensation expense of $2.2$1.5 million and $2.6$1.1 million for the three months ended December 31 2017, 2022 and 2016,2021, respectively. The Company recognized stock-based compensation expense of $7.6$5.0 million and $6.1$4.7 million for the nine months ended December 31, 20172022 and 2016, respectively.  The performance component of awards granted under the Company’s long-term incentive plan during the first quarter of fiscal 2018 is based upon both a target three-year average return on average capital employed and a target three-year average revenue growth at the end of the three-year performance period.2021, respectively.


The weighted-average fair value of stock-based compensation awards granted during the nine months ended December 31 2017, 2022 and 20162021 were as follows:


    Nine months ended December 31,
 
  2022  2021 
      Fair Value      Fair Value 

 Shares  Per Award  Shares  Per Award 
Stock options  0.2  $6.99   0.2  $8.79 
Restricted stock awards  0.5  $13.49   0.3  $14.96 
Unrestricted stock awards
  -   -   0.1  $
15.93 

  Nine months ended December 31, 
  2017  2016 
  Shares  
Fair Value
Per Award
  Shares  
Fair Value
Per Award
 
Stock options  0.2  $7.30   0.3  $4.60 
Restricted stock awards  0.2  $15.90   0.3  $10.03 
Performance stock awards  0.2  $15.90   0.3  $10.00 
Unrestricted stock awards  0.1  $16.95   0.1  $9.38 
In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants during the first nine months of fiscal 2023. The performance metrics for the cash awards are based upon a target three-year average cash flow return on invested capital and a target three-year average growth in consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) at the end of the performance period ending March 31, 2025.

The Company used the following assumptions in determining fair value for stock options:

  Nine months ended December 31, 
  2017  2016 
Expected life of awards in years  6.4   6.4 
Risk-free interest rate  1.9%  1.4%
Expected volatility of the Company's stock  44.3%  45.5%
Expected dividend yield on the Company's stock  0.0%  0.0%

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The Company used the following assumptions in determining fair value for stock options:

  Nine months ended December 31,
 
  2022
  2021 
Expected life of awards in years  6.0   6.1 
Risk-free interest rate  3.0%  1.1%
Expected volatility of the Company’s stock  57.8%  56.5%
Expected dividend yield on the Company’s stock  0.0%  0.0%

As of December 31, 2017,2022, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be amortizedrecognized as expense over the remaining service periods, was as follows:



 
Unrecognized
Compensation
Expense
  
Weighted-Average
Remaining Service
Period in Years
 
Stock options $2.6   2.3 
Restricted stock awards  7.6   2.0 
Total $10.2   2.1 

  
Unrecognized
Compensation
Expense
  
Weighted-Average
Remaining Service
Period in Years
 
Stock options $2.6   2.7 
Restricted stock awards  6.1   2.7 
Performance stock awards  5.2   1.9 
Total $13.9   2.4 

Note 6:
Note 6: Restructuring Activities



During the third quarter of fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.2 million of restructuring expenses, within the CIS segment, during the third quarter of fiscal 2018.  These restructuring expenses primarily related to employee severance and related benefits.  Also in the third quarter of fiscal 2018, the Company recorded a $1.3 million asset impairment charge to reduce the carrying value of the Austrian facility to its estimated fair value, less costs to sell.

The Company’s restructuring actions during the first nine months of fiscal 2018 also included plant consolidation activities in the Americas segment2023, restructuring and repositioning expenses primarily consisted of severance expenses related to targeted headcount reductions in Europe within the Americas and Europe segments.Performance Technologies segment.  In addition, the Company transferred production of certain product linesincurred equipment transfer costs and closure costs related to Hungary from other manufacturing facilities within the Europe segment, primarily to expand its low-cost country footprint in Europe and to ensure continued competitivenessa previously-leased facility in the region.Performance Technologies and Climate Solutions segments, respectively.


The Company’s restructuring actions during

During the firstnine months of fiscal 20172022, restructuring and repositioning expenses primarily consisted of plant consolidation activitiesseverance-related expenses within the Climate Solutions and targeted headcount reductions inPerformance Technologies segments and equipment transfer costs within the AmericasPerformance Technologies segment.


Restructuring and repositioning expenses were as follows:


 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022  2021  2022  2021 
Employee severance and related benefits $-  $1.4  $1.4  $1.7 
Other restructuring and repositioning expenses  0.1   0.7   0.8   1.3 
Total $0.1  $2.1  $2.2  $3.0 
  
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2017  2016  2017  2016 
Employee severance and related benefits $8.6  $0.1  $9.2  $2.2 
Other restructuring and repositioning expenses  0.8   1.5   2.3   3.8 
Total $9.4  $1.6  $11.5  $6.0 


Other restructuring and repositioning expenses primarily consist of equipment transfer and plant consolidation costs.

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements.  Changes in accrued severance were as follows:


 Three months ended December 31, 
  2022  2021 
Beginning balance $12.9  $2.8 
Additions  -   1.4 
Payments  (1.9)  (0.9)
Reclassified from held for sale  -   0.4 
Effect of exchange rate changes  1.2  (0.1)
Ending balance $12.2  $3.6 

  Nine months ended December 31, 
  2022
  2021
 
Beginning balance $20.2  $4.0 
Additions  1.4
   1.7
 
Payments  (8.6)  (2.3)
Reclassified from held for sale  -   0.4 
Effect of exchange rate changes  (0.8)  (0.2)
Ending balance $12.2  $3.6 

  Three months ended December 31, 
  2017  2016 
Beginning balance $3.0  $9.2 
Additions  8.6   0.1 
Payments  (0.6)  (1.3)
Effect of exchange rate changes  0.2   (0.5)
Ending balance $11.2  $7.5 

  Nine months ended December 31, 
  2017  2016 
Beginning balance $6.5  $14.7 
Additions  9.2   2.2 
Payments  (5.1)  (8.5)
Effect of exchange rate changes  0.6   (0.9)
Ending balance $11.2  $7.5 

During the second quarter of fiscal 2017, the Company sold a manufacturing facility in its Europe segment for cash proceeds of $4.3 million and recognized a gain of $1.2 million as a result.

Note 7:
Note 7: Other Income and Expense


Other income and expense consisted of the following:


  
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2017  2016  2017  2016 
Equity in earnings of non-consolidated affiliate $0.1  $-  $-  $0.1 
Interest income  0.1   0.1   0.3   0.3 
Foreign currency transactions (a)  0.1   (0.4)  (0.4)  (1.0)
Net periodic benefit cost (b)  (0.6)  (0.7)  (2.2)  (2.2)
Total other expense - net $(0.3) $(1.0) $(2.3) $(2.8)
 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022  2021  2022  2021 
Interest income $0.3  $0.2  $0.7  $0.3 
Foreign currency transactions (a)  (0.3)  (1.0)  (3.4)  (1.1)
Net periodic benefit cost (b)  (0.4)  (0.3)  (1.4)  (0.8)
Total other expense – net
 $(0.4) $(1.1) $(4.1) $(1.6)

(a)Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on certain foreign currency exchange contracts.

(b)Represents netNet periodic benefit cost, exclusive of service cost for the Company’s pension and postretirement plans.plans is exclusive of service cost.

11
12
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 8:
Note 8: Income Taxes


The Company’s effective tax rate for the three months ended December 31, 20172022 and 20162021 was 482.225.6 percent and (58.3)0.1 percent, respectively. The Company’s effective tax rate for the nine months ended December 31, 20172022 and 20162021 was 86.623.8 percent and 16.08.7 percent, respectively.

The effective tax rates for the fiscal 20182022 periods are higher than in the prior year, primarily due to third quarter charges totaling $35.7 million related to the recently-enacted tax reform legislation in the U.S.  Other factors thatwere significantly impacted by the Company’s effective tax rateaccounting for the three and nine months ended December 31, 2017,liquid-cooled automotive business, which had been previously classified as compared with the prior-year periods, were income tax benefits resulting from a development tax credit in Hungary, changes in the valuation allowances related to certain foreign jurisdictions, and changes in the mix of foreign and domestic earnings.  In addition, the effective tax rateheld for sale.  During the nine months ended December 31, 2017 benefitted2021, the Company recorded net impairment reversals totaling $56.0 million related to this business, primarily driven by the remeasurement of its property, plant and equipment assets upon reverting back to held and used classification during the third quarter of fiscal 2022.  In addition, the effective tax rates for the third quarter and the first nine months of fiscal 2022 were favorably impacted by $8.2 million and $11.4 million, respectively, from a $1.8 million reduction in unrecognizedincome tax benefits related to valuation allowances on deferred tax assets in foreign jurisdictions, as further described below.  See Note 1 for additional information regarding the net impairment reversals related to the liquid-cooled automotive business.

The Company records valuation allowances against its net deferred tax assets to the extent it determines it is more likely than not that such assets will not be realized in the future. Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies. In addition, the Company considers the duration of statutory carryforward periods and historical financial results.

Based upon its quarterly analyses in fiscal 2022, the Company determined it was more likely than not that the deferred tax assets in certain foreign jurisdictions will be realized.  As a result, the need for the valuation allowances recorded thereon was eliminated and the Company recorded income tax benefits of $4.8 million and $8.2 million during the first and third quarters of fiscal 2022, respectively.  The Company’s analyses in these quarters included consideration of the transaction perimeter modification during the first quarter and the termination of the sale agreement during the third quarter for the liquid-cooled automotive business and the related impairment reversals.  In addition, based upon the Company’s analysis as of September 30, 2021, the Company determined it was more likely than not that the deferred tax assets in a foreign jurisdiction will not be realized.  As a result, the Company recorded an income tax charge of $1.6 million in the second quarter of fiscal 2018 that resulted from a lapse in statutes2022, which partially offset the $13.0 million of limitations.  The developmentincome tax credit in Hungarybenefits recorded during the first and third quarters.  Combined, these fiscal 2022 valuation allowance adjustments resulted in a net income tax benefit of $2.2$11.4 million and $7.9 million induring the three andfirst nine months ended December 31, 2017, respectively.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  The Tax Act includes broad and complex changes to the U.S. tax code, including (i) a reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018, and (ii) a transition tax on certain unrepatriated earnings of foreign subsidiaries.  For fiscal 2018, the Company will record its income tax provision based on a blended U.S. statutory tax rate of 31.5 percent, which is based on a proration of the applicable tax rates before and after the effective date of the Tax Act.  The statutory tax rate of 21 percent will apply for fiscal 2019 and beyond.

The Tax Act also puts in place new tax laws that may impact the Company’s taxable income beginning in fiscal 2019, which include, but are not limited to (i) creating a base erosion anti-abuse tax (BEAT), which is a new minimum tax, (ii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (iii) adding a new provision designed to tax global intangible low taxed income (GILTI), (iv) adding a provision that could limit the amount of deductible interest expense, and (v) limiting the deductibility of certain executive compensation.

Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act.  To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During the third quarter of fiscal 2018, the Company recorded provisional discrete tax charges of $35.7 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $20.7 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $15.0 million charge for the transition tax.  The Company expects to pay this estimated $15.0 million tax liability over the next eight years, beginning with a payment of approximately $1.0 million in fiscal 2019.

The Company is also analyzing other provisions of the Tax Act to determine if they will impact the Company’s effective tax rate in fiscal 2018 or in the future.  These provisions include BEAT, as described above, the elimination of U.S. federal income taxes on dividends from foreign subsidiaries, the new limits on the deductibility of interest expense and executive compensation, and the state tax implications of the Tax Act, including the impact of the transition tax and the impact on the realizability of tax attributes and valuation allowances.

The Tax Act includes a provision designed to tax GILTI, as described above, starting in fiscal 2019.  The Company has elected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.  As a result, the Company does not expect GILTI to impact its fiscal 2018 income tax provision.
12
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
For various reasons, the Company has not completed its accounting for the income tax effects of certain elements of the Tax Act.  In regards to the reduction in the U.S. corporate tax rate, the Company is continuing to analyze the temporary differences that existed on the date of enactment, and the temporary differences originating in the current fiscal year.  In regards to the transition tax, the Company is awaiting further interpretative guidance, continuing to assess available tax methods and elections, and continuing to gather additional information to more precisely compute the amount of this tax.  Previously, the Company’s practice and intention was to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S.  As a result, the Company did not record U.S. deferred income taxes or foreign withholding taxes for these earnings.  The Company is currently analyzing its global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries distribute cash to the U.S. parent, which include local country withholding tax and potential U.S. state taxes.  The Company expects to complete its analysis of the accounting guidance related to the Tax Act and its evaluation of the impacts of the Tax Act in the fourth quarter of fiscal 2018 or in early fiscal 2019.

At December 31, 2017,2022, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $47.4$84.9 million and valuation allowances against certain U.S. deferred tax assets totaled $7.0$28.1  million, as it is more likely than not these assets will not be realized based upon historical financial results.  The $1.2 million increase in the U.S. valuation allowances during the three months ended December 31, 2017 relates mainly to adjustments made to state tax attributes as a result of tax reform.respectively. The Company will continue to provide amaintain the valuation allowance against its net deferred tax assetsallowances in each of the applicable jurisdictionstax jurisdiction until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Companyit determines it is more likely than not the deferred tax assets will be realized.  Therealized, thereby eliminating the need for a valuation allowance.  Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in certain foreign jurisdictions, could necessitate the establishment of further valuation allowances. At present, the Company may release thehas recorded a full valuation allowance (approximately $3.0 million)on its U.S. deferred tax assets.  Based upon current and anticipated future earnings in a foreign jurisdiction duringthe U.S., the Company believes it is reasonably possible that in the fourth quarter of fiscal 20182023 or in fiscal 2019.2024, sufficient positive evidence may be available to conclude that a significant portion of the U.S. valuation allowance is not needed. The Company estimates such valuation allowance release would result in a decrease to income tax expense of up to $65.0 million in the period recorded.  However, the ultimate timing of such a release, if any, and the resulting decrease to income tax expense, could differ from the Company’s current estimates.


Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate.  Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur.  The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions. The Company does not anticipate a significant change in unrecognized tax benefits during the remainder of fiscal 2018.2023.

13
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 9:Earnings Per Share
Note 9: Earnings Per Share


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


 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022  2021  2022  2021 
Net earnings attributable to Modine $24.5  $74.1 $63.2  $76.8
                 
Weighted-average shares outstanding – basic  52.3   52.0   52.2   51.9 
Effect of dilutive securities  0.6   0.4   0.5   0.6 
Weighted-average shares outstanding – diluted  52.9   52.4   52.7   52.5 
                 
Earnings per share:                
Net earnings per share – basic $0.47  $1.42 $1.21  $1.48
Net earnings per share – diluted $0.46  $1.41 $1.20  $1.46

  
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2017  2016  2017  2016 
Net (loss) earnings attributable to Modine $(28.3) $1.7  $4.6  $6.2 
Less: Undistributed earnings attributable to unvested shares  -   -   -   (0.1)
Net (loss) earnings available to Modine shareholders $(28.3) $1.7  $4.6  $6.1 
                 
Weighted-average shares outstanding - basic  50.0   47.9   49.8   47.3 
Effect of dilutive securities  -   0.6   0.8   0.4 
Weighted-average shares outstanding - diluted  50.0   48.5   50.6   47.7 
                 
Earnings per share:                
Net (loss) earnings per share - basic $(0.57) $0.04  $0.09  $0.13 
Net (loss) earnings per share - diluted $(0.57) $0.04  $0.09  $0.13 
For the three and nine months ended December 31, 2022, the calculation of diluted earnings per share excluded 0.1 million and 0.6 million stock options, respectively, because they were anti-dilutive.  In addition, the calculation for the three and nine months ended December 31, 2022 excluded less than 0.1 million and 0.2 million restricted stock awards, respectively, because they were anti-dilutive.


For both the three and nine months ended December 31, 2017,2021, the calculation of diluted earnings per share excluded 0.6 million and 0.2 million stock options because they were anti-dilutive.  For the three and nine months ended December 31, 2016, the calculation of diluted earnings per share excluded 0.9 million and 1.0 millionrestricted stock options,awards, respectively, because they were anti-dilutive.  For

Note 10: Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the three months ended December 31, 2017, the total number of potentially dilutive securities was 1.1 million.  However, these securities were not includedfollowing:


 December 31, 2022  March 31, 2022 
Cash and cash equivalents $82.2  $45.2 
Restricted cash  0.2   0.2 
Total cash, cash equivalents, and restricted cash
 $82.4  $45.4 

Restricted cash, which is reported within other current assets and other noncurrent assets in the computationconsolidated balance sheets, consists primarily of diluted net lossdeposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share since to do so would have decreased the loss per share.amounts)

(unaudited)
Note 10:
Note 11: Inventories


Inventories consisted of the following:

  December 31, 2017  March 31, 2017 
Raw materials and work in process $140.0  $127.7 
Finished goods  46.8   40.8 
Total inventories $186.8  $168.5 



 December 31, 2022  March 31, 2022 
Raw materials $215.2  $186.7 
Work in process  51.6   55.1 
Finished goods  46.8   39.4 
Total inventories $313.6  $281.2 

Note 11:
Note 12: Property, Plant and Equipment


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


 December 31, 2022  March 31, 2022 
Land $16.2  $16.8 
Buildings and improvements (10-40 years)
  261.3   264.6 
Machinery and equipment (3-15 years)
  849.9   869.4 
Office equipment (3-10 years)
  92.1   96.2 
Construction in progress  35.8   31.2 
   1,255.3   1,278.2 
Less: accumulated depreciation  (954.3)  (962.8)
Net property, plant and equipment $301.0  $315.4 
  December 31, 2017  March 31, 2017 
Gross property, plant and equipment $1,266.2  $1,177.6 
Accumulated depreciation  (774.9)  (718.6)
Net property, plant and equipment $491.3  $459.0 
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 12:
Note 13: Goodwill and Intangible Assets

Changes in
The following table presents a roll forward of the carrying amountvalue of goodwill were as follows:

  Asia  
Building
HVAC
  CIS  Total 
Goodwill, March 31, 2017 $0.5  $13.7  $150.9  $165.1 
Acquisition (a)  -   -   1.3   1.3 
Effect of exchange rate changes  -   0.8   5.0   5.8 
Goodwill, December 31, 2017 $0.5  $14.5  $157.2  $172.2 

(a)During the first six months of fiscal 2018, the Company recorded a $1.3 million increasefrom March 31, 2022 toDecember 31, 2022.  The Company has recast the March 31, 2022 goodwill balances to be comparable with the current segment structure. There was no impact to the underlying reporting units as a result of measurement period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information.

Intangible assets consisted of the following:segment realignment during fiscal 2023.


 
Climate
Solutions
  
Performance
Technologies
  Total 
Goodwill, March 31, 2022
 $108.1  $60.0  $168.1 
Effect of exchange rate changes  (3.2)  (0.1)  (3.3)
Goodwill, December 31, 2022
 $104.9  $59.9  $164.8 
  December 31, 2017  March 31, 2017 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $63.6  $(4.7) $58.9  $60.5  $(1.7) $58.8 
Trade names  60.1   (9.8)  50.3   58.4   (7.2)  51.2 
Acquired technology  28.4   (5.1)  23.3   27.0   (2.9)  24.1 
Total intangible assets $152.1  $(19.6) $132.5  $145.9  $(11.8) $134.1 

The Company recorded amortization expense of $2.5 million and $1.1 million for the three months ended December 31, 2017 and 2016, respectively.  The Company recorded amortization expense of $7.3 million and $1.9 million for the nine months ended December 31, 2017 and 2016, respectively.  Estimated future amortization expense is as follows:

Fiscal Year 
Estimated
Amortization
Expense
 
Remainder of 2018 $2.4 
2019  9.6 
2020  9.5 
2021  8.9 
2022  8.7 
2023 & Beyond  93.4 

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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Intangible assets consisted of the following:

 December 31, 2022  March 31, 2022 
  Gross     Net  Gross     Net 
   Carrying  Accumulated
  Intangible
  Carrying
  Accumulated
  Intangible
 
  Value  Amortization  Assets  Value  Amortization  Assets 
Customer relationships $59.9  $(22.2) $37.7  $61.2  $(20.1) $41.1 
Trade names  49.9   (15.2)  34.7   50.8   (13.8)  37.0 
Acquired technology  22.5   (12.1)  10.4   23.1   (10.9)  12.2 
Total intangible assets $132.3  $(49.5) $82.8  $135.1  $(44.8) $90.3 

The Company recorded amortization expense of $2.0 million and $2.1 million for the three months ended December 31, 2022 and 2021, respectively.The Company recorded amortization expense of $6.0 million and $6.3 million for the nine months ended December 31, 2022 and 2021, respectively. The Company estimates that it will record approximately $2.0 million of amortization expense during the remainder of fiscal 2023 and approximately $8.0 million of annual amortization expense in fiscal 2024 through 2028.

Note 13:
Note 14: Product Warranties


Changes in accrued warranty costs were as follows:


 Three months ended December 31, 
  2022  2021 
Beginning balance $6.2  $5.6 
Warranties recorded at time of sale  0.9   1.1 
Adjustments to pre-existing warranties  (0.3)  (0.3)
Settlements  (1.4)  (1.1)
Reclassified from held for sale
  -   1.3 
Effect of exchange rate changes  0.3  - 
Ending balance $5.7  $6.6 
  Three months ended December 31, 
  2017  2016 
Beginning balance $9.4  $8.4 
Warranties recorded at time of sale  2.0   1.4 
Adjustments to pre-existing warranties  0.2   0.1 
Additions due to acquisition  -   4.1 
Settlements  (2.1)  (2.1)
Effect of exchange rate changes  0.1   (0.3)
Ending balance $9.6  $11.6 

 Nine months ended December 31, 
  2022  2021 
Beginning balance $6.3  $5.2 
Warranties recorded at time of sale  4.2   4.1 
Adjustments to pre-existing warranties  (0.8)  (0.8)
Settlements  (3.8)  (3.2)
Reclassified from held for sale
  -   1.3 
Effect of exchange rate changes  (0.2)  - 
Ending balance $5.7  $6.6 

  Nine months ended December 31, 
  2017  2016 
Beginning balance $10.0  $8.3 
Warranties recorded at time of sale  4.7   3.9 
Adjustments to pre-existing warranties  -   - 
Additions and adjustments due to acquisition (a)  (1.0)  4.1 
Settlements  (4.6)  (4.4)
Effect of exchange rate changes  0.5   (0.3)
Ending balance $9.6  $11.6 
(a)During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information.

Note 14:Indebtedness

Long-term debt consisted of the following:

 
Fiscal year
of maturity
 December 31, 2017  March 31, 2017 
Term loans2022 $270.4  $268.9 
6.8% Senior Notes2021  105.0   117.0 
5.8% Senior Notes2027  50.0   50.0 
Other (a)2032  12.7   8.3 
    438.1   444.2 
Less: current portion   (37.9)  (31.8)
Less: unamortized debt issuance costs   (5.7)  (6.7)
Total long-term debt  $394.5  $405.7 
(a)Other long-term debt includes borrowings by foreign subsidiaries, capital lease obligations and other financing-type obligations.

16
Table of Contents

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 15: Leases

Lease Assets and Liabilities
The following table provides a summary of leases recorded on the consolidated balance sheets.

   Balance Sheet Location December 31, 2022  March 31, 2022 
Lease Assets        
Operating lease ROU assets 
Other noncurrent assets
 $49.2  $52.1 
Finance lease ROU assets (a) 
Property, plant and equipment – net
  7.2   7.7 
            
Lease Liabilities          
Operating lease liabilities 
Other current liabilities
 $10.2  $12.7 
Operating lease liabilities 
Other noncurrent liabilities
  40.4   41.2 
Finance lease liabilities 
Long-term debt – current portion
  0.4   0.4 
Finance lease liabilities Long-term debt
  2.4   2.8 
(a)
Finance lease right-of-use (“ROU”) assets were recorded net of accumulated amortization of $3.0 million and $2.8 million as of December 31, 2022 and March 31, 2022, respectively.

Components of Lease Expense
The components of lease expense were as follows:

 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022  2021  2022  2021 
Operating lease expense (a) $5.2  $5.2  $16.0  $14.6 
Finance lease expense:                
Depreciation of ROU assets  0.1   0.1   0.4   0.4 
Interest on lease liabilities  -
   -
   0.1
   0.1
 
Total lease expense $5.3  $5.3  $16.5  $15.1 
(a)
For the three and nine months ended December 31, 2022, operating lease expense included short-term lease expense of $1.4 million and $4.2 million, respectively.  For the three and nine months ended December 31, 2021, operating lease expense included short-term lease expense of $1.0 million and $2.8 million, respectively.  Variable lease expense was not significant.

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Table of Contents

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 16: Indebtedness

In October 2022, the Company executed an amended and restated credit agreement with a syndicate of banks that provides for a multi-currency $275.0 million revolving credit facility and U.S. dollar- and euro-denominated term loan facilities maturing in October 2027.  In addition, the credit agreement provides for shorter-duration swingline loans.  This credit agreement modified the Company’s then existing $250.0 million revolver and term loan facilities, which would have matured in June 2024.

In connection with the credit agreement modification, the Company incurred $2.2 million of debt issuance costs.  Of these costs, the Company deferred $1.5 million, which will be amortized as interest expense over the term of the debt, and recorded $0.7 million as interest expense on the consolidated statement of operations during the third quarter of fiscal 2023.  The Company paid $0.6 million of the debt issuance costs during the third quarter of fiscal 2023 and the remaining issuance costs were added to the new term loan principal at the time of the modification.

Long-term debt consisted of the following:


Fiscal year of
maturity
 December 31, 2022  March 31, 2022 
Term loans2028 $217.8  $163.7 
Revolving credit facility2028  27.5   64.9 
5.9% Senior Notes2029  100.0   100.0 
5.8% Senior Notes2027  33.3   41.7 
Other (a)   2.8   3.2 
    381.4   373.5 
Less: current portion   (19.6)  (21.7)
Less: unamortized debt issuance costs   (2.9)  (3.4)
Total long-term debt  $358.9  $348.4 

(a)
Other long-term debt primarily includes finance lease obligations.

Long-term debt, including the current portion of long-term debt, matures as follows:

Fiscal Year
   
Remainder of 2023 $2.8 
2024  19.6 
2025  19.7 
2026  44.7 
2027  44.7 
2028 & beyond  249.9 
Total $381.4 

Borrowings under the revolving credit, swingline and term loan facilities bear interest at a variable rate based upon the applicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as described below.  At December 31, 20172022, the weighted-average interest rates for revolving credit facility borrowings and March 31, 2017,the term loans were 4.1 and 5.6 percent, respectively.  Based upon the terms of the credit agreement, the Company had $22.7 million and $40.4 million, respectively, of short-termclassifies borrowings under its $175.0 million multi-currency revolving credit facility, which expires in November 2021.  and swingline facilities as long-term and short-term debt, respectively, on its consolidated balance sheets.

18
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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
At December 31, 2017,2022, the Company’s borrowings under its revolving credit and swingline facilities totaled $27.5 million and $6.0 million, respectively, and domestic letters of credit totaled $3.9 million, resulting in$5.3 million.  As a result, available borrowing capacity under the Company’s revolving credit facility was $236.2 million as of $148.4 million.  December 31, 2022. At March 31, 2022, the Company’s borrowings under its revolving credit and swingline facilities totaled $64.9 million and $7.0 million, respectively.



The Company also maintains credit agreements for its foreign subsidiaries, withsubsidiaries.  The outstanding short-term borrowings at December 31, 2017 and March 31, 2017 of $30.8related to these foreign credit agreements totaled $5.3 million and $33.0 million, respectively.  At December 31, 2017, the Company’s foreign unused lines of credit totaled $20.4 million.  In aggregate, the Company had total available lines of credit of $168.8$0.7 million at December 31, 2017.2022 and March 31, 2022, respectively.


Provisions in the Company’s amended and restated credit agreement, Senior Note agreements, and various foreign credit agreements require the Company to maintain compliance with various covenants and include certain cross-default clauses.  Under its primary debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments,Also, as definedspecified in the credit agreement, in the event the Company’s annual excess cash flow exceeds defined levels orterm loans may require prepayments in the event of certain asset sales.  TheIn addition, at the time of each incremental borrowing under the revolving credit facility, the Company is also subjectrequired to represent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on its business, property, or results of operations.

The leverage ratio covenants, the most restrictive of whichcovenant requires the Company to limit its consolidated indebtedness, less a portion of its cash balance,balances, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.  The Company was in compliance with its debt covenants as of December 31, 2017.2022.


The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable maturities. AtAs of December 31, 20172022 and March 31, 2017,2022, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $159.0$123.7 million and $170.0$138.9 million, respectively.  The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 3 for the definition of a Level 2 fair value measurement.


Note 15:
Note 17: Risks, Uncertainties, Contingencies and Litigation


EnvironmentalSupply Chain Disruptions and Inflationary Market Conditions
Market and economic dynamics, including the impacts of the COVID-19 pandemic and the military conflict between Russia and the Ukraine, have contributed to global supply chain challenges and inflationary market conditions.  The Company is focused on mitigating the negative impacts of labor shortages, supply chain challenges and inflationary market conditions, including changes in raw material, energy, logistic, and interest costs, as well as delays and shortages in certain purchased commodities and components.

The United States Environmental Protection Agency has designatedCompany cannot reasonably estimate the Company as a potentially responsible party for remediationfull impact that the ongoing supply chain challenges and other related economic and market dynamics will have on the Company’s business, results of three sites.  These sites are: Auburn Incinerator, Inc./Lake Calumet Cluster (Illinois), Cam-Or (Indiana)operations and a scrap metal site known as Chemetco (Illinois).  In addition, Modine is voluntarily participatingcash flows in the care of an inactive landfill owned by the City of Trenton (Missouri)future.  These sites are not Company-owned; however, they allegedly contain materials attributable to Modine from past operations.  The percentage of material allegedly attributable to Modine is relatively low.  Remediation of these sites is in various stages of administrative or judicial proceedings and includes recovery of past governmental costs and the costs of future investigations and remedial actions.  The Company accrues for costs anticipated for the remedial settlement of the sites listed above if they are probable and can be reasonably determined.  Costs anticipated for the remedial settlement of the sites listed above that are not probable or cannot be reasonably determined at this time have not been accrued; however, the Company does not believe any potential costs would be material to the Company’s financial position due to its relatively small portion of contributed materials.
17
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Environmental
The Company has recorded environmental accruals for obligations assumed as a result of its recent acquisition of Luvata HTS, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States.  In addition, theThe Company has recorded environmental investigation and remediation accruals related to subsurface contamination at itsmanufacturing facilities in the U.S., one of which the Company currently owns and operates, and a former manufacturing facility in the Netherlands, investigative and remedial work relatedNetherlands.  These accruals primarily relate to a previously-owned manufacturing facility in the United States,soil and groundwater contamination at its manufacturing facility in Brazil, along with accruals for lesser environmental matters at certain other facilities in the United States.  These accruals generally relate to facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.  In instances where a range of loss can be reasonably estimated for a probable environmental liability, but no amount within the range is a better estimate than any other amount, the Company accrues the minimum of the range.  The Company’s accruals for these environmental matters totaled $17.0 $18.6 million and $16.8$18.2 million atas of December 31, 20172022 and March 31, 2017,2022, respectively.  During the first quarter of fiscal 2023 and 2022, the Company increased its remediation accrual related to a former manufacturing facility in the U.S. by $1.0 million and $3.4 million, respectively.  As additional information becomes available regarding the environmental matters, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  BasedWhile it is possible that the ultimate environmental remediation costs may be in excess of amounts accrued, the Company believes, based upon currently available information, the Company believesthat the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position.  However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.

Brazil Antitrust Investigation
As of March 31, 2017, the Company accrued $4.7 million related to alleged violations of Brazil’s antitrust regulations.  During the first quarter of fiscal 2018, the Company paid $4.7 million to Brazil’s Administrative Council for Economic Defense to settle this matter.

Other Litigation
In the normal course of business, the Company and its subsidiaries are named as defendants in various other lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted against Modine.  The Company believes that any additional loss in excess of amounts already accrued would not have a material effect on the Company’s consolidated balance sheet, results of operations, and cash flows.  In the opinion ofaddition, management expects that the liabilities if any, which may ultimately result from such lawsuits or proceedings, areif any, would not expected to have a material adverse effect on the Company’s financial position.position.


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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 16:
Note 18: Accumulated Other Comprehensive Loss


Changes in accumulated other comprehensive loss were as follows:


 Three months ended December 31, 2022  Nine months ended December 31, 2022 
  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total 
Beginning balance $(86.0) $(108.4) $(0.9) $(195.3) $(39.1) $(111.1) $0.7  $(149.5)
                                 
Other comprehensive income (loss) before reclassifications  22.5   -   1.3   23.8   (24.4)  -   0.1   (24.3)
Reclassifications:                                
Amortization of unrecognized net loss (a)  -   1.3   -   1.3   -   4.0   -   4.0 
Realized losses – net (b)  -   -   0.4   0.4   -   -   -   - 
Income taxes  -   -   (0.2)  (0.2)  -   -   (0.2)  (0.2)
Total other comprehensive income (loss)  22.5   1.3   1.5   25.3   (24.4)  4.0   (0.1)  (20.5)
                                 
Ending balance $(63.5) $(107.1) $0.6  $(170.0) $(63.5) $(107.1) $0.6  $(170.0)
  
Three months ended
December 31, 2017
  
Nine months ended
December 31, 2017
 
  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total 
Beginning balance $(19.0) $(133.3) $-  $(152.3) $(46.8) $(135.0) $-  $(181.8)
                                 
Other comprehensive income before reclassifications  4.6   -   0.6   5.2   32.4   -   0.6   33.0 
Reclassifications for amortization of unrecognized net loss (a)  -   1.3   -   1.3   -   3.9   -   3.9 
Income taxes  -   (0.4)  (0.2)  (0.6)  -   (1.3)  (0.2)  (1.5)
Total other comprehensive income  4.6   0.9   0.4   5.9   32.4   2.6   0.4   35.4 
                                 
Ending balance $(14.4) $(132.4) $0.4  $(146.4) $(14.4) $(132.4) $0.4  $(146.4)

18
 Three months ended December 31, 2021  Nine months ended December 31, 2021 
  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  
Cash Flow
Hedges
  Total 
Beginning balance $(33.6) $(125.8) $0.2  $(159.2) $(31.0) $(130.8) $0.6  $(161.2)
                                 
Other comprehensive income (loss) before reclassifications  (3.4)  -   0.4   (3.0)  (6.0)  -   1.1   (4.9)
Reclassifications:                                
Amortization of unrecognized net loss (a)  -   1.6   -   1.6   -   4.9   -   4.9 
 Realized gains – net (b)  -   -   (0.2)  (0.2)  -   -   (1.2)  (1.2)
Unrecognized net pension loss in disposed business (c)  -   -   -   -   -   1.7   -   1.7 
Income taxes  -   -   -   -   -   -   (0.1)  (0.1)
Total other comprehensive income (loss)  (3.4)  1.6   0.2   (1.6)  (6.0)  6.6   (0.2)  0.4 
                                 
Ending balance $(37.0) $(124.2) $0.4  $(160.8) $(37.0) $(124.2) $0.4  $(160.8)
Table of Contents
MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 
Three months ended
December 31, 2016
  
Nine months ended
December 31, 2016
 
  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  Total  
Foreign
Currency
Translation
  
Defined
Benefit
Plans
  Total 
Beginning balance $(39.0) $(136.5) $(175.5) $(36.0) $(138.2) $(174.2)
                         
Other comprehensive income (loss) before reclassifications  (14.2)  -   (14.2)  (17.2)  -   (17.2)
Reclassifications for amortization of unrecognized net loss (a)  -   1.3   1.3   -   3.9   3.9 
Income taxes  -   (0.4)  (0.4)  -   (1.3)  (1.3)
Total other comprehensive income (loss)  (14.2)  0.9   (13.3)  (17.2)  2.6   (14.6)
                         
Ending balance $(53.2) $(135.6) $(188.8) $(53.2) $(135.6) $(188.8)
(a)Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans. See Note 4 for additional information about the Company’s pension plans.
(b)Amounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings.
(c)As a result of the sale of the air-cooled automotive business in Austria, the Company wrote off $1.7 million of net actuarial losses related to its pension plan as a component of the loss on sale recorded during the first quarter of fiscal 2022.  See Note 1 for additional information.


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MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
Note 17:
Note 19: Segment Information


Effective April 1, 2022, the Company began managing its operations under two operating segments, Climate Solutions and Performance Technologies.  The Climate Solutions segment includes the previously-reported BHVAC and CIS segments, with the exception of CIS Coatings.  The Performance Technologies segment includes the previously-reported HDE and Automotive segments and the CIS Coatings business.  See Note 2 for information regarding the primary operating activities of each segment.  The Company’s new segment structure aligns businesses serving similar or complimentary end markets, products and technologies under common segment management.  The Company believes this simplified segment structure allows it to better focus resources on targeted growth opportunities and better enables for an efficient application of 80/20 principles across all product lines to optimize profit margins and cash flow.  The segment realignment had no impact on the Company’s consolidated financial position, results of operations, and cash flows.  Segment financial information for the prior periods has been recast to conform to the current presentation.

The following is a summary of net sales, gross profit and operating income and total assets by segment.  In fiscal 2018, the Company adopted new accounting guidance related to the income statement presentation of pension and postretirement costs.  Accordingly, the Company recast the comparable fiscal 2017 segment financial results to conform to the current-period presentation.  See Note 1 for additional information on this new accounting guidance.segment:


 Three months ended December 31, 

 2022  2021 
  
External
Sales
  
Inter-segment
Sales
  Total  
External
Sales
  
Inter-segment
Sales
  Total 
Net sales:                  
Climate Solutions
 $248.6  $-  $248.6  $227.3  $-  $227.3 
Performance Technologies
  311.4   6.4   317.8   274.9   7.1   282.0 
Segment total  560.0   6.4   566.4   502.2   7.1   509.3 
Corporate and eliminations  -   (6.4)  (6.4)  -   (7.1)  (7.1)
Net sales 
$
560.0
  $-  $560.0  
$
502.2
  $-  $502.2 
  
Three months ended
December 31,
  
Nine months ended
December 31,
 
Net sales: 2017  2016  2017  2016 
Americas $140.5  $123.4  $430.7  $389.4 
Europe  134.6   119.8   405.4   389.7 
Asia  42.8   28.6   117.7   78.2 
Commercial and Industrial Solutions (a)  144.9   34.7   451.6   34.7 
Building HVAC  56.1   47.2   147.9   132.8 
Segment total  518.9   353.7   1,553.3   1,024.8 
Corporate and eliminations  (6.2)  (3.9)  (16.8)  (10.1)
Net sales $512.7  $349.8  $1,536.5  $1,014.7 

 Nine months ended December 31, 
  2022  2021 
  
External
Sales
  
Inter-segment
Sales
  Total  
External
Sales
  
Inter-segment
Sales
  Total 
Net sales:                  
Climate Solutions $
748.6  $
0.3  $
748.9  $
650.8  $
0.2  $
651.0 
Performance Technologies  931.2   20.9   952.1   824.9   25.0   849.9 
Segment total  1,679.8   21.2   1,701.0   1,475.7   25.2   1,500.9 
Corporate and eliminations  -   (21.2)  (21.2)  -   (25.2)  (25.2)
Net sales $
1,679.8
  $-  $1,679.8  $
1,475.7
  $-  $1,475.7 

19
21
Table of Contents

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
(unaudited)
 Three months ended December 31,  Nine months ended December 31, 
  2022  2021  2022  2021 
  $’s
  % of sales  $’s
  % of sales  $’s
  % of sales  $’s
  % of sales 
Gross profit:                    
Climate Solutions $54.8   22.0% $41.9   18.4% $162.5   21.7% $110.4   17.0%
Performance Technologies  43.0   13.5%  32.9   11.7%  115.2   12.1%  102.6   12.1%
Segment total  97.8   17.3%  74.8   14.7%  277.7   16.3%  213.0   14.2%
Corporate and eliminations  (0.2)  -   (0.2)  -   (0.5)  -   1.1   - 
Gross profit $97.6   17.4% $74.6   14.9% $277.2   16.5% $214.1   14.5%

 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2022  2021  2022  2021 
Operating income:            
Climate Solutions $
30.2  $16.8  $
89.9  $
41.4 
Performance Technologies  17.4   66.1   41.1   83.9 
Segment total  47.6   82.9  131.0   125.3
Corporate and eliminations  (8.1)  (3.5)  (29.1)  (26.7)
Operating income
 $39.5  $79.4 $101.9  $98.6

 
Three months ended
December 31,
  
Nine months ended
December 31,
 
  2017  2016  2017  2016 
Gross profit: $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Americas $21.7   15.4% $18.4   14.9% $69.7   16.2% $59.5   15.3%
Europe  17.9   13.3%  18.6   15.5%  56.8   14.0%  60.3   15.5%
Asia  8.2   19.0%  5.0   17.6%  21.9   18.6%  13.1   16.7%
Commercial and Industrial Solutions (a)  18.6   12.9%  4.4   12.7%  66.4   14.7%  4.4   12.7%
Building HVAC  19.0   33.8%  15.3   32.4%  45.0   30.4%  37.1   28.0%
Segment total  85.4   16.4%  61.7   17.5%  259.8   16.7%  174.4   17.0%
Corporate and eliminations  -   -   (2.7)  -   0.2   -   (5.1)  - 
Gross profit $85.4   16.7% $59.0   16.9% $260.0   16.9% $169.3   16.7%
The following is a summary of segment assets, comprised entirely of trade accounts receivable and inventories, and other assets:


  
Three months ended
December 31,
  
Nine months ended
December 31,
 
Operating income: 2017  2016  2017  2016 
Americas $8.9  $5.7  $28.8  $14.2 
Europe  6.3   8.6   22.8   30.9 
Asia  5.1   2.6   12.6   4.9 
Commercial and Industrial Solutions (a)  (4.6)  (0.3)  14.3   (0.3)
Building HVAC  9.2   6.7   18.6   10.4 
Segment total  24.9   23.3   97.1   60.1 
Corporate and eliminations  (11.0)  (16.6)  (32.1)  (38.7)
Operating income $13.9  $6.7  $65.0  $21.4 

  December 31, 2017  March 31, 2017 
Total assets:      
Americas $275.9  $282.9 
Europe  308.1   269.4 
Asia  132.5   111.3 
Commercial and Industrial Solutions  606.8   576.0 
Building HVAC  88.8   85.2 
Corporate and eliminations (b)  90.1   124.7 
Total assets $1,502.2  $1,449.5 
 December 31, 2022  March 31, 2022 
Assets:      
Climate Solutions $
307.9  $
291.7 
Performance Technologies  353.1   357.0 
Other (a)
  786.0   778.3 
Total assets $1,447.0  $1,427.0 
(a)The Company acquired Luvata HTS on November 30, 2016
Represents cash and began operatingcash equivalents, other current assets, property plant and equipment, intangible assets, goodwill, deferred income taxes, and other noncurrent assets for the business as its CIS segment.  As the Company has consolidated CIS financial results since the acquisition date, the threeClimate Solutions and nine months ended December 31, 2016 included one month of financial results from CIS operations.  During the three months ended December 31, 2017, the Company recorded restructuring expensesPerformance Technologies segments and an impairment charge totaling $9.5 million within the CIS segment associated with the closure of a manufacturing facility in Austria.  See Note 6 for additional information.Corporate.
(b)The decrease in total assets at Corporate was primarily due to a decrease in deferred tax assets resulting from the impact of tax reform in the U.S.  See Note 8 for additional information regarding the reduction in the corporate tax rate in the U.S.

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Table of Contents
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.


When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company.  Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters.  The quarter ended December 31, 20172022 was the third quarter of fiscal 2018.2023.


On November 30, 2016, we acquired Luvata Heat Transfer Solutions (“Luvata HTS”)Supply Chain Disruptions and Inflationary Market Conditions
Market and economic dynamics, including the impacts of the COVID-19 pandemic and the military conflict between Russia and Ukraine, have contributed to global supply chain challenges and inflationary market conditions.  We are focused on mitigating the negative impacts of labor shortages, supply chain challenges and inflationary market conditions, including changes in raw material, energy, logistic, and interest costs, as well as delays and shortages in certain purchased commodities and components.  We have implemented selling price increases for consideration totaling $415.6 million ($388.2 million, netmany of our products in response to raw material and other cost increases and are engaged with suppliers to ensure availability of key raw materials.

We cannot reasonably estimate the full impact that the ongoing supply chain challenges and other related economic and market dynamics will have on our business, results of operations, or cash acquired).  Operating as our Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings toflows in the heating, ventilation, air conditioning, and refrigeration industry.  As we have consolidated CIS financial results since the acquisition date,future.

Third Quarter Highlights
Net sales in the third quarter of fiscal 2017 included one month of financial results2023 increased $57.8 million, or 12 percent, from CIS operations.

In December 2017, the Tax Cuts and Jobs Act (“U.S. tax reform”) was enacted and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions.  During the third quarter of fiscal 2018, we2022, primarily due to higher sales in our Performance Technologies and Climate Solutions segments.  Cost of sales increased $34.8 million, or 8 percent, primarily due to higher sales volume.  Gross profit increased $23.0 million and gross margin improved 250 basis points to 17.4 percent.  Selling, general and administrative (“SG&A”) expenses increased $7.7 million, primarily due to higher compensation-related expenses.  Operating income of $39.5 million during the third quarter of fiscal 2023 decreased $39.9 million from the prior year, primarily due to the absence of a $57.2 million impairment reversal recorded provisional charges totaling $35.7 million for certain income tax effectsin the prior year related to the liquid-cooled automotive business, which reverted back to held and used classification upon the termination of a sale agreement with the U.S. tax reform.prospective buyer during the third quarter of fiscal 2022.  See Note 81 of the Notes to Condensed Consolidated Financial Statements for additional information.

Third Quarter Highlights

Net sales infurther information regarding the third quarterliquid-cooled automotive business, which was classified as held for sale during the first seven months of fiscal 2018 increased $162.9 million, or 47 percent, from the third quarter of fiscal 2017, primarily due to a $110.2 million increase in sales in our CIS segment, which we owned for one month in the third quarter of the prior year, and higher sales in all of our other operating segments.  Gross profit increased $26.4 million, including $14.2 million of additional contribution from our CIS segment.  Selling, general and administrative (“SG&A”) expenses increased $10.1 million, primarily due to a $9.0 million increase of SG&A expenses in our CIS segment.  Restructuring expenses increased $7.8 million, primarily due to severance expenses related to the recent closure of a manufacturing facility in Austria within the CIS segment.  In addition, we recorded a $1.3 million asset impairment charge related to this CIS Austria facility.  Operating income during the third quarter of fiscal 2018 increased $7.2 million to $13.9 million.  Our net loss of $27.9 million represents a $29.8 million decline compared with the third quarter of the prior year, primarily due to $35.7 million of charges associated with U.S. tax reform, partially offset by the increase in operating income.2022.


Year-to-DateYear-to-date Highlights

Net sales in the first nine months of fiscal 20182023 increased $521.8$204.1 million, or 5114 percent, from the same period last year, primarily due to $416.9 million of additional sales from our CIS segment and higher sales in alleach of our other operating segments.  Cost of sales increased $141.0 million, or 11 percent, from the same period last year, primarily due to higher sales volume and higher raw material costs, including underlying metal prices and related premiums, fabrication, freight, and packaging costs.  Gross profit increased $90.7$63.1 million including $62.0 million of additional contribution from our CIS segment.and gross margin improved 200 basis points to 16.5 percent.  SG&A expenses increased $39.1$11.5 million, primarily due to a $37.9 million increase in SG&A expenses in our CIS segment.higher compensation-related expenses.  Operating income of $101.9 million during the first nine months of fiscal 20182023 increased $43.6$3.3 million to $65.0 million.  Our net earnings of $5.8 million decreased $1.0 million compared with the same period infrom the prior year, primarily due to $35.7 million of charges associated with U.S. tax reform and higher interest expense,gross profit, partially offset by the increaseabsence of a $55.7 million net impairment reversal recorded in operating income.the prior year that primarily related to the liquid-cooled automotive business.

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CONSOLIDATED RESULTS OF OPERATIONS


The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 20172022 and 2016:2021:


  Three months ended December 31,  Nine months ended December 31, 
  2022  2021  2022  2021 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales 
$
560.0
   
100.0
%
 
$
502.2
   
100.0
%
 
$
1,679.8
   
100.0
%
 
$
1,475.7
   
100.0
%
Cost of sales  
462.4
   
82.6
%
  
427.6
   
85.1
%
  
1,402.6
   
83.5
%
  
1,261.6
   
85.5
%
Gross profit  
97.6
   
17.4
%
  
74.6
   
14.9
%
  
277.2
   
16.5
%
  
214.1
   
14.5
%
Selling, general and administrative expenses  
58.0
   
10.3
%
  
50.3
   
10.0
%
  
173.1
   
10.3
%
  
161.6
   
11.0
%
Restructuring expenses  
0.1
   
-
   
2.1
   
0.4
%
  
2.2
   
0.1
%
  
3.0
   
0.2
%
Impairment charges (reversals) – net  
-
   
-
   
(57.2
)
  
-11.4
%
  
-
   
-
   
(55.7
)
  
-3.8
%
Loss on sale of assets  
-
   
-
   
-
   
-
   
-
   
-
   
6.6
   
0.4
%
Operating income  
39.5
   
7.1
%
  
79.4
   
15.8
%
  
101.9
   
6.1
%
  
98.6
   
6.7
%
Interest expense  
(5.9
)
  
-1.1
%
  
(3.8
)
  
-0.8
%
  
(14.7
)
  
-0.9
%
  
(11.8
)
  
-0.8
%
Other expense – net  
(0.4
)
  
-0.1
%
  
(1.1
)
  
-0.2
%
  
(4.1
)
  
-0.2
%
  
(1.6
)
  
-0.1
%
Earnings before income taxes  
33.2
   
5.9
%
  
74.5
   
14.8
%
  
83.1
   
4.9
%
  
85.2
   
5.8
%
Provision for income taxes  
(8.5
)
  
-1.5
%
  
(0.1
)
  
-
   
(19.8
)
  
-1.2
%
  
(7.4
)
  
-0.5
%
Net earnings 
$
24.7
   
4.4
%
 
$
74.4
   
14.8
%
 
$
63.3
   
3.8
%
 
$
77.8
   
5.3
%
  Three months ended December 31,  Nine months ended December 31, 
  2017  2016  2017  2016 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $512.7   100.0% $349.8   100.0% $1,536.5   100.0% $1,014.7   100.0%
Cost of sales  427.3   83.3%  290.8   83.1%  1,276.5   83.1%  845.4   83.3%
Gross profit  85.4   16.7%  59.0   16.9%  260.0   16.9%  169.3   16.7%
Selling, general and administrative expenses  60.8   11.9%  50.7   14.5%  182.2   11.9%  143.1   14.1%
Restructuring expenses  9.4   1.8%  1.6   0.5%  11.5   0.7%  6.0   0.6%
Impairment charge  1.3   0.3%  -   -   1.3   0.1%  -   - 
Gain on sale of facility  -   -   -   -   -   -   (1.2)  -0.1%
Operating income  13.9   2.7%  6.7   1.9%  65.0   4.2%  21.4   2.1%
Interest expense  (6.3)  -1.2%  (4.5)  -1.3%  (19.5)  -1.3%  (10.5)  -1.0%
Other expense – net  (0.3)  -0.1%  (1.0)  -0.3%  (2.3)  -0.1%  (2.8)  -0.3%
Earnings before income taxes  7.3   1.4%  1.2   0.3%  43.2   2.8%  8.1   0.8%
(Provision) benefit for income taxes  (35.2)  -6.9%  0.7   0.2%  (37.4)  -2.4%  (1.3)  -0.1%
Net (loss) earnings $(27.9)  -5.5% $1.9   0.5% $5.8   0.4% $6.8   0.7%


Comparison of Three Months Endedended December 31, 20172022 and 20162021


Third quarter net sales of $512.7$560.0 million were $162.9$57.8 million, or 4712 percent, higher than the third quarter of the prior year, primarily due to $110.2higher sales volume in each of our segments and favorable commercial pricing.  These increases were partially offset by a $30.2 million unfavorable impact of additional sales from our CIS segment, which we owned for one monthforeign currency exchange rates.  Sales in the thirdPerformance Technologies and Climate Solutions segments increased $35.8 million and $21.3 million, respectively.

Third quarter cost of the prior year,sales increased $34.8 million, or 8 percent, primarily due to higher sales in all of our other operating segments, andvolume,  partially offset by a $15.9$25.5 million favorable impact of foreign currency exchange rate changes.rates.  As a percentage of sales, cost of sales decreased 250 basis points to 82.6 percent, primarily due to the favorable impacts of higher sales volume and commercial pricing, partially offset by higher labor and inflationary costs.


ThirdAs a result of higher sales and lower cost of sales as a percentage of sales, third quarter gross profit increased $26.4$23.0 million primarily due to $14.2 million of additional contribution from our CIS segment and higher gross profit in our Building HVAC, Americas, and Asia segments.  Third quarter gross profit was favorably impacted by $2.1 million from foreign currency exchange rate changes.  Gross margin declined 20improved 250 basis points to 16.7 percent, as the benefits from higher sales volume and the absence of a $2.9 million inventory purchase accounting adjustment, which was recorded at Corporate in the prior year, were offset by unfavorable sales mix, higher material costs, and the absence of favorable customer pricing settlements in Europe recorded in the prior year.17.4 percent.


Third quarter SG&A expenses increased $10.1$7.7 million, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily duedriven by higher compensation-related expenses, which increased approximately $5.0 million, and, to a $9.0lesser extent, increases in other general and administrative expenses that have been impacted by inflationary market conditions.  The compensation-related expenses included higher incentive compensation expenses driven by improved financial results, as compared with the prior year.  These increases were partially offset by a $2.3 million increase in SG&A expenses in our CIS segment, a $1.4 million unfavorablefavorable impact of foreign currency exchange rate changes,rates and higher compensation-related expenses, partially offset by lower strategic reorganization costs incurred related to the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales,recorded at Corporate, which decreased 260 basis points compared with the third quarter of the prior year.$0.9 million.


Restructuring expenses of $9.4$0.1 million in the third quarter of fiscal 2018 increased $7.8 million compared with the prior year, primarily due to severance-related expenses in the CIS segment related to the closure of a manufacturing facility in Austria.

During the third quarter of fiscal 2018, we recorded a $1.3 million impairment charge related to the closure of a CIS manufacturing facility in Austria.

Operating income of $13.9 million in the third quarter of fiscal 2018 improved $7.22023 decreased $2.0 million compared with the third quarter of fiscal 2017,2022, primarily due to higher earningslower severance and equipment transfer costs in the Americas, AsiaClimate Solutions and Building HVAC segments.Performance Technologies segments, respectively.


Interest expense increased $1.8
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During the third quarter of fiscal 2022, in connection with the termination of the agreement to sell the liquid-cooled automotive business, we reversed $57.2 million of previously-recorded impairment charges within the Performance Technologies segment.  See Note 1 of the Notes to $6.3Condensed Consolidated Financial Statements for further information.

Operating income of $39.5 million in the third quarter of fiscal 2018,2023 decreased $39.9 million compared with the third quarter of fiscal 2022, primarily due to the debt issuedabsence of the significant impairment reversal recorded in November 2016the prior year, partially offset by higher gross profit.

Interest expense during the third quarter of fiscal 2023 increased $2.1 million compared with the third quarter of fiscal 2022, primarily due to financeunfavorable changes in interest rates.  In addition, we amended and extended our U.S. credit agreement that provides for a significant portionmulti-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 $0.7 million of our acquisitioncosts as interest expense during the third quarter of Luvata HTS.fiscal 2023.
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The provision for income taxes was $35.2$8.5 million and $0.1 million in the third quarter of fiscal 2018, compared with a2023 and 2022, respectively.  The $8.4 million increase was primarily due the absence of an $8.2 million income tax benefit for income taxes of $0.7 million inrecorded during the third quarter of fiscal 2017.  The $35.9 million change was primarily due to charges totaling $35.7 million2022 resulting from the reversal of valuation allowances in the third quarter of fiscal 2018 related to the recently-enacted U.S. tax reform.  In addition, the tax provision in the third quarter of fiscal 2018 included a $2.2 million benefit from a development tax credit in Hungary.foreign jurisdictions.


Comparison of Nine Months Endedended December 31, 20172022 and 20162021


Fiscal 20182023 year-to-date net sales of $1,536.5$1,679.8 million were $521.8$204.1 million, or 5114 percent, higher than the same period last year, primarily due to $416.9 million of additional sales from our CIS segment, higher sales volume in allboth of our other segments and an $18.7favorable commercial pricing, including adjustments in response to raw material price increases.  These increases were partially offset by a $93.1 million favorableunfavorable impact of foreign currency exchange rate changes.rates.  Sales in the Performance Technologies and Climate Solutions segments increased $102.2 million and $97.9 million, respectively.


Fiscal 20182023 year-to-date gross profitcost of $260.0sales of $1,402.6 million increased $90.7$141.0 million, from the same period last year, due primarily to $62.0 million of incremental gross profit in our recently-acquired CIS segment and higher gross profit in our Americas, Asia, and Building HVAC segments.  Year-to-date gross profit was favorably impacted by $2.4 million from foreign currency exchange rate changes.  Gross margin improved 20 basis points to 16.9or 11 percent, primarily due to higher sales volume and improved production efficiencies,higher raw material prices, which increased approximately $42.0 million.  These increases were partially offset by unfavorablean $80.2 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 200 basis points to 83.5 percent, primarily due to the favorable impact of higher sales volume and favorable commercial pricing, partially offset by higher material, costslabor and incremental depreciationother inflationary costs.

As a result of higher sales and amortization expense resulting from purchase accounting for Luvata HTS.lower cost of sales as a percentage of sales, gross profit increased $63.1 million and gross margin improved 200 basis points to 16.5 percent.


Fiscal 20182023 year-to-date SG&A expenses increased $39.1$11.5 million, from the same period last year, primarily due to a $37.9 million increase in SG&A expenses in our CIS segment,driven by higher compensation-related expenses, which increased approximately $14.0 million and included higher incentive compensation and commission-related expenses, and, to a $1.5lesser extent, increases in other general and administrative expenses that have been impacted by inflationary market conditions.  These increases were partially offset by a $7.1 million unfavorablefavorable impact of foreign currency exchange rate changes, partially offset by lowerrates.  In addition, strategic reorganization costs, incurredcosts associated with our review of strategic alternatives for our automotive businesses, and environmental charges related to a previously-closed manufacturing facility in the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales,U.S., which are each recorded at Corporate, decreased 220 basis points compared with the same period last year.

Restructuring expenses of $11.5$3.1 million, $2.3 million, and $1.8 million, respectively, during the first nine months of fiscal 2018 increased $5.52023 compared with the same period in the prior year.

Restructuring expenses of $2.2 million in the first nine months of fiscal 2023 decreased $0.8 million compared with the same period last year, primarily due to severance-relatedlower severance expenses in the CISClimate Solutions segment, related topartially offset by higher restructuring expenses in the closurePerformance Technologies segment.

25
Table of a manufacturing facility in Austria.Contents

During fiscal 2018, we recorded a $1.3 millionThe net impairment charge related to the closurereversal of the CIS manufacturing facility in Austria.

During fiscal 2017, we sold a manufacturing facility within our Europe segment for cash proceeds of $4.3 million and recognized a $1.2 million gain as a result.

Operating income of $65.0$55.7 million during the first nine months of fiscal 2018 represents a $43.6 million improvement compared with same period last year,2022 primarily due to $14.6 million of incremental operating income contributed by our CIS segment and higher earnings in the Americas, Asia and Building HVAC segments.

Interest expense increased $9.0 million to $19.5 million in the first nine months of fiscal 2018, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.

The provision for income taxes was $37.4 million and $1.3 million in the first nine months of fiscal 2018 and 2017, respectively.  The $36.1 million increase was primarily due to $35.7 million of charges recorded in the third quarter of fiscal 2018 related to U.S. tax reform and increased operating earnings in the current year, partially offset by tax benefits of $7.9 million from a development tax credit in Hungary and a $1.8 million reduction of unrecognized tax benefits resulting from a lapse in statutes of limitations.  We expectliquid-cooled automotive business within the full-year fiscal 2018 benefit for the Hungary development tax credit to total approximately $11.0 million.  We do not expect the impact of this tax credit to be significant in fiscal 2019.  It is possible that we may release the tax valuation allowance (approximately $3.0 million) in a foreign jurisdiction in the fourth quarter of fiscal 2018 or in fiscal 2019.Performance Technologies segment.  See Note 81 of the Notes to Condensed Consolidated Financial Statements for additional information regarding U.S. tax reformfurther information.

We sold our Austrian air-cooled automotive business on April 30, 2021.  As a result of the sale, we recorded a $6.6 million loss on sale at Corporate during the first quarter of fiscal 2022.

Operating income of $101.9 million during the first nine months of fiscal 2023 increased $3.3 million compared with the same period last year, primarily due to the $63.1 million increase in gross profit and the absence of the $6.6 million loss on the sale of the Austrian air-cooled automotive business in the prior year.  These drivers, which increased operating income in the first nine months of fiscal 2023, were partially offset by the absence of the $55.7 million net impairment reversal recorded in the prior year and higher SG&A expenses.

Interest expense during the first nine months of fiscal 2023 increased $2.9 million compared with the same period in the prior year, primarily due to unfavorable changes in interest rates and $0.7 million of costs recorded in connection with the credit agreement modification during the third quarter of fiscal 2023.

The provision for income taxes was $19.8 million and $7.4 million during the first nine months of fiscal 2023 and 2022, respectively.  The $12.4 million increase was primarily due to the absence of a net $11.4 million income tax benefit related to valuation allowances.allowances on deferred tax assets in foreign jurisdictions recorded in the prior year.

SEGMENT RESULTS OF OPERATIONS

Effective April 1, 2022, we began managing the company under two operating segments, Climate Solutions and Performance Technologies.  Our new segment structure aligns businesses serving similar or complimentary end markets, products and technologies under common segment management.  This simplified segment structure allows us to better focus resources on targeted growth opportunities and better enables an efficient application of 80/20 principles across all product lines to optimize profit margins and cash flow.

The Climate Solutions segment provides energy-efficient, climate-controlled solutions and components for a wide array of applications.  The Climate Solutions segment sells heat transfer products, heating, ventilating, air conditioning and refrigeration (“HVAC and refrigeration”) products, and data center cooling solutions.  The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that increase fuel economy and lower emissions in light of increasingly stringent government regulations.  The Performance Technologies segment designs and manufactures air- and liquid-cooled technology for vehicular, stationary power, and industrial applications.  In addition, the Performance Technologies segment provides advanced thermal solutions to zero-emission and hybrid commercial vehicle and automotive customers and coating products and application services.

The Climate Solutions segment includes the previously-reported Building HVAC Systems and Commercial and Industrial Solutions (“CIS”) segments, with the exception of CIS Coatings.  The Performance Technologies segment includes the previously-reported Heavy Duty Equipment and Automotive segments and the CIS Coatings business.  The segment realignment had no impact on our consolidated financial position, results of operations, and cash flows.  Segment financial information for fiscal 2022 has been recast to conform to the current presentation.

23
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Table of Contents
SEGMENT RESULTS OF OPERATIONS

Since the date we acquired Luvata HTS (November 30, 2016), we have included CIS segment financial results within our consolidated results of operations.  As CIS financial results were not included in our consolidated financial statements for the full period during the three and nine months ended December 31, 2016, we have not provided separate discussion of our CIS segment below.  The contributions of our CIS segment are included within the discussion of our consolidated financial results above.  The following is a discussion of our segment results of operations for the three months and nine months ended December 31, 20172022 and 2016:2021:


Americas                        
  Three months ended December 31,  Nine months ended December 31, 
  2017  2016  2017  2016 
(in millions) $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Net sales $140.5   100.0% $123.4   100.0% $430.7   100.0% $389.4   100.0%
Cost of sales  118.8   84.6%  105.0   85.1%  361.0   83.8%  329.9   84.7%
Gross profit  21.7 �� 15.4%  18.4   14.9%  69.7   16.2%  59.5   15.3%
Selling, general and administrative expenses  12.7   9.0%  11.3   9.2%  39.3   9.1%  40.1   10.3%
Restructuring expenses  0.1   0.1%  1.4   1.1%  1.6   0.4%  5.2   1.3%
Operating income $8.9   6.3% $5.7   4.6% $28.8   6.7% $14.2   3.6%
Climate Solutions


  Three months ended December 31,  Nine months ended December 31, 
  2022  2021  2022  2021 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales 
$
248.6
   
100.0
%
 
$
227.3
   
100.0
%
 
$
748.9
   
100.0
%
 
$
651.0
   
100.0
%
Cost of sales  
193.8
   
78.0
%
  
185.4
   
81.6
%
  
586.4
   
78.3
%
  
540.6
   
83.0
%
Gross profit  
54.8
   
22.0
%
  
41.9
   
18.4
%
  
162.5
   
21.7
%
  
110.4
   
17.0
%
Selling, general and administrative expenses  
24.6
   
9.9
%
  
23.6
   
10.4
%
  
72.3
   
9.7
%
  
67.0
   
10.3
%
Restructuring expenses  
-
   
-
   
1.5
   
0.6
%
  
0.3
   
-
   
1.7
   
0.3
%
Impairment charge  
-
   
-
   
-
   
-
   
-
   
-
   
0.3
   
-
 
Operating income 
$
30.2
   
12.2
%
 
$
16.8
   
7.4
%
 
$
89.9
   
12.0
%
 
$
41.4
   
6.4
%

Comparison of Three Months Endedended December 31, 20172022 and 20162021


AmericasClimate Solutions net sales increased $17.1$21.3 million, or 149 percent, from the third quarter of fiscal 20172022 to the third quarter of fiscal 2018, primarily due to higher sales volume to commercial vehicle, off-highway, and automotive customers.  Gross profit increased $3.3 million and gross margin improved 50 basis points,2023, primarily due to higher sales volume and improved production efficiencies,favorable commercial pricing.  This increase was partially offset by a $13.7 million unfavorable material costs.  SG&A expensesimpact of foreign currency exchange rates.  Compared with the third quarter of the prior year, sales of data center cooling, heat transfer, and HVAC & refrigeration products increased $1.4$16.3 million, primarily due to a lower recovery$2.8 million, and $2.2 million, respectively.

Climate Solutions cost of development costs and higher compensation-related expenses.  Restructuring expenses decreased $1.3sales increased $8.4 million, inor 5 percent, from the third quarter of fiscal 2018,2022 to the third quarter of fiscal 2023, primarily due to higher sales volume, partially offset by an $11.6 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 360 basis points to 78.0 percent, primarily due to the favorable impact of higher sales volume, and improved operating efficiencies, partially offset by higher labor and inflationary costs.

As a result of the higher sales and lower plant consolidation costs.  cost of sales as a percentage of sales, gross profit increased $12.9 million and gross margin improved 360 basis points to 22.0 percent.

SG&A expenses increased $1.0 million, yet decreased 50 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to increases in general and administrative expenses that have been impacted by inflationary market conditions and, to a lesser extent, higher compensation-related expenses.  These increases were partially offset by a $1.1 million favorable impact of foreign currency exchange rate changes.

Restructuring expenses decreased $1.5 million compared with the third quarter of fiscal 2022.  The fiscal 2022 restructuring expenses primarily consisted of severance expenses related to targeted headcount reductions in Europe and China.

Operating income of $30.2 million increased $3.2$13.4 million from the third quarter of fiscal 2022 to $8.9 million,the third quarter of fiscal 2023, primarily due to higher gross profit.


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Table of Contents
Comparison of Nine Months Endedended December 31, 20172022 and 20162021


AmericasClimate Solutions year-to-date net sales increased $41.3$97.9 million, or 1115 percent, from the same period last year, primarily due to higher sales volume and favorable commercial pricing, including adjustments in response to off-highway and commercial vehicle customers, increased aftermarket sales in Brazil, and a $2.0 million favorable impact of foreign currency exchange rate changes.  Gross profit increased $10.2 million and gross margin improved 90 basis points, primarily due to higher sales volume and improved production efficiencies,raw material price increases.  These increases were partially offset by unfavorable material costs.  SG&A expenses decreased $0.8 million, primarily due to the absence of a $1.6 million charge recorded in the prior year related to a legal matter in Brazil, which has since been settled and paid, partially offset by legal costs incurred for an environmental matter associated with a previously-owned manufacturing facility.  Restructuring expenses decreased $3.6 million, primarily due to lower plant consolidation and severance expenses.  Operating income increased $14.6 million to $28.8 million, primarily due to higher gross profit and lower restructuring expenses.
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Table of Contents
Europe                        
  Three months ended December 31,  Nine months ended December 31, 
  2017  2016  2017  2016 
(in millions) $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Net sales $134.6   100.0% $119.8   100.0% $405.4   100.0% $389.7   100.0%
Cost of sales  116.7   86.7%  101.2   84.5%  348.6   86.0%  329.4   84.5%
Gross profit  17.9   13.3%  18.6   15.5%  56.8   14.0%  60.3   15.5%
Selling, general and administrative expenses  10.5   7.8%  9.9   8.2%  32.3   8.0%  30.8   7.9%
Restructuring expenses (income)  1.1   0.9%  0.1   0.1%  1.7   0.4%  (0.2)  -0.1%
Gain on sale of facility  -   -   -   -   -   -   (1.2)  -0.3%
Operating income $6.3   4.6% $8.6   7.2% $22.8   5.6% $30.9   7.9%

Comparison of Three Months Ended December 31, 2017 and 2016

Europe net sales increased $14.8 million, or 12 percent, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily due to an $11.1 million favorable impact of foreign currency exchange rate changes and higher sales volume to automotive and off-highway customers.  Gross profit decreased $0.7 million and gross margin declined 220 basis points to 13.3 percent, primarily due to the absence of favorable customer pricing settlements recorded in the prior year.  In addition, gross profit was favorably impacted by $1.4 million from foreign currency exchange rate changes.  SG&A expenses increased $0.6 million, primarily due to a $0.9$43.6 million unfavorable impact of foreign currency exchange rate changes.  Restructuring expenses increased $1.0 millionrates.  Compared with the same period in the third quarterprior year, sales of fiscal 2018, primarily due to higher severance expenses.  Operating incomeheat transfer, data center cooling, and HVAC & refrigeration products increased $41.3 million, $37.6 million, and $18.9 million, respectively.

Climate Solutions year-to-date cost of $6.3 million decreased $2.3 million, primarily due to higher restructuring expenses and lower gross profit.

Comparison of Nine Months Ended December 31, 2017 and 2016

Europe year-to-date net sales increased $15.7$45.8 million, or 48 percent, from the same period last year, primarily due to higher sales volume and, to a $14.6lesser extent, higher raw material prices, which increased by approximately $10.0 million.  These increases were partially offset by a $37.0 million favorable impact of foreign currency exchange rate changes and higherrates.  As a percentage of sales, volume to off-highway and automotive customers, partially offset by the planned wind-downcost of certain commercial vehicle programs.  Gross profitsales decreased $3.5 million and gross margin declined 150470 basis points to 14.078.3 percent, primarily due to unfavorable material costs and the absence of the favorable customerimpact of higher sales volume, favorable commercial pricing, settlements recorded in the prior year,and improved operating efficiencies, partially offset by improved production efficiencies.  In addition,higher labor and inflationary costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit was favorably impacted by $2.0 million from foreign currency exchange rate changes.  SG&A expenses increased $1.5 million, primarily due to a $1.1 million unfavorable impact of foreign currency exchange rate changes and higher compensation-related expenses.  Restructuring expenses increased $1.9 million, primarily due to higher severance expenses and equipment transfer costs.  During fiscal 2017, we sold a manufacturing facility for cash proceeds of $4.3 million and recorded a $1.2 million gain as a result.  Operating income of $22.8 million decreased $8.1 million, primarily due to lower gross profit and higher restructuring and SG&A expenses.

Asia                        
  Three months ended December 31,  Nine months ended December 31, 
  2017  2016  2017  2016 
(in millions) $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Net sales $42.8   100.0% $28.6   100.0% $117.7   100.0% $78.2   100.0%
Cost of sales  34.6   81.0%  23.6   82.4%  95.8   81.4%  65.1   83.3%
Gross profit  8.2   19.0%  5.0   17.6%  21.9   18.6%  13.1   16.7%
Selling, general and administrative expenses  3.1   7.3%  2.4   8.4%  9.3   7.9%  8.2   10.4%
Operating income $5.1   11.7% $2.6   9.2% $12.6   10.7% $4.9   6.3%
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Comparison of Three Months Ended December 31, 2017 and 2016

Asia net sales increased $14.2 million, or 50 percent, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily due to higher sales volume to off-highway customers in all geographic markets and automotive customers in China and India.  Foreign currency exchange rate changes favorably impacted third quarter net sales by $1.5 million.  Gross profit increased $3.2$52.1 million and gross margin improved 140470 basis points to 19.0 percent, primarily due to higher sales volume.21.7 percent.

Climate Solutions year-to-date SG&A expenses increased by $0.7$5.3 million, compared with the prior year, yet decreased 11060 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to higher compensation-related expenses, incurredincluding higher commission expenses, andincreases in supportother general and administrative expenses that have been impacted by inflationary market conditions.  These increases were partially offset by a $3.5 million favorable impact of foreign currency exchange rate changes.

Restructuring expenses of $0.3 million during the recent business growth.  first nine months of fiscal 2023 decreased $1.4 million compared with the same period last year, primarily due to lower severance expenses.  The severance expenses during the first nine months of fiscal 2022 primarily related to targeted headcount reductions in Europe and China.  The $0.3 million of restructuring expenses during the first nine months of fiscal 2023 primarily consisted of closure costs related to a previously-leased facility.

During the first quarter of fiscal 2022, we recorded an impairment charge of $0.3 million to write-down a previously-closed manufacturing facility in the U.S. to fair value less costs to sell.  We sold the facility and received net cash proceeds of $0.7 million during July 2021.

Operating income of $5.1$89.9 million increased $2.5$48.5 million from the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses.

Performance Technologies

  Three months ended December 31,  Nine months ended December 31, 
  2022  2021  2022  2021 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales 
$
317.8
   
100.0
%
 
$
282.0
   
100.0
%
 
$
952.1
   
100.0
%
 
$
849.9
   
100.0
%
Cost of sales  
274.8
   
86.5
%
  
249.1
   
88.3
%
  
836.9
   
87.9
%
  
747.3
   
87.9
%
Gross profit  
43.0
   
13.5
%
  
32.9
   
11.7
%
  
115.2
   
12.1
%
  
102.6
   
12.1
%
Selling, general and administrative expenses  
25.5
   
8.0
%
  
23.4
   
8.3
%
  
72.2
   
7.6
%
  
73.4
   
8.6
%
Restructuring expenses  
0.1
   
-
   
0.6
   
0.2
%
  
1.9
   
0.2
%
  
1.3
   
0.2
%
Impairment reversals - net  
-
   
-
   
(57.2
)
  
-20.3
%
  
-
   
-
   
(56.0
)
  
-6.6
%
Operating income 
$
17.4
   
5.5
%
 
$
66.1
   
23.5
%
 
$
41.1
   
4.3
%
 
$
83.9
   
9.9
%

Comparison of Three Months ended December 31, 2022 and 2021

Performance Technologies net sales increased $35.8 million, or 13 percent, from the third quarter of fiscal 2022 to the third quarter of fiscal 2023, primarily due to higher sales volume and favorable commercial pricing.  These increases were partially offset by a $16.5 million unfavorable impact of foreign currency exchange rates.  Compared with the third quarter of the prior year, sales of air-cooled, liquid-cooled, and advanced solutions products increased $20.8 million, $10.5 million, and $5.2 million respectively.

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Performance Technologies cost of sales increased $25.7 million, or 10 percent, from the third quarter of fiscal 2022 to the third quarter of fiscal 2023, primarily due to higher sales volume and, to a lesser extent, higher labor costs.  These increases were partially offset by a $14.0 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 180 basis points to 86.5 percent, primarily due to the favorable impact of higher sales volume and commercial pricing, 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 $10.1 million and gross margin improved 180 basis points to 13.5 percent.

SG&A expenses increased $2.1 million compared with the third quarter of the prior year.  As a percentage of sales, SG&A expenses decreased by 30 basis points.  The increase in SG&A expenses was primarily due to higher product development costs and other general and administrative expenses that have been impacted by inflationary market conditions.  These increases were partially offset by a $1.2 million favorable impact of foreign currency exchange rate changes.

Restructuring expenses of $0.1 million during the third quarter of fiscal 2023 decreased $0.5 million compared with the third quarter of fiscal 2022, primarily due to lower equipment transfer costs.

During the third quarter of fiscal 2022 and in connection with the termination of the agreement to sell the liquid-cooled automotive business, we reversed $57.2 million of previously-recorded impairment charges to adjust the long-lived assets of the liquid-cooled automotive business to the lower of their carrying or fair value.  See Note 1 of the Notes to Condensed Consolidated Financial Statements for further information.

Operating income of $17.4 million decreased $48.7 million from the third quarter of fiscal 2022 to the third quarter of fiscal 2023, primarily due to the absence of the significant impairment reversal recorded in the prior year, partially offset by higher gross profit.


Comparison of Nine Months Endedended December 31, 20172022 and 20162021


AsiaPerformance Technologies year-to-date net sales increased $39.5$102.2 million, or 5112 percent, from the same period last year, primarily due to higher sales volume and favorable commercial pricing, including adjustments in response to off-highway customers in all geographic markets and automotive customers in China and India.  Gross profit increased $8.8raw material price increases.  These increases were partially offset by a $49.6 million and gross margin improved 190 basis points to 18.6 percent, primarily due to higher sales volume.  SG&A expenses increased by $1.1 million compared with the prior year, yet decreased 250 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to higher compensation-related expenses.  Operating income of $12.6 million increased $7.7 million, primarily due to higher gross profit.

Building HVAC                        
  Three months ended December 31,  Nine months ended December 31, 
  2017  2016  2017  2016 
(in millions) $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Net sales $56.1   100.0% $47.2   100.0% $147.9   100.0% $132.8   100.0%
Cost of sales  37.1   66.2%  31.9   67.6%  102.9   69.6%  95.7   72.0%
Gross profit  19.0   33.8%  15.3   32.4%  45.0   30.4%  37.1   28.0%
Selling, general and administrative expenses  9.8   17.4%  8.5   18.0%  26.4   17.8%  26.0   19.6%
Restructuring expenses  -   -   0.1   0.2%  -   -   0.7   0.5%
Operating income $9.2   16.5% $6.7   14.2% $18.6   12.6% $10.4   7.8%

Comparison of Three Months Ended December 31, 2017 and 2016

Building HVAC net sales increased $8.9 million, or 19 percent, from the third quarter of fiscal 2017 to the third quarter of fiscal 2018, primarily due to higher ventilation and heating product sales in North America, higher ventilation product sales in the U.K., and a $1.3 million favorableunfavorable impact of foreign currency exchange rate changes.  Gross profitrates and, to a lesser extent, the absence of sales from the Austrian air-cooled automotive business, which we sold on April 30, 2021.  Compared with the same period in the prior year, sales of air-cooled, liquid-cooled, and advanced solutions products increased $3.7$65.4 million, $24.6 million, and gross margin improved 140 basis points to 33.8 percent, primarily due to higher sales volume, favorable sales mix, and improved production efficiencies in the U.K.  SG&A expenses increased $1.3$16.3 million yet decreased 60 basis points as a percentagerespectively.

Performance Technologies year-to-date cost of sales primarily due to higher compensation-related expenses, including commission expenses resulting from the increased sales.  Operating income of $9.2 million increased $2.5 million, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Comparison of Nine Months Ended December 31, 2017 and 2016

Building HVAC year-to-date net sales increased $15.1$89.6 million, or 1112 percent, from the same period last year, primarily due to higher ventilationsales volume and heating product sales in North America,higher raw material prices, which increased by approximately $32.0 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 $0.9$43.4 million unfavorablefavorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales was consistent with the same period in the prior year, as the higher material, labor and other inflationary costs were offset by the favorable impact of higher sales.

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As a result of the higher sales and a consistent gross margin at 12.1 percent, gross profit increased $12.6 million.

Performance Technologies year-to-date SG&A expenses decreased $1.2 million compared with the same period last year.  As a percentage of sales, year-to-date SG&A expenses decreased by 100 basis points.  The decrease in SG&A expenses was primarily due to a $3.8 million favorable impact of foreign currency exchange rate changes.  Gross profitchanges and, to a lesser extent, lower compensation-related expenses, partially offset by higher product development costs and other general and administrative expenses that have been impacted by inflationary market conditions.

Restructuring expenses during the first nine months of fiscal 2023 increased $7.9$0.6 million and gross margin improved 240 basis points to 30.4 percent,compared with the same period last year, primarily due to higher sales volume.  SG&Aseverance expenses, increased $0.4 million, yet decreased 180 basis points as a percentagepartially offset by lower equipment transfer costs.  The severance expenses during the first nine months of sales.fiscal 2023 primarily related to targeted headcount reductions in Europe.  Restructuring expenses during the first nine months of fiscal 2022 primarily consisted of equipment transfer costs.

The year-to-date net impairment reversal of $56.0 million in fiscal 2022 primarily related to assets in our liquid-cooled automotive business.  The $57.2 million impairment reversal during the third quarter of fiscal 2022 was partially offset by $1.2 million of net impairment charges recorded during the first six months of fiscal 2022.  See Note 1 of the Notes to Condensed Consolidated Financial Statements for further information.

Operating income of $41.1 million during the first nine months of fiscal 2023 decreased $0.7$42.8 million from the same period last year, primarily due to the absence of severance expenses incurredthe significant net impairment reversal recorded in the prior year.  Operating income of $18.6 million increased $8.2 million, primarily due toyear, partially offset by higher gross profit.

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Liquidity and Capital Resources


Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of December 31, 20172022 of $47.8$82.2 million, and an available borrowing capacity of $168.8$236.2 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, approximately $46.0$78.0 million of our cash and cash equivalents areis held by our non-U.S. subsidiaries.  Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated.  We have not encountered,believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.long-term basis.


Net Cash Provided by Operating Activities
Net cash provided by operating activities for the nine months ended December 31, 20172022 was $105.6$67.9 million, which wasrepresents a $70.6$60.5 million increase compared with the same period in the prior year.  This increase in operating cash flow was primarily resulted from an increase in operatingdue to the favorable impact of higher earnings including contributions from our CIS segment, lower payments for restructuring expenses and costs associated with the acquisition and integration of Luvata HTS in the current year, and favorable net changes in working capital.  capital, as compared with the same period in the prior year.  While inventories have increased $32.4 million from March 31, 2022 to December 31, 2022, the increase has been less significant than the increase during the same period last year.  In fiscal 2023, the Company has increased its inventory levels to support higher production levels.In fiscal 2022, the higher inventory levels largely resulted from increased raw material prices and impacts from global supply constraints and challenges, which continue to impact our businesses in fiscal 2023.  In addition, the favorable changes in working capital include lower payments for incentive compensation and lower pension plan contributions in fiscal 2023, as compared with the same period in the prior year.

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Capital Expenditures
Capital expenditures of $55.0$35.2 million during the first nine months of fiscal 20182023 increased $9.0$4.5 million compared with the same period in the prior year, primarily due toyear.  The fiscal 2023 capital expenditures byinclude investments supporting our recently-acquired CIS segment, equipment purchases to expandstrategic growth initiatives, including expanding our manufacturing capacity in China, and tooling and equipment purchases to support new product launches.data center business.


Debt
In October 2022, we executed an amended and restated credit agreement with a syndicate of banks that provides for a multi-currency $275.0 million revolving credit facility and term loan facilities maturing in October 2027.  This credit agreement modified our then existing $250.0 million revolver and term loan facilities, which would have matured in June 2024.

Our debtcredit agreements require us to maintain compliance with various covenants.covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below.  The term loans require prepayments,permitted leverage and interest expense coverage ratios were not modified by the recent credit agreement amendment.  Also, as definedspecified in the credit agreement, in the event our annual excess cash flow exceeds defined levels orterm loans may require prepayments in the event of certain asset sales.  In addition, at the time of each incremental borrowing under our primary debt agreementsthe revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as defined in the U.S., we are subject tocredit agreement, on our business, property, or results of operations.

The leverage ratio covenants, the most restrictive of whichcovenant requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreement,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.  AtAs of December 31, 2017,2022, our leverage ratio and interest coverage ratio was 2.5were 1.6 and 7.9,12.4, respectively.  We wereexpect to remain in compliance with our debt covenants asduring the remainder of fiscal 2023 and beyond.

Share Repurchase Program
During the first nine months of fiscal 2023, we repurchased $4.7 million of our common stock.  As of December 31, 20172022, we had $47.9 million of authorized share repurchases remaining under the current repurchase program, which expires in November 2024.  Our decision whether and expect to remain in compliance during the balancewhat extent to repurchase additional shares will depend on a number of fiscal 2018factors, including business conditions, other cash priorities, and beyond.stock price.

Shelf Registration Statement
We filed a shelf registration statement with the Securities and Exchange Commission, which was declared effective as of June 26, 2017.  The shelf registration statement allows us to offer and sell, from time to time, shares of our common stock and certain other equity or debt securities in one or more offerings in amounts, at prices and on terms that we determine at the time of any such offering, with an aggregate initial offering price of up to $200.0 million.

Contractual Obligations
Other than the transition tax liability recorded as a result of U.S. tax reform, as discussed in Note 8 of the Notes to Condensed Consolidated Financial Statements, there have not been any material changes in the Company’s contractual obligations since March 31, 2017, as reported in Item 7. in Part II. of the Company’s Annual Report on Form 10-K.
27
Forward-Looking Statements


This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995.  Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2017.2022.  Other risks and uncertainties include, but are not limited to, the following:


Market Risks:

·Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including, in particular, foreign currency exchange rate fluctuations, tariffs, inflation, changes in interest rates, recession and recovery therefrom, restrictions and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, 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 in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;
The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, including rising energy costs, along with supply chain challenges, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and including impacts associated with the military conflict between Russia and Ukraine;


·The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and

31
·The impact of current and future environmental laws and regulations on our business and the businesses of our customers, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives.

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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; 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 in the U.S. or abroad;

The impact of potential further 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 mitigate increased labor costs and labor shortages;

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

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

Operational Risks:
·Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;

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

·Our ability to maintain current customer programs and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service pressures from customers, particularly in the face of macro-economic instability;

·Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·Unanticipated delays or modifications initiated by major customers with respect to product launches, product applications or requirements;

28The 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 price-reduction pressure from our vehicular customers in light of economic and market-specific factors, and the potential impact on us from any deterioration in the stability or performance of any of our major customers;

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 program launch and product transfer challenges and warranty claims;

The impact of delays or modifications initiated by major customers with respect to 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;

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·Unanticipated problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers, particularly in light of continuing economic challenges in some areas of the world in which we and our suppliers operate;
Our ability to effectively and efficiently manage our cost structure in response to sales volume increases or decreases;


·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;
Costs and other effects of the investigation and remediation of environmental contamination; including when related to the actions or inactions of others and/or facilities over which we have no control;


·Costs and other effects of the investigation and remediation of environmental contamination; particularly when related to the actions or inactions of others and/or facilities over which we have no control;
Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions, in light of tight global labor markets;


·Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith;
Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;


·Work stoppages or interference at our facilities or those of our major customers and/or suppliers;
The impact of a substantial disruption or material breach of our information technology systems, and any related delays, problems or costs;


·The constant and increasing pressures associated with healthcare and associated insurance costs; and
Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public company and others present in various jurisdictions in which we operate, and the costs associated with compliance therewith;


·Costs and other effects of unanticipated litigation, claims, or other obligations.
Work stoppages or interference at our facilities or those of our major customers and/or suppliers;


The constant and increasing pressures associated with healthcare and associated insurance costs; and

Costs and other effects of litigation, claims, or other obligations.

Strategic Risks:

·Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our Commercial and Industrial Solutions and Building HVAC businesses, while maintaining appropriate focus on the market opportunities presented by our vehicular business; and
Our ability to successfully realize anticipated benefits from strategic initiatives and our continued application of 80/20 principles across our business, through which we are focused on reducing complexity and growing businesses with strong market drivers;


·Our ability to identify and execute additional growth and diversification opportunities in order to position us for long-term success.
Our ability to successfully execute and realize anticipated benefits from strategies, including restructuring activities, to reduce costs and improve operating margins; and


The potential impacts from actions by activist shareholders, including disruption of our business and related costs.

Financial Risks:
·Our ability to fund our global liquidity requirements efficiently for Modine’s current operations, particularly those in our Asia business segment, and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;

·The impact of potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;

·Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;

·Costs arising from the integration of Luvata HTS;

·The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar;

·The effects of the recently-enacted U.S. tax reform legislation on our business, some of which are uncertain and may be material; and

29Our 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;

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·Our ability to effectively realize the benefits of tax assets in various jurisdictions in which we operate.
The impact of changes in federal, state or local taxes that could have the effect of increasing our income tax expense;


In addition
Our ability to comply with the risks set forth above, we are subject to other risks and uncertainties as identifiedfinancial covenants in our public filings withcredit 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; and

Our ability to effectively realize the U.S. Securities and Exchange Commission.  Webenefits of deferred tax assets in various jurisdictions in which we operate.

Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.


The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2017.2022.  The Company’s market risks have not materially changed since the fiscal 20172022 Form 10-K was filed.


Item 4.Controls and Procedures.


Evaluation Regarding Disclosure Controls and Procedures


As of the end of the period covered by this quarterly report on Form 10-Q, management of the Company, carried out an evaluation under the supervision, and with the participation, of the Company’s President and Chief Executive Officer and Executive Vice President, Finance and Chief Financial Officer, ofevaluated the effectiveness of the Company’s disclosure controls and procedures, at a reasonable assurance level, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), with the participation of the Company’s management..  Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Finance and Chief Financial Officer have concluded that the design and operation of the Company’sCompany’s disclosure controls and procedures arewere effective, at a reasonable assurance level, as of December 31, 2017.2022.


Changes in Internal Control Over Financial Reporting


As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engagedThere have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company.  This customary integration-related process has resulted in a change in the Company’s internal control over financial reporting during the third quarter of fiscal 20182023 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents
PART II.PART II. OTHER INFORMATION


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.


ISSUER PURCHASES OF EQUITY SECURITIES


The following describes the Company’s purchases of common stock during the third quarter of fiscal 2018:2023:

Period
Total Number of
Shares Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Number (or
Approximate Dollar
Value) of Shares
that May Yet Be
Purchased Under the
Plans or Programs
October 1 – October 31, 2017____________________________
November 1 – November 30, 2017____________________________
December 1 – December 31, 20172,438 (a)$22.60______________
Total2,438 (a)$22.60______________
 
 
 
Period
Total Number of
Shares Purchased
Average
Price Paid
Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number (or
Approximate Dollar
Value) of Shares
that May Yet Be Purchased
Under the Plans or Programs (a)
October 1 – October 31, 2022
34,225 (b)
$13.06
_______

$47,359,156
     
November 1 – November 30, 2022
20,000 (c)
$20.80
20,000
$49,583,934
     
December 1 – December 31, 2022
90,866 (b)(c)
$20.87
80,000
$47,909,372
     
Total
145,091
$19.02
100,000
 


(a)Consists
Effective November 5, 2022, the Company’s Board of Directors authorized officers to repurchase up to $50.0 million of Modine common stock at such times and prices they deem appropriate.  This authorization, which expires in November 2024, replaced the previous repurchase program, which expired in early November 2022.

(b)
Includes shares delivered back to the Company by employees and/or directors to satisfy tax withholding obligations that arise upon the vesting of stock awards.  The Company, pursuant to its equity compensation plans, gives participants the opportunity to turn back to the Company the number of shares from the award sufficient to satisfy tax withholding obligations that arise upon the termination of restrictions.  These shares are held as treasury shares.

(c)
Includes shares acquired pursuant to the repurchase program described in (a) above.

Item 5.Other Information.

On January 19, 2023, the Board of Directors of the Company approved and adopted amended and restated bylaws (the “Amended and Restated Bylaws”), which became effective the same day. Among other things, the amendments effected by the Amended and Restated Bylaws: (1) address the universal proxy rules adopted by the U.S. Securities and Exchange Commission, by clarifying that no person may solicit proxies in support of a director nominee other than the Board’s nominees unless such person has complied with Rule 14a-19 under the Securities Exchange Act of 1934, as amended, including applicable notice and solicitation requirements; (2) require that a shareholder directly or indirectly soliciting proxies from other shareholders use a proxy card color other than white, which shall be reserved for exclusive use by the Board; (3) enhance procedural mechanics and disclosure requirements in connection with shareholder nominations of directors and submissions of proposals regarding other business at shareholder meetings, including requiring additional background information and disclosures regarding proposing shareholders, proposed nominees and business, and other persons related to a shareholder’s solicitation of proxies, such as additional information about the ownership of securities of the Company.

The preceding summary of the amendments to the Amended and Restated Bylaws is qualified in its entirety by reference to, and should be read in connection with, the complete copy of the Amended and Restated Bylaws filed herewith as Exhibits 3.1 (clean) and 3.2 (marked).

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35
Item 6.
Exhibits.


(a)  Exhibits:

(a)
Exhibits:
Exhibit No.Description
Incorporated Herein By
Reference To
Filed
Herewith
    
Bylaws of Modine Manufacturing Company, as amended, effective January 19, 2023.
Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated January 19, 2023
Bylaws of Modine Manufacturing Company as amended, effective January 19, 2023 (marked version).
X
4.1
Fourth Amendment to Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 21, 2022.
X
31.1
Rule 13a-14(a)/15d-14(a) Certification of Thomas A. Burke,Neil D. Brinker, President and Chief Executive Officer.
 X
    
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Executive Vice President, Finance and Chief Financial Officer.
 X
    
32.1
Section 1350 Certification of Thomas A. Burke,Neil D. Brinker,  President and Chief Executive Officer.
 X
    
32.2
Section 1350 Certification of Michael B. Lucareli, Executive Vice President, Finance and Chief Financial Officer.
 X
    
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
 X
    
101.SCH
Inline XBRL Taxonomy Extension SchemaSchema.
 X
    
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
 X
    
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
 X
    
101.LAB10.1.LAB
Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument.
 X
    
101.PRE10.1.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.
X
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
 X
 
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36
Table of Contents
SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MODINE MANUFACTURING COMPANY
(Registrant)
By: /s/ Michael B. Lucareli
Michael B. Lucareli, Vice President, Finance and
Chief Financial Officer*
Date:  January 31, 2018
(Registrant)
*Executing as both the principal financial officer and a duly authorized officer of the Company

By: /s/ Michael B. Lucareli
Michael B. Lucareli, Executive Vice President, Chief Financial Officer*

33Date: February 2, 2023

* Executing as both the principal financial officer and a duly authorized officer of the Company


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