What changed in MODINE MANUFACTURING CO's 10-K — 2024 vs 2025
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Paragraph-level year-over-year comparison of MODINE MANUFACTURING CO's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.
+176 added−587 removedSource: 10-K (2025-05-21) vs 10-K (2024-05-22)
Top changes in MODINE MANUFACTURING CO's 2025 10-K
176 paragraphs added · 587 removed · 126 edited across 3 sections
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+23 / −428 · 21 edited
- Item 7. Management's Discussion & Analysis+152 / −158 · 104 edited
- Item 5. Market for Registrant's Common Equity+1 / −1 · 1 edited
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+0 added−0 removed0 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+0 added−0 removed0 unchanged
2024 filing
2025 filing
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 24 ITEM 6. RESERVED 26 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 26 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 42
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 26 ITEM 6. RESERVED 27 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 28 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 45 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 48
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
104 edited+48 added−54 removed35 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
104 edited+48 added−54 removed35 unchanged
2024 filing
2025 filing
Biggest changeThis risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, including through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions; • Our ability to be at the forefront of technological advances in order to differentiate ourselves from our competitors and provide innovative products and services to our customers, and the impacts of any changes in or the adoption rate of technologies that we expect to drive sales growth, including those related to data center cooling and electric vehicles; • Our ability to mitigate increases in labor costs and labor shortages; • The impact of public health threats, such as COVID-19, on the national and global economy, our business, suppliers (and the supply chain), customers, and employees; and • The impact of legislation, regulations, and government incentive programs, including those addressing climate change, on demand for our products and the markets we serve, including our ability to take advantage of opportunities to supply alternative new technologies to meet environmental and/or energy standards and objectives. 40 Table of Contents Operational Risks • The impact of problems, including logistic and transportation challenges, associated with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained; • The overall health of and pricing pressure from our customers in light of economic and market-specific factors and the potential impact on us from any deterioration in the stability or performance of any of our major customers; • Our ability to maintain current customer relationships and compete effectively for new business, including our ability to achieve profit margins acceptable to us by offsetting or otherwise addressing any cost increases associated with supply chain challenges and inflationary market conditions; • The impact of product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and warranty claims; • The impact of delays or modifications initiated by major customers with respect to product or program launches, product applications or requirements; • Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine; • Our ability to effectively and efficiently manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring activities and realizing the anticipated benefits thereof; • Costs and other effects of the investigation and remediation of environmental contamination; including when related to the actions or inactions of others and/or facilities over which we have no control; • Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions; • Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources; • The impact of a substantial disruption or material breach of our information technology systems, and any related delays, problems or costs; • The impact of the material weakness identified in our internal control over financial reporting related to IT system access in Europe on our financial reporting process; • Increasingly complex and restrictive laws and regulations and the costs associated with compliance therewith, including state and federal labor regulations, laws and regulations associated with being a U.S. public company, and other laws and regulations present in various jurisdictions in which we operate; • Increasing emphasis by customers, investors, and employees on environmental, social and corporate governance matters may impose additional costs on us, adversely affect our reputation or expose us to new risks; • Work stoppages or interference at our facilities or those of our major customers and/or suppliers; • The constant and increasing pressures associated with healthcare and associated insurance costs; and • Costs and other effects of litigation, claims, or other obligations, including those that may be asserted against us in connection with divested businesses. 41 Table of Contents Strategic Risks • Our ability to successfully realize anticipated benefits, including improved profit margins and cash flow, from strategic initiatives and our continued application of 80/20 principles across our businesses; and • Our ability to accelerate growth by identifying and executing on organic growth opportunities and acquisitions, and to efficiently and successfully integrate acquired businesses.
Biggest changeOperational Risks ● The impact of problems, including logistic and transportation challenges, associated with suppliers meeting our quantity, quality, price and timing demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained; ● The overall health of and pricing pressure from our customers in light of economic and market-specific factors and the potential impact on us from any deterioration in the stability or performance of any of our major customers; ● Our ability to maintain current customer relationships and compete effectively for new business, including our ability to achieve profit margins acceptable to us by offsetting or otherwise addressing any cost increases associated with supply chain challenges and inflationary market conditions; ● The impact of product or manufacturing difficulties or operating inefficiencies, including any product or program launches, product transfer challenges and warranty claims; ● The impact of delays or modifications initiated by major customers with respect to product or program launches, product applications or requirements, or timing of construction or development projects that incorporate our products and services; ● Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine; ● Our ability to effectively and efficiently manage our operations in response to sales volume changes, including maintaining adequate production capacity to meet demand in our growing businesses while also completing restructuring activities and realizing the anticipated benefits thereof; ● Costs and other effects of the investigation and remediation of environmental contamination; including when related to the actions or inactions of others and/or facilities over which we have no control; ● Our ability to recruit and maintain talent, including personnel in managerial, leadership, operational and administrative functions; ● Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources; ● The impact of a substantial disruption, including any prolonged service outage, or material breach of our IT systems, and any related delays, problems or costs; ● Increasingly complex and restrictive laws and regulations and the costs associated with compliance therewith, including state and federal labor regulations, laws and regulations associated with being a U.S. public company, and other laws and regulations present in various jurisdictions in which we operate; 43 Table of Contents ● Increasing emphasis by global regulatory bodies, customers, investors, and employees on environmental, social and corporate governance matters may impose additional costs on us, adversely affect our reputation, or expose us to new risks; ● Work stoppages or interference at our facilities or those of our major customers and/or suppliers; and ● The constant and increasing pressures associated with healthcare and associated insurance costs.
We record a valuation allowance if we determine it is more likely than not that the net deferred tax assets in a particular jurisdiction will not be realized. This determination, which is made on a legal entity-by-legal entity basis, involves judgment and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.
We record a valuation allowance if we determine it is more likely than not that the net deferred tax assets in a particular jurisdiction will not be realized. This determination, which is made on a legal entity-by-legal entity basis, involves judgment and the use of estimates and assumptions, including expectations of future taxable income and tax planning strategies.
Our fiscal 2024 annual cash incentive plan for our management team was based upon two performance metrics: growth in net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) and Adjusted EBITDA margin as a percentage of net sales . The incentive plan’s performance goals were established for each operating segment as well for the consolidated company.
Our fiscal 2025 annual cash incentive plan for our management team was based upon two performance metrics: growth in net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) and Adjusted EBITDA margin as a percentage of net sales. The incentive plan’s performance goals were established for each operating segment as well for the consolidated Company.
A change in the assumed discount rate of 25 basis points would impact our fiscal 2025 pension expense and projected benefit obligation by less than $1 million and approximately $4 million, respectively. Income taxes We operate in numerous taxing jurisdictions; therefore, we are subject to regular examinations by federal, state and non-U.S. taxing authorities.
A change in the assumed discount rate of 25 basis points would impact our fiscal 2026 pension expense and projected benefit obligation by less than $1 million and approximately $4 million, respectively. Income taxes We operate in numerous taxing jurisdictions; therefore, we are subject to regular examinations by federal, state and non-U.S. taxing authorities.
These decreases were partially offset by a $22 million unfavorable impact of foreign currency exchange rates and higher labor and inflationary costs. In addition, cost of sales was negatively impacted by an inventory purchase accounting adjustment of $2 million recorded at Corporate related to the acquisition of Scott Springfield Manufacturing.
These decreases were partially offset by a $22 million unfavorable impact of foreign currency exchange rates and higher labor and inflationary costs. In addition, cost of sales in fiscal 2024 was negatively impacted by an inventory purchase accounting adjustment of $2 million recorded at Corporate related to the acquisition of Scott Springfield Manufacturing.
In addition, we provide a long-term incentive compensation plan for officers and certain key leaders throughout our organization to attract, retain, and motivate these employees who are responsible for driving the long-term success of our company. The fiscal 2024 plan is comprised of restricted stock awards and performance-based share awards.
In addition, we provide a long-term incentive compensation plan for officers and certain key leaders throughout our organization to attract, retain, and motivate these employees who are responsible for driving the long-term success of our Company. The fiscal 2025 plan is comprised of performance-based share awards and restricted stock awards.
Performance Technologies cost of sales decreased $23 million, or 2 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $31 million, and lower sales volume. These decreases were partially offset by higher labor and inflationary costs and a $12 million unfavorable impact of foreign currency exchange rates.
Performance Technologies cost of sales decreased $26 million, or 2 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $31 million, and lower sales volume. These decreases were partially offset by higher labor and inflationary costs and a $12 million unfavorable impact of foreign currency exchange rates.
These increases were partially offset by lower sales volume, including $25 million of lower sales from the three Germany automotive businesses that we sold on October 31, 2023. Sales of advanced solutions, air-cooled and liquid-cooled products increased $37 million, $23 million, and $8 million, respectively.
These increases were partially offset by lower sales volume, including $25 million of lower sales from the three Germany automotive businesses that we sold on October 31, 2023. Sales of advanced solutions, air-cooled and liquid-cooled products increased $28 million, $23 million, and $8 million, respectively.
Given our extensive international operations, approximately $53 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated.
Given our extensive international operations, approximately $59 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated.
We are also focused on growing our refrigeration sales and believe we can become a market leader in more environmentally friendly carbon dioxide gas coolers and adiabatic solutions in North America and Europe.
Further, we are focused on growing our refrigeration sales and believe we can become a market leader in more environmentally friendly carbon dioxide gas coolers and adiabatic solutions in North America and Europe.
Our domestic pension plans are closed to new participants; therefore, participants in these plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.
These differences impact future pension expense. Our domestic pension plans are closed to new participants; therefore, participants in these plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.
These events or circumstances include lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and continued inflationary market conditions. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill. At March 31, 2024, our goodwill totaled $231 million.
These events or circumstances include lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and continued inflationary market conditions. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill. At March 31, 2025, our goodwill totaled $234 million.
The most significant assumptions include the discount rate, expected return on plan assets, and mortality rates. We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation. In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods. These differences impact future pension expense.
The most significant assumptions include the discount rate, expected return on plan assets, and mortality rates. We base our selection of these assumptions on historical trends and economic and market conditions at the time of valuation. In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.
Gross profit increased $137 million and gross margin improved 490 basis points to 21.8 percent. SG&A expenses increased $40 million, primarily due to higher compensation-related expenses. Operating income of $241 million during fiscal 2024 increased $91 million from the prior year, primarily due to higher earnings in our operating segments, partially offset by higher SG&A and restructuring expenses.
Gross profit increased $137 million and gross margin improved 490 basis points to 21.8 percent. SG&A expenses increased $40 million, primarily due to higher compensation-related expenses. Operating income of $241 million during fiscal 2024 increased $91 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.
The rate of return on plan assets utilized in fiscal 2024 and 2023 was 6.5 percent and 7.0 percent, respectively. For fiscal 2025, we have assumed a rate of 5.5 percent. A change of 25 basis points in the expected rate of return on plan assets would impact our fiscal 2025 pension expense by less than $1 million.
The rate of return on plan assets utilized in fiscal 2025 and 2024 was 5.5 percent and 6.5 percent, respectively. For fiscal 2026, we have assumed a rate of return of 5.5 percent. A change of 25 basis points in the expected rate of return on plan assets would impact our fiscal 2026 pension expense by less than $1 million.
To determine the expected rate of return on pension plan assets, we consider such factors as ( i ) the actual return earned on plan assets, ( ii ) historical rates of return on the various asset classes in the plan portfolio, ( iii ) projections of returns on those asset classes, ( iv ) the amount of active management of the assets, ( v ) capital market conditions and economic forecasts, and ( vi ) administrative expenses paid with the plan assets.
To determine the expected rate of return on pension plan assets, we consider such factors as (i) the actual return earned on plan assets, (ii) historical rates of return on the asset classes in the plan portfolio, (iii) projections of returns on those asset classes, (iv) capital market conditions and economic forecasts, and (v) administrative expenses paid with the plan assets.
Other risks and uncertainties include, but are not limited to, the following: Market Risks • The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, supply chain challenges, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and military conflicts, including the current conflicts in Ukraine and in the Middle East and heightened tension in the Red Sea; • The impact of other economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including foreign currency exchange rate fluctuations; increases in interest rates; 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 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.
Other risks and uncertainties include, but are not limited to, the following: Market Risks ● The impact of potential adverse developments or disruptions in the global economy and financial markets, including impacts related to inflation, energy costs, government incentive or funding programs, supply chain challenges, logistical disruptions, including those related to sea, land or air freight, tariffs, sanctions and other trade issues or cross-border trade restrictions, and military conflicts, including the conflicts in Ukraine and in the Middle East and tension in the Red Sea; ● The impact of other economic, social and political conditions, changes, challenges and unrest, particularly in the geographic, product and financial markets where we and our customers operate and compete, including foreign currency exchange rate fluctuations; changes in interest rates; recession and recovery therefrom; and the general uncertainties about the impact of statutory, regulatory and/or policy changes, including those related to tax and trade that have been or may be implemented in the U.S. or abroad; ● The impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs.
The discount rate reflects rates available on high-quality fixed-income corporate bonds on the measurement date of March 31. For fiscal 2024 and 2023, for purposes of determining pension expense, we used a discount rate of 5.2 percent and 3.9 percent, respectively.
The discount rate reflects rates available on high-quality fixed-income corporate bonds on the measurement date of March 31. For fiscal 2025 and 2024, for purposes of determining pension expense, we used a discount rate of 5.4 percent and 5.2 percent, respectively.
Financial Risks • Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy; • The impact of increases in interest rates in relation to our variable-rate debt obligations; • The impact of changes in federal, state or local taxes that could have the effect of increasing our income tax expense; • Costs arising from the integration of Scott Springfield Manufacturing and the timing and impact of potential purchase accounting adjustments; • Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements); • The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and • Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.
Financial Risks ● Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy; ● The impact of increases in interest rates in relation to our variable-rate debt obligations; ● The impact of changes in federal, state or local tax regulations that could have the effect of increasing our income tax expense; ● Our ability to comply with the financial covenants in our credit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements); ● The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and ● Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.
We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis. 35 Table of Contents Our primary contractual obligations include debt and related interest payments, lease obligations, pension obligations, and obligations for capital expenditures. Our global pension liabilities totaled $29 million as of March 31, 2024.
We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis. Our primary contractual obligations include debt and related interest payments, lease obligations, pension obligations, and obligations for capital expenditures. Our global pension liabilities totaled $30 million as of March 31, 2025.
Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements.
Forward-looking statements are as of the date of this report; we do not assume any obligation to update any forward-looking statements. 44 Table of Contents
The higher sales volume includes $8 million of incremental sales from Scott Springfield Manufacturing, which we acquired on March 1, 2024. Compared with the prior year, sales of data center cooling products increased $120 million, primarily due to higher sales to both hyperscale and colocation customers.
The higher sales volume includes $8 million of incremental sales from Scott Springfield Manufacturing, which we acquired on March 1, 2024. Compared with the prior year, sales of data center cooling products increased $120 million, primarily due to higher sales to both hyperscale and colocation customers. Sales of heat transfer and HVAC&R products decreased $68 million and $1 million, respectively.
Sales in the Performance Technologies and Climate Solutions segments increased $62 million and $43 million, respectively. Fiscal 2024 cost of sales of $1,882 million decreased $27 million, or 1 percent, primarily due to lower raw material prices, which decreased $50 million, and, to a lesser extent, improved operating efficiencies.
Sales in the Performance Technologies and Climate Solutions segments increased $53 million and $51 million, respectively. 33 Table of Contents Fiscal 2024 cost of sales of $1,882 million decreased $27 million, or 1 percent, primarily due to lower raw material prices, which decreased $50 million, and, to a lesser extent, improved operating efficiencies.
We maintain numerous state-of-the-art technology centers, dedicated to the development and testing of products and technologies. The centers are located in Racine, Wisconsin; Grenada, Mississippi; Allen, Texas; Leeds, United Kingdom; Pocenia, Italy; Söderköping , Sweden; Mezökövesd, Hungary; and Sao Paulo, Brazil. Customers know our reputation for innovation and rely on Modine to provide high quality products and technologies.
The technology centers are located in Racine, Wisconsin; Grenada, Mississippi; Allen, Texas; Leeds, United Kingdom; Pocenia, Italy; Söderköping, Sweden; Mezökövesd, Hungary; and Sao Paulo, Brazil. Customers know our reputation for innovation and rely on Modine to provide high quality products and technologies.
We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense. As of March 31, 2024, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during fiscal 2025 and beyond.
We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense. As of March 31, 2025, we were in compliance with our debt covenants.
The most significant long-lived assets we evaluated for impairment indicators were property, plant and equipment and intangible assets, which totaled $366 million and $188 million, respectively, at March 31, 2024. Within property, plant and equipment, the most significant assets evaluated are buildings and improvements and machinery and equipment.
The most significant long-lived assets we evaluated for impairment indicators were property, plant and equipment and intangible assets, which totaled $391 million and $147 million, respectively, at March 31, 2025. Within property, plant and equipment, the most significant assets evaluated are buildings and improvements and machinery and equipment.
Also, the credit agreements may require prepayments in the event of certain asset sales. 36 Table of Contents The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).
The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).
Operating income of $167 million during fiscal 2024 increased $43 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Operating income of $248 million during fiscal 2025 increased $69 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Net cash provided by operating activities in fiscal 2023 was $108 million, an increase of $96 million from $12 million in the prior year. This increase in operating cash flow was primarily due to the favorable impact of higher earnings and favorable net changes in working capital, as compared with the prior year.
Net cash provided by operating activities in fiscal 2024 was $215 million, an increase of $107 million from $108 million in the prior year. This increase in operating cash flow was primarily due to the favorable impact of higher earnings and, to a lesser extent, favorable net changes in working capital as compared with the prior year.
We conducted goodwill impairment tests as of March 31, 2024 by applying a fair value-based test and determined the fair value of the reporting units in each of our operating segments exceeded their respective book value. A 10 percent decrease in the estimated fair value of each reporting unit would not have resulted in a different conclusion.
We conducted goodwill impairment tests as of February 28, 2025 by applying a fair value-based test and determined the fair value for each of our reporting units exceeded the respective book value. A 10 percent decrease in the estimated fair value of each reporting unit would not have resulted in a different conclusion.
Operating income of $241 million in fiscal 2024 increased $91 million compared with the prior year, primarily due to a $137 million increase in gross profit, partially offset by higher SG&A and restructuring expenses. 31 Table of Contents Interest expense in fiscal 2024 increased $3 million compared with the prior year, primarily due to unfavorable changes in interest rates and borrowings on our revolving credit facility that we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing, partially offset by the absence of $1 million of costs recorded in the prior year related to a credit agreement amendment.
Interest expense in fiscal 2024 increased $3 million compared with the prior year, primarily due to unfavorable changes in interest rates and borrowings on our revolving credit facility that we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing, partially offset by the absence of $1 million of costs recorded in the prior year related to a credit agreement amendment.
These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; or make restricted payments, including dividends.
Indebtedness under our credit agreements is secured by liens on substantially all domestic assets. These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; or make restricted payments, including dividends.
Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar HVAC&R markets and customers.
Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar heating, ventilating, air conditioning, and refrigeration markets and customers.
As a percentage of sales, cost of sales decreased 180 basis points to 83.1 percent, primarily due to the favorable impact of higher sales, partially offset by higher material, labor and other inflationary costs.
As a percentage of sales, cost of sales decreased 560 basis points to 82.6 percent, primarily due to the favorable impact of higher sales and lower material costs, partially offset by higher labor and inflationary costs.
Capital expenditures in the Performance Technologies segment include tooling and equipment purchases in conjunction with new and renewal programs with customers. Business and asset acquisitions During fiscal 2024, we made cash payments totaling $186 million to acquire Scott Springfield Manufacturing and Napps. In addition, we paid $12 million to purchase intellectual property and other specific assets from TMGcore, Inc.
Capital expenditures in the Performance Technologies segment include tooling and equipment purchases in conjunction with new and renewal programs with customers. Business and asset acquisitions During fiscal 2024, we made cash payments totaling $186 million to acquire Scott Springfield Manufacturing and Napps.
The performance-based awards for the fiscal 2024 through 2026 performance period are based upon a target three-year average growth in Adjusted EBITDA and a target three-year average cash flow return on invested capital. 27 Table of Contents Segment Information – Strategy, Market Conditions and Trends Each of our operating segments is managed by a segment president and has separate strategic and financial plans and financial results which are reviewed by our chief operating decision maker.
The performance-based awards for the fiscal 2025 through 2027 performance period are based upon a target three-year average growth in Adjusted EBITDA and a target three-year average cash flow return on invested capital. Segment Information – Strategy, Market Conditions and Trends Each of our operating segments has separate strategic and financial plans. Segment financial results are reviewed by our CODM.
As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $24 million and gross margin improved 50 basis points to 12.6 percent. Performance Technologies SG&A expenses decreased $1 million compared with the prior year. As a percentage of sales, SG&A expenses decreased by 100 basis points.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $81 million and gross margin improved 560 basis points to 17.4 percent. Performance Technologies SG&A expenses increased $17 million, or 19 percent, compared with the prior year. As a percentage of sales, SG&A expenses increased by 100 basis points.
Restructuring expenses during fiscal 2024 totaled $12 million, an increase of $9 million compared with the prior year, primarily due to higher severance-related expenses associated with the pending closure of a technical service center in Europe.
The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $10 million, and increases across other general and administrative expenses. Restructuring expenses during fiscal 2024 totaled $12 million, an increase of $9 million compared with the prior year, primarily due to higher severance-related expenses associated with the closure of a technical service center in Europe.
Development of New Products and Technology Every day, we leverage our technical expertise, building on more than 100 years of excellence in thermal management, to advance our purpose. We are dedicated to utilizing technology and solutions with sustainable impacts. Our ability to provide customizable solutions to meet the ever-evolving needs of our customers is one of our greatest competitive strengths.
Development of New Products and Technology Every day, we leverage our technical expertise, building on more than 100 years of excellence in thermal management, to advance our purpose. We are dedicated to utilizing technology and solutions with sustainable impacts.
As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $58 million and gross margin improved 380 basis points to 22.1 percent. Climate Solutions SG&A expenses increased $7 million compared with the prior year, yet decreased 30 basis points as a percentage of sales.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $56 million and gross margin improved 400 basis points to 26.8 percent. Climate Solutions SG&A expenses increased $9 million compared with the prior year. As a percentage of sales, SG&A expenses increased by 30 basis points.
Our primary product groups include i) heat transfer; ii) HVAC& R ; iii) data center cooling; iv) air-cooled; v) liquid-cooled; and vi) advanced solutions.
Our primary product groups include i) data center cooling; ii) heat transfer; iii) HVAC&R; iv) air-cooled; v) liquid-cooled; and vi) advanced solutions. Company Strategy Our purpose of Engineering a Cleaner, Healthier World™ guides our strategic direction.
These plans and results are used by management to evaluate the performance of each segment and to make decisions on the allocation of resources. Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.
Segment Results of Operations Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.
Finally, we are focused on applying the 80/20 principles within our manufacturing facilities and expect to achieve further production efficiency improvements as a result. 28 Table of Contents Performance Technologies (57 percent of fiscal 2024 net sales) The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that provide mission critical power (Gensets), increase fuel economy and lower emissions in light of increasingly stringent government regulations.
Finally, we are focused on applying 80/20 principles within our manufacturing facilities and expect to achieve further production efficiency improvements as a result. 30 Table of Contents Performance Technologies (45 percent of fiscal 2025 net sales) The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that provide mission critical energy for a variety of end market applications.
Heat transfer products include heat transfer coils used in commercial and residential HVAC &R applications. HVAC& R products include commercial and residential unit heaters, vertical and horizontal unit ventilators, air conditioning chillers, low global warming potential unit coolers, air-cooled condensers, and dry coolers.
Heat transfer products include heat exchanger coils used in commercial, industrial, and residential HVAC&R applications and coating products and application services that extend the life of equipment and components by protecting against corrosion. HVAC&R products include commercial and residential unit heaters, vertical and horizontal unit ventilators, air conditioning chillers, low global warming potential unit coolers, air-cooled condensers, and dry coolers.
We sell innovative and environmentally responsible thermal management products and solutions to diversified customers in a wide array of commercial, industrial, and building HVAC&R markets. In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway OEM vehicular applications.
We operate in four continents, in 16 countries, and employ approximately 11,300 persons worldwide. We sell customer-centric thermal management solutions in a wide array of commercial, industrial, and building HVAC&R markets. In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway OEM vehicular applications.
The sale of these businesses, which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies. Prior to the disposition, we reported the financial results of these businesses within the Performance Technologies segment.
The sale of these Performance Technologies businesses, which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies. In September 2023, we sold two coatings facilities, located in California and Florida.
See Notes 15 and 20 of the Notes to Consolidated Financial Statements for additional information regarding product warranties and contingencies and litigation, respectively. 39 Table of Contents Forward-Looking Statements This report, including, but not limited to, the discussion under Item 7.
We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated. See Notes 15 and 20 of the Notes to Consolidated Financial Statements for additional information regarding product warranties and contingencies and litigation, respectively. Forward-Looking Statements This report, including, but not limited to, the discussion under Item 7.
As a percentage of sales, cost of sales decreased 50 basis points to 87.4 percent, primarily due to the favorable impact of higher sales volume and higher average selling prices, partially offset by higher material, labor and inflationary costs .
As a percentage of sales, cost of sales decreased 240 basis points to 80.2 percent, primarily due to higher average selling prices, improved operating efficiencies, lower material costs, and the favorable impact of sales tax credits recognized in Brazil, partially offset by higher labor and inflationary costs.
This includes significant adverse changes in plant profitability metrics; substantial changes in the mix of customer products manufactured in the plant; changes in manufacturing strategy; and the shifting of programs to other facilities under a manufacturing realignment strategy.
We monitor manufacturing plant financial performance to determine whether indicators exist that would require an impairment evaluation for the facility. This includes significant adverse changes in plant profitability metrics; substantial changes in the mix of customer products manufactured in the plant; changes in manufacturing strategy; and the shifting of programs to other facilities under a manufacturing realignment strategy.
Year ended March 31, 2023 compared with year ended March 31, 2022 Climate Solutions net sales increased $101 million, or 11 percent, in fiscal 2023 compared with the prior year, primarily due to higher sales volume and higher average selling prices. These increases were partially offset by a $52 million unfavorable impact of foreign currency exchange rates.
Year ended March 31, 2024 compared with year ended March 31, 2023 Climate Solutions net sales increased $51 million, or 5 percent, in fiscal 2024 compared with the prior year, primarily due to higher sales volume and a $14 million favorable impact of foreign currency exchange rates.
Impairment of goodwill We perform goodwill impairment tests annually, as of March 31, unless business events or other conditions exist that require a more frequent evaluation. We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis. We test goodwill for impairment at a reporting unit level.
We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis. We test goodwill for impairment at a reporting unit level.
Climate Solutions cost of sales decreased $9 million, or 1 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $19 million, and improved operating efficiencies. These decreases were partially offset by increases resulting from higher sales volume, a $10 million unfavorable impact of foreign currency exchanges rates, and higher labor and inflationary costs and warranty expenses.
These decreases were partially offset by increases resulting from higher sales volume, a $10 million unfavorable impact of foreign currency exchanges rates, and higher labor and inflationary costs and warranty expenses. As a percentage of sales, cost of sales decreased 400 basis points to 73.2 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.
Years ended March 31, 2024 2023 2022 (in millions) $’s % of sales $’s % of sales $’s % of sales Net sales $ 2,408 100.0 % $ 2,298 100.0 % $ 2,050 100.0 % Cost of sales 1,882 78.2 % 1,909 83.1 % 1,741 84.9 % Gross profit 526 21.8 % 389 16.9 % 309 15.1 % Selling, general and administrative expenses 274 11.4 % 234 10.2 % 215 10.5 % Restructuring expenses 15 0.6 % 5 0.2 % 24 1.2 % Impairment charges (reversals) - net - - - - (56 ) -2.7 % (Gain) loss on sale of assets (4 ) -0.2 % - - 7 0.3 % Operating income 241 10.0 % 150 6.5 % 119 5.8 % Interest expense (24 ) -1.0 % (21 ) -0.9 % (16 ) -0.8 % Other expense – net (2 ) -0.1 % (4 ) -0.2 % (2 ) -0.1 % Earnings before income taxes 215 8.9 % 125 5.5 % 101 5.0 % (Provision) benefit for income taxes (51 ) -2.1 % 28 1.2 % (15 ) -0.7 % Net earnings $ 163 6.8 % $ 154 6.7 % $ 86 4.2 % Year ended March 31, 2024 compared with year ended March 31, 2023 Fiscal 2024 net sales of $2,408 million were $110 million, or 5 percent, higher than the prior year, primarily due to higher average selling prices and a $28 million favorable impact of foreign currency exchange rates.
The following table presents our consolidated financial results on a comparative basis for fiscal years 2025, 2024 and 2023. Years ended March 31, 2025 2024 2023 (in millions) $’s % of sales $’s % of sales $’s % of sales Net sales $ 2,583 100.0 % $ 2,408 100.0 % $ 2,298 100.0 % Cost of sales 1,940 75.1 % 1,882 78.2 % 1,909 83.1 % Gross profit 644 24.9 % 526 21.8 % 389 16.9 % Selling, general and administrative expenses 332 12.9 % 274 11.4 % 234 10.2 % Restructuring expenses 28 1.1 % 15 0.6 % 5 0.2 % Gain on sale of assets — — (4) (0.2) % — — Operating income 283 11.0 % 241 10.0 % 150 6.5 % Interest expense (26) (1.0) % (24) (1.0) % (21) (0.9) % Other expense – net (3) (0.1) % (2) (0.1) % (4) (0.2) % Earnings before income taxes 254 9.8 % 215 8.9 % 125 5.5 % (Provision) benefit for income taxes (69) (2.7) % (51) (2.1) % 28 1.2 % Net earnings $ 186 7.2 % $ 163 6.8 % $ 154 6.7 % 32 Table of Contents Year ended March 31, 2025 compared with year ended March 31, 2024 Fiscal 2025 net sales of $2,583 million were $175 million, or 7 percent, higher than the prior year, primarily due to $333 million of higher sales in our Climate Solution segment, partially offset by $158 million of lower sales in our Performance Technologies segment.
We also expect the North American school and commercial HVAC markets, to which we sell our indoor air quality products, will experience strong growth during fiscal 2025, driven by federal and local funding for ventilation improvements for schools.
We also expect the North American commercial HVAC and school markets, to which we sell our indoor air quality products, will experience modest growth during fiscal 2026, driven by private and local institutional funding for ventilation improvements for commercial applications and schools. W e are strategically expanding our HVAC technology portfolio to better serve our customers with tailored solutions.
We expect these changes will fuel improvements in both earnings and cash flow, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.
Most notably, we are working towards exiting our automotive business since it does not align with our transformation goals. We expect these changes will fuel improvements in both profit margins and cash flows, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.
Sales of heat transfer and HVAC& R products decreased $77 million and $1 million, respectively. The decrease in sales of heat transfer products was largely due to market weakness and lower customer demand compared with the prior year and the strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives.
The decrease in sales of heat transfer products was largely due to market weakness and lower customer demand compared with the prior year and the strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives. 35 Table of Contents Climate Solutions cost of sales decreased $5 million, or 1 percent, in fiscal 2024, primarily due to lower raw material prices, which decreased $19 million, and improved operating efficiencies.
As a result of higher sales and lower cost of sales as a percentage of sales, fiscal 2023 gross profit increased $80 million and gross margin improved 180 basis points to 16.9 percent. Fiscal 2023 SG&A expenses increased $19 million, yet decreased 30 basis points as a percentage of sales.
As a result of higher sales and lower cost of sales as a percentage of sales, gross profit increased $118 million and gross margin improved 310 basis points to 24.9 percent. Fiscal 2025 SG&A expenses increased $58 million, or 21 percent. As a percentage of sales, SG&A expenses increased by 150 basis points.
See Note 8 of the Notes to Consolidated Financial Statements for additional information regarding income taxes. Loss reserves We maintain liabilities and reserves for a number of loss exposures, including environmental remediation costs, product warranties, self-insurance costs, estimated credit losses associated with trade receivables, regulatory compliance matters, and litigation.
Loss reserves We maintain liabilities and reserves for a number of loss exposures, including environmental remediation costs, product warranties, self-insurance costs, estimated credit losses associated with trade receivables, regulatory compliance matters, and litigation. Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.
Liquid-cooled products include engine oil coolers, EGR coolers, liquid charge air coolers, transmission and retarder oil coolers, chillers, and condensers. In addition, the Performance Technologies segment provides advanced solutions, designed to improve battery range and vehicle life, to zero-emission and hybrid commercial vehicle, off-highway machine and automotive customers.
In addition, the Performance Technologies segment provides advanced thermal solutions designed to improve battery range and vehicle life to zero-emission and hybrid commercial vehicle and off-highway customers. These solutions include battery thermal management systems, electronics cooling packages, and battery chillers.
Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, CRAC and CRAH units, and fan walls.
The Climate Solutions segment sells data center cooling solutions, heat transfer products, and HVAC&R products to customers in North America, EMEA, and Asia. Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, CRAC and CRAH units, fan walls, and CDUs.
Fiscal 2023 cost of sales of $1,909 million increased $168 million, or 10 percent, primarily due to higher sales volume and higher raw material prices, which increased $34 million. These increases were partially offset by a $95 million favorable impact of foreign currency exchange rates.
Fiscal 2025 cost of sales of $1,940 million increased $58 million, or 3 percent, primarily due to higher sales volume and, to a lesser extent, higher labor and inflationary costs. These increases were partially offset by improved operating efficiencies and a $13 million favorable impact of foreign currency exchange rates.
The primary non-U.S. plans are maintained in Germany and Italy and are also closed to new participants and are substantially unfunded. For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our pension plan assets and the majority of our pension plan expense.
See Note 18 of the Notes to Consolidated Financial Statements for additional information. For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our pension plan assets and the majority of our pension plan expense.
As a percentage of sales, cost of sales decreased 380 basis points to 77.9 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies, partially offset by higher labor and inflationary costs.
As a percentage of sales, cost of sales decreased 310 basis points to 75.1 percent, primarily due to the favorable sales mix, higher average selling prices, and improved operating efficiencies.
Year ended March 31, 2023 compared with year ended March 31, 2022 Performance Technologies net sales increased $144 million, or 12 percent, in fiscal 2023 compared with the prior year, primarily due to higher sales volume and higher average selling prices, including adjustments in response to raw material price increases.
Year ended March 31, 2024 compared with year ended March 31, 2023 Performance Technologies net sales increased $53 million, or 4 percent, in fiscal 2024 compared with the prior year, primarily due to higher average selling prices and a $14 million favorable impact of foreign currency exchange rates.
Liquidity and Capital Resources Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of March 31, 2024 of $60 million, and an available borrowing capacity of $177 million under our revolving credit facility.
Operating income in fiscal 2024 increased $54 million to $112 million, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses. Liquidity and Capital Resources Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of March 31, 2025 of $72 million, and an available borrowing capacity of $239 million under our revolving credit facility.
The Performance Technologies segment designs and manufactures air- and liquid-cooled heat exchangers for vehicular, stationary power, and industrial applications. Air-cooled products consist primarily of powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fan shrouds, and surge tanks; and Gensets.
Air-cooled products consist primarily of powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fan shrouds, and surge tanks; and Gensets. Liquid-cooled products include engine oil coolers, EGR coolers, liquid charge air coolers, transmission and retarder oil coolers, chillers, and condensers.
We believe the assumptions that we used are appropriate and result in a reasonable determination regarding the future realizability of deferred tax assets. However, future events or circumstances, such as lower-than-expected taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could cause us to record additional valuation allowances.
However, future events or circumstances, such as lower-than-expected taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could cause us to record additional valuation allowances. 41 Table of Contents See Note 8 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.
As of March 31, 2024, we had $32 million of authorized share repurchases remaining under our current repurchase program, which expires in November 2024. Our decision whether and to what extent to repurchase additional shares depends on a number of factors, including business conditions, other cash priorities, and stock price.
During fiscal 2025 and 2024, we repurchased $18 million and $13 million, respectively, of our common stock under the repurchase programs. Our decision whether and to what extent to repurchase additional shares depends on a number of factors, including business conditions, other cash priorities, and stock price.
Restructuring expenses totaling $2 million during fiscal 2023 were consistent with the prior year and primarily consisted of severance-related expenses. Operating income in fiscal 2023 increased $51 million to $124 million, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Operating income of $283 million in fiscal 2025 increased $42 million compared with the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of the $4 million gain on the sale of the automotive businesses in Germany.
Operating income in fiscal 2024 increased $57 million to $123 million, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses.
Operating income of $283 million during fiscal 2025 increased $42 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4 million gain on sale of three automotive businesses in Germany in fiscal 2024.
Financing activities Debt Our total debt outstanding increased $79 million to $432 million at March 31, 2024 compared with the prior year, primarily due to incremental borrowings on our revolving credit facility, which we used to fund a portion of the purchase price of Scott Springfield Manufacturing.
Interest expense in fiscal 2025 increased $2 million compared with the prior year, primarily due to higher borrowings on our revolving credit facility, which we used to fund a portion of the purchase price for the acquisition of Scott Springfield Manufacturing. The provision for income taxes was $69 million and $51 million in fiscal 2025 and 2024, respectively.
During fiscal 2024, Climate Solutions segment sales increased compared with the prior year, primarily driven by higher sales of data center cooling products, partially offset by lower sales of heat transfer products, largely due to market weakness and our strategic exit from lower margin business in connection with 80/20 product rationalization initiatives.
During fiscal 2025, Climate Solutions segment sales increased $333 million, or 30 percent, compared with the prior year, primarily driven by higher sales of data center cooling and HVAC&R products, partially offset by lower sales of heat transfer products. We are seeing the benefits of our strategic growth initiatives, particularly within our Data Center Cooling business.
We partner with our customers and use a systems-based approach to ensure our solutions work seamlessly with their other components. Our thermal solutions enable our customers to stay ahead of new and emerging regulations, particularly those involving increasingly stringent energy efficiency, emissions, and fuel economy standards.
Our thermal solutions enable our customers to stay ahead of new and emerging regulations, particularly those involving increasingly stringent energy efficiency, emissions, and fuel economy standards. We maintain numerous state-of-the-art technology centers, dedicated to the development and testing of products and technologies.
Performance Technologies SG&A expenses increased $18 million, or 18 percent, compared with the prior year. As a percentage of sales, SG&A expenses increased by 100 basis points. The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased $10 million, and increases across other general and administrative expenses.
As a percentage of sales, SG&A expenses increased by 80 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased $1 million, a $1 million favorable impact of foreign currency exchange rates, and decreases across other general and administrative expenses.
This increase in operating cash flow was primarily due to the favorable impact of higher earnings and, to a lesser extent, favorable net changes in working capital as compared with the prior year. The favorable changes in working capital include an increase in customer deposits received in connection with sales contracts with long inventory lead times.
This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, as compared with the same period in the prior year, partially offset by the favorable impact of higher operating earnings.
Year ended March 31, 2023 compared with year ended March 31, 2022 Fiscal 2023 net sales of $2,298 million were $248 million, or 12 percent, higher than the prior year, primarily due to higher sales volume in both of our segments and higher average selling prices, including adjustments in response to raw material price increases.
Year ended March 31, 2024 compared with year ended March 31, 2023 Fiscal 2024 net sales of $2,408 million were $110 million, or 5 percent, higher than the prior year, primarily due to higher average selling prices and a $28 million favorable impact of foreign currency exchange rates.
In addition, strategic reorganization costs, costs associated with our review of strategic alternatives for our automotive businesses, and environmental charges related to a previously-closed manufacturing facility in the U.S., which are each recorded at Corporate, decreased $3 million, $2 million, and $2 million, respectively, during fiscal 2023 compared with the prior year.
These increases were partially offset by lower environmental charges related to a previously-closed manufacturing facility in the U.S. and lower costs directly associated with the acquisition and integration of Scott Springfield Manufacturing. The environmental charges and acquisition-related costs were recorded at Corporate and both decreased $2 million compared with the prior year.
Climate Solutions SG&A expenses increased $9 million compared with the prior year. As a percentage of sales, SG&A expenses increased by 40 basis points. The increase in SG&A expenses includes higher compensation-related expenses and increases across other general and administrative expenses.
As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $119 million and gross margin improved 210 basis points to 28.9 percent. Climate Solutions SG&A expenses increased $47 million compared with the prior year. As a percentage of sales, SG&A expenses increased by 80 basis points.
We expect that unifying these compl e mentary businesses will allow us to better focus resources on targeted growth and allow for a more efficient application of 80/20 principles to optimize profit margins and cash flow. Beginning for fiscal 2025, we will report financial results under the new segment structure.
We believe that unifying these complementary businesses allows us to better focus resources on targeted growth opportunities and more efficiently apply 80/20 principles to optimize profit margins and cash flow. The segment realignment had no impact on our consolidated financial position, results of operations, and cash flows.
See Note 17 of the Notes to Consolidated Financial Statements for additional information regarding our credit agreements. Share repurchase program We repurchased $13 million and $7 million of our common stock during fiscal 2024 and 2023, respectively.
We expect to remain in compliance with our debt covenants during fiscal 2026 and beyond. 38 Table of Contents See Note 17 of the Notes to Consolidated Financial Statements for additional information regarding our credit agreements.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
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2024 filing
2025 filing
Biggest changeWe use a limited number of supply sources for certain components, including aluminum, copper, steel and stainless steel (nickel) and are exposed to the risk that our suppliers may not be able or willing to meet our supply requirements due to strong customer demand, as they may not be able to increase their output capacity as quickly as customers increase their orders, or the potential effects of trade laws and tariffs, capacity constraints, financial instability, or other circumstances.
Biggest changeWe are exposed to the risk that our suppliers may not be able or willing to meet our supply requirements in light of various factors, such as changes in trade laws and tariffs, sharp increases in customer demand, capacity constraints, financial instability, or other circumstances. We also purchase parts from suppliers that use our tooling to create the parts.
We sell a broad range of thermal solution systems to customers operating in diverse markets, including the commercial, industrial, and building HVAC&R, data center cooling and commercial vehicle, off-highway, and automotive and light vehicle markets. Considering our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, sanctions, and the like.
We sell a broad range of thermal solution systems to customers operating in diverse markets, including the data center cooling, commercial, industrial, and building HVAC&R, and commercial vehicle, off-highway, and automotive and light vehicle markets. Considering our global presence, we also encounter risks imposed by trade restrictions, including tariffs, embargoes, sanctions, and the like.
In addition, our consolidated financial results are impacted by the translation of revenue and expenses in foreign currencies into U.S. dollars. These translation impacts are primarily affected by changes in exchange rates between the U.S. dollar and European currencies, primarily the euro and the British pound sterling, the Brazilian real, and the Chinese yuan.
In addition, our consolidated financial results are impacted by the translation of revenue and expenses in foreign currencies into U.S. dollars. These translation impacts are primarily affected by changes in exchange rates between the U.S. dollar and European currencies, primarily the euro and the British pound sterling, the Brazilian real, the Canadian dollar, and the Chinese yuan.
In addition, for certain transactions that are denominated in a currency other than the engaging entity’s functional currency, we may enter into foreign currency derivative contracts to further manage our foreign currency risk. In fiscal 2024, we recorded a net gain of less than $1 million within our statement of operations related to foreign currency derivative contracts.
In addition, for certain transactions that are denominated in a currency other than the engaging entity’s functional currency, we may enter into foreign currency derivative contracts to further manage our foreign currency risk. In fiscal 2025, we recorded a net gain of less than $1 million within our statement of operations related to foreign currency derivative contracts.
In fiscal 2024, approximately 49 percent of our sales were generated in countries outside the U.S. A change in foreign currency exchange rates will positively or negatively affect our sales; however, this impact will be offset, usually to a large degree, with a corresponding effect on our cost of sales and other expenses.
In fiscal 2025, approximately 50 percent of our sales were generated in countries outside the U.S. A change in foreign currency exchange rates will positively or negatively affect our sales; however, this impact will be offset, usually to a large degree, with a corresponding effect on our cost of sales and other expenses.
Interest on both our term loans and borrowings under our multi-currency revolving credit facility, including swingline borrowings, is variable and is currently based on either SOFR or EURIBOR, plus 137.5 to 175 basis points, depending on our leverage ratio.
Interest rates for both our term loans and borrowings under our multi-currency revolving credit facility, including swingline borrowings, are variable and are currently based on either SOFR or EURIBOR, plus 137.5 to 175 basis points, depending on our leverage ratio.
If these rates were 10 percent higher or lower during fiscal 2024, there would not have been a material impact on our fiscal 2024 earnings. 42 Table of Contents We maintain foreign currency-denominated debt obligations and intercompany loans that are subject to foreign currency exchange risk.
If these rates were 10 percent higher or lower during fiscal 2025, there would not have been a material impact on our fiscal 2025 earnings. We maintain foreign currency-denominated debt obligations and intercompany loans that are subject to foreign currency exchange risk.
In fiscal 2024, changes in foreign currency exchange rates favorably impacted our sales by $28 million; however, the impact on our operating income was only $4 million. Foreign currency exchange rate risk can be estimated by measuring the impact of a near-term adverse movement of 10 percent in foreign currency exchange rates.
In fiscal 2025, changes in foreign currency exchange rates unfavorably impacted our sales by $18 million; however, the impact on our operating income was only $4 million. Foreign currency exchange rate risk can be estimated by measuring the impact of a near-term adverse movement of 10 percent in foreign currency exchange rates.
We also purchase parts from suppliers that use our tooling to create the parts. In most instances, and for financial reasons, we do not have duplicate tooling for the manufacture of the purchased parts. As a result, we are exposed to the risk of a supplier being unable to provide the quantity or quality of parts that we require.
In most instances, and for financial reasons, we do not have duplicate tooling for the manufacture of the purchased parts. As a result, we are exposed to the risk of a supplier being unable to provide the quantity or quality of parts that we require.
Economic and Market Risk Economic risk represents the possibility of loss resulting from economic instability in certain areas of the world, such as that caused by geopolitical uncertainly or pandemics, or downturns in markets in which we operate.
Economic and Market Risk Economic risk represents the possibility of loss resulting from economic instability in the U.S. or abroad, such as that caused by geopolitical uncertainly or pandemics, or downturns in markets in which we operate.
We seek to mitigate commodity price risk primarily by adjusting product pricing in response to applicable price increases. Our contracts with certain customers contain provisions that provide for prospective price adjustments based upon changes in raw material prices.
In addition, we also purchase components and parts that are integrated into our end products. We seek to mitigate commodity price risk primarily by adjusting product pricing in response to price increases. Our contracts with certain customers contain provisions that provide for prospective price adjustments based upon changes in raw material prices.
We have not identified any concerns in this regard based upon our reviews. In addition, we are exposed to risks associated with price reduction pressure applied by OEM customers. If contractual price downs are unavoidable, we contemplate them in our overall strategy and adjust pricing as necessary to provide profit margins that are acceptable to us.
In addition, we are exposed to risks associated with price reduction pressures from our customers. If contractual price downs are unavoidable, we contemplate them in our overall strategy and adjust pricing as necessary to provide profit margins that are acceptable to us.
Even in situations where suppliers are manufacturing parts without the use of our tooling, we face the challenge of obtaining consistently high-quality parts from suppliers that are financially stable.
Even in situations where suppliers are manufacturing parts without the use of our tooling, we face the challenge of obtaining consistently high-quality parts from suppliers that are financially stable. We manage supplier risk by leveraging internal and third-party tools to identify and mitigate higher-risk supplier situations.
At March 31, 2024, 35 percent of our trade accounts receivable was concentrated with our top ten customers. These customers operate primarily in the commercial vehicle, off-highway, automotive and light vehicle, data center cooling, and commercial air conditioning and refrigeration markets and are influenced by similar market and general economic factors.
These customers operate primarily in the data center cooling, commercial air conditioning and refrigeration, commercial vehicle, off-highway, and automotive and light vehicle markets and are influenced by similar market and general economic factors.
Our investments in these areas are subject to the risks associated with technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow. 44 Table of Contents ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .
Current examples of new and emerging markets for us include those related to data centers, indoor air quality, and Gensets. Our investments in these areas are subject to the risks associated with technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow. 47 Table of Contents
We manage supplier risk by leveraging internal and third-party tools to identify and mitigate higher-risk supplier situations. 43 Table of Contents Credit Risk Credit risk represents the possibility of loss from a customer failing to make payment according to contract terms. Our principal credit risk consists of outstanding trade accounts receivable.
Credit Risk Credit risk represents the possibility of loss from a customer failing to make payment according to contract terms. Our principal credit risk consists of outstanding trade accounts receivable. At March 31, 2025, 43 percent of our trade accounts receivable was concentrated with our top ten customers.
We ensure that investments within these plans provide appropriate diversification, the investments are monitored by investment teams, and portfolio managers adhere to the established investment policies. We believe the plan assets are subject to appropriate investment policies and controls; and • Insurance – We monitor our insurance providers to ensure they maintain financial ratings that are acceptable to us.
We believe the plan assets are subject to appropriate investment policies and controls; and 46 Table of Contents ● Insurance – We monitor our insurance providers to ensure they maintain financial ratings that are acceptable to us. We have not identified any concerns in this regard based upon our reviews.
We consider our holdings in cash and investments to be stable and secure at March 31, 2024; • Trade accounts receivable – Prior to granting credit, we evaluate each customer, taking into consideration the customer’s financial condition, payment experience and credit information.
We manage credit risk through a focus on the following: ● Cash and cash equivalents – We maintain our cash and short-term deposits with financial institutions with reputable credit ratings; ● Trade accounts receivable – Prior to granting credit, we evaluate each customer, taking into consideration the customer’s financial condition, payment experience and credit information.
As of March 31, 2024, our outstanding borrowings on variable-rate term loans and the revolving credit facility totaled $205 million and $92 million, respectively. Based upon our outstanding debt with variable interest rates at March 31, 2024, a 100-basis point increase in interest rates would increase our annual interest expense in fiscal 2025 by approximately $3 million.
As of March 31, 2025, our outstanding borrowings on variable-rate term loans and the revolving credit facility totaled $194 million and $30 million, respectively.
Commodity Price and Supply Risk To produce the products we sell, we purchase raw materials and supplies including aluminum, copper, steel and stainless steel (nickel), brass, refrigerants, and gases such as natural gas, helium, and nitrogen. In addition, we also purchase components and parts that are integrated into our end products.
Based upon our outstanding debt with variable interest rates at March 31, 2025, a 100-basis point increase in interest rates would increase our annual interest expense in fiscal 2026 by approximately $2 million. 45 Table of Contents Commodity Price and Supply Risk To produce the products we sell, we purchase raw materials and supplies including aluminum, copper, steel and stainless steel (nickel), brass, refrigerants, and gases such as natural gas, helium, and nitrogen.
We regularly engage with our suppliers to ensure availability of purchased commodities and components. While the global supply chain challenges that were widespread in fiscal 2023 have largely eased and we do not currently anticipate significant shortages or delays from our key suppliers, we are subject to supply risk.
While we do not currently anticipate significant shortages or delays from our key suppliers, we are subject to supply risk, particularly with respect to sourcing of raw materials including aluminum, copper, steel and stainless steel (nickel).
Removed
We manage credit risk through a focus on the following: • Cash and investments – We review cash deposits and short-term investments to ensure banks have acceptable credit ratings, and short-term investments are maintained in secured or guaranteed instruments.
Added
We regularly engage with our suppliers to ensure availability of purchased commodities and components and, where possible, we incorporate contractual volume protections to guarantee required supply levels.
Removed
Current examples of new and emerging markets for us include those related to electric vehicles, data centers, indoor air quality, and Gensets.
Added
In connection with the upcoming termination of our primary U.S. pension plan, we have sought to match the maturities of the plan assets with the anticipated funding requirements for the upcoming lump-sum offering and future benefit payments.
Removed
MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended March 31, 2024, 2023 and 2022 (In millions, except per share amounts) 2024 2023 2022 Net sales $ 2,407.8 $ 2,297.9 $ 2,050.1 Cost of sales 1,882.2 1,908.5 1,740.8 Gross profit 525.6 389.4 309.3 Selling, general and administrative expenses 273.9 234.0 215.1 Restructuring expenses 15.0 5.0 24.1 Impairment charges (reversals) – net - - (55.7 ) (Gain) loss on sale of assets (4.0 ) - 6.6 Operating income 240.7 150.4 119.2 Interest expense (24.1 ) (20.7 ) (15.6 ) Other expense – net (2.0 ) (4.4 ) (2.1 ) Earnings before income taxes 214.6 125.3 101.5 (Provision) benefit for income taxes (51.2 ) 28.3 (15.2 ) Net earnings 163.4 153.6 86.3 Net earnings attributable to noncontrolling interest (1.9 ) (0.5 ) (1.1 ) Net earnings attributable to Modine $ 161.5 $ 153.1 $ 85.2 Net earnings per share attributable to Modine shareholders: Basic $ 3.08 $ 2.93 $ 1.64 Diluted $ 3.03 $ 2.90 $ 1.62 Weighted-average shares outstanding: Basic 52.4 52.3 52.0 Diluted 53.4 52.8 52.5 The notes to consolidated financial statements are an integral part of these statements. 45 Table of Contents MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the years ended March 31, 2024, 2023 and 2022 (In millions) 2024 2023 2022 Net earnings $ 163.4 $ 153.6 $ 86.3 Other comprehensive income (loss): Foreign currency translation (5.6 ) (18.9 ) (8.3 ) Defined benefit plans, net of income taxes of $ 1.6 , $ 1.1 and $ 0 million 3.7 6.7 19.7 Cash flow hedges, net of income taxes of ($ 0.2 ), $ 0 and $ 0 million (0.7 ) 0.1 0.1 Total other comprehensive income (loss) (2.6 ) (12.1 ) 11.5 Comprehensive income 160.8 141.5 97.8 Comprehensive income attributable to noncontrolling interest (1.6 ) - (0.9 ) Comprehensive income attributable to Modine $ 159.2 $ 141.5 $ 96.9 The notes to consolidated financial statements are an integral part of these statements. 46 Table of Contents MODINE MANUFACTURING COMPANY CONSOLIDATED BALANCE SHEETS March 31, 2024 and 2023 (In millions, except per share amounts) 2024 2023 ASSETS Cash and cash equivalents $ 60.1 $ 67.1 Trade accounts receivable – net 422.9 398.0 Inventories 357.9 324.9 Other current assets 53.1 56.4 Total current assets 894.0 846.4 Property, plant and equipment – net 365.7 314.5 Intangible assets – net 188.3 81.1 Goodwill 230.9 165.6 Deferred income taxes 75.1 83.7 Other noncurrent assets 97.5 74.6 Total assets $ 1,851.5 $ 1,565.9 LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term debt $ 12.0 $ 3.7 Long-term debt – current portion 19.7 19.7 Accounts payable 283.4 332.8 Accrued compensation and employee benefits 101.6 89.8 Other current liabilities 129.1 61.1 Total current liabilities 545.8 507.1 Long-term debt 399.9 329.3 Deferred income taxes 30.0 4.8 Pensions 27.7 40.2 Other noncurrent liabilities 92.6 84.9 Total liabilities 1,096.0 966.3 Commitments and contingencies (see Note 20) 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 56.1 million and 55.4 million shares 35.0 34.6 Additional paid-in capital 283.7 270.8 Retained earnings 659.0 497.5 Accumulated other comprehensive loss (163.4 ) (161.1 ) Treasury stock, at cost, 3.7 million and 3.3 million shares (66.7 ) (49.0 ) Total Modine shareholders’ equity 747.6 592.8 Noncontrolling interest 7.9 6.8 Total equity 755.5 599.6 Total liabilities and equity $ 1,851.5 $ 1,565.9 The notes to consolidated financial statements are an integral part of these statements. 47 Table of Contents MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended March 31, 2024, 2023 and 2022 (In millions) 2024 2023 2022 Cash flows from operating activities: Net earnings $ 163.4 $ 153.6 $ 86.3 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 56.1 54.5 54.8 Impairment charges (reversals) – net - - (55.7 ) (Gain) loss on sale of assets (4.0 ) - 6.6 Stock-based compensation expense 10.8 6.6 5.7 Deferred income taxes 6.2 (59.6 ) (3.8 ) Other – net 6.1 4.8 3.1 Changes in operating assets and liabilities: Trade accounts receivable (8.3 ) (40.7 ) (55.6 ) Inventories (17.3 ) (49.4 ) (70.7 ) Accounts payable (59.1 ) 10.2 55.1 Accrued compensation and employee benefits 15.2 6.4 9.8 Other assets 12.0 19.6 (2.4 ) Other liabilities 33.5 1.5 (21.7 ) Net cash provided by operating activities 214.6 107.5 11.5 Cash flows from investing activities: Expenditures for property, plant and equipment (87.7 ) (50.7 ) (40.3 ) Business acquisitions, net of cash acquired (see Note 2) (186.2 ) - - Purchase of TMGcore, Inc. technology and related assets (see Note 2) (12.0 ) - - Proceeds from (payments for) dispositions of assets (0.8 ) 0.3 (7.6 ) Proceeds from maturities of short-term investments 3.3 3.4 3.6 Purchases of short-term investments - (3.4 ) (3.9 ) Disbursements for loan origination (see Note 2) - - (4.7 ) Other – net - - 1.9 Net cash used for investing activities (283.4 ) (50.4 ) (51.0 ) Cash flows from financing activities: Borrowings of debt 332.5 374.3 351.8 Repayments of debt (260.4 ) (403.4 ) (306.7 ) Borrowings (repayments) on bank overdraft facilities – net 6.3 3.0 (4.3 ) Purchase of treasury stock under share repurchase program (13.3 ) (7.3 ) - Dividend paid to noncontrolling interest (0.5 ) (0.6 ) (0.9 ) Other – net (1.9 ) 0.7 (0.7 ) Net cash provided by (used for) financing activities 62.7 (33.3 ) 39.2 Effect of exchange rate changes on cash (0.8 ) (2.0 ) (0.4 ) Net (decrease) increase in cash, cash equivalents and restricted cash (6.9 ) 21.8 (0.7 ) Cash, cash equivalents and restricted cash – beginning of year 67.2 45.4 46.1 Cash, cash equivalents and restricted cash – end of year $ 60.3 $ 67.2 $ 45.4 The notes to consolidated financial statements are an integral part of these statements. 48 Table of Contents MODINE MANUFACTURING COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the years ended March 31, 2024, 2023 and 2022 (In millions) 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 - - - 85.2 - - 1.1 86.3 Other comprehensive income (loss) - - - - 11.7 - (0.2 ) 11.5 Stock options and awards 0.5 0.3 0.9 - - - - 1.2 Purchase of treasury stock - - - - - (1.8 ) - (1.8 ) Stock-based compensation expense - - 5.7 - - - - 5.7 Dividend paid to noncontrolling interest - - - - - - (0.9 ) (0.9 ) Balance, March 31, 2022 54.8 34.2 261.6 344.4 (149.5 ) (40.0 ) 7.4 458.1 Net earnings - - - 153.1 - - 0.5 153.6 Other comprehensive loss - - - - (11.6 ) - (0.5 ) (12.1 ) Stock options and awards 0.6 0.4 2.6 - - - - 3.0 Purchase of treasury stock - - - - - (9.0 ) - (9.0 ) Stock-based compensation expense - - 6.6 - - - - 6.6 Dividend paid to noncontrolling interest - - - - - - (0.6 ) (0.6 ) Balance, March 31, 2023 55.4 34.6 270.8 497.5 (161.1 ) (49.0 ) 6.8 599.6 Net earnings - - - 161.5 - - 1.9 163.4 Other comprehensive loss - - - - (2.3 ) - (0.3 ) (2.6 ) Stock options and awards 0.7 0.4 2.1 - - - - 2.5 Purchase of treasury stock - - - - - (17.7 ) - (17.7 ) Stock-based compensation expense - - 10.8 - - - - 10.8 Dividend paid to noncontrolling interest - - - - - - (0.5 ) (0.5 ) Balance, March 31, 2024 56.1 $ 35.0 $ 283.7 $ 659.0 $ (163.4 ) $ (66.7 ) $ 7.9 $ 755.5 The notes to consolidated financial statements are an integral part of these statements. 49 Table of Contents MODINE MANUFACTURING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share amounts) Note 1: Significant Accounting Policies Nature of operations Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative and environmentally responsible thermal management products and solutions to diversified global markets and customers in a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets.
Removed
In addition, the Company is a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications. The Company’s primary product groups include i) heat transfer; ii) HVAC& R ; iii) data center cooling; iv) air-cooled; v) liquid-cooled; and vi) advanced solutions.
Removed
Acquisitions and dispositions The Company accounts for acquired businesses using the acquisition method. Under the acquisition method, the Company records assets acquired and liabilities assumed at their respective fair values. If the assets acquired do not constitute a business, the Company accounts for the transaction as an asset acquisition.
Removed
For asset purchases, the Company allocates the purchase price to the underlying assets based on their relative fair values. During fiscal 2024, the Company acquired Scott Springfield Mfg.
Removed
Inc., a Canadian-based manufacturer of air handling units, and substantially all of the net operating assets of Napps Technology Corporation, a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps. In addition, the Company purchased intellectual property related to liquid immersion cooling technology from TMGcore, Inc.
Removed
Also during fiscal 2024, the Company sold three automotive businesses based in Germany and two coatings facilities in the United States. During fiscal 2022, the Company sold its Austrian air-cooled automotive business and a previously-closed manufacturing facility in the U.S. See Note 2 for information regarding the Company’s acquisitions and dispositions .
Removed
Basis of presentation The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States. These principles require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses and related disclosures. Actual amounts could differ materially from those estimates.
Removed
Consolidation principles The consolidated financial statements include the accounts of Modine Manufacturing Company and its majority-owned or Modine-controlled subsidiaries. The Company eliminates intercompany transactions and balances in consolidation.
Removed
Revenue recognition The Company recognizes revenue based upon consideration specified in a contract and as it satisfies performance obligations by transferring control over its products to its customers, which may be at a point in time or over time. The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.
Removed
A portion of the Company’s revenue is recognized over time, based upon estimated progress toward satisfaction of the contractual performance obligations. See Note 3 for additional information.
Removed
Shipping and handling costs The Company records shipping and handling costs incurred upon the shipment of products to its customers in cost of sales, and related amounts billed to these customers in net sales. Trade accounts receivable The Company records trade receivables at the invoiced amount. Trade receivables do not bear interest if paid according to the original terms.
Removed
The Company maintains an allowance for credit losses, representing its estimate of expected losses associated with its trade accounts receivable. The Company bases its estimate using historical loss experience and considers the aging of the receivables and risks specific to customers where appropriate.
Removed
At March 31, 2024 and 2023, the allowance for credit losses was $2.7 million and $2.2 million, respectively.
Removed
The changes to the Company’s allowance for credit losses during fiscal 2024 and 2023 were not material and primarily consisted of current-period provisions, write-offs charged against the allowance, recoveries collected, and foreign currency translation. 50 Table of Contents MODINE MANUFACTURING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share amounts) The Company enters into supply chain financing programs from time to time to sell accounts receivable, without recourse, to third-party financial institutions.
Removed
Sales of accounts receivable are reflected as a reduction of accounts receivable on the consolidated balance sheets and the proceeds are included in cash flows from operating activities in the consolidated statements of cash flows. During fiscal 2024, 2023, and 2022, the Company sold $130.2 million, $150.6 million, and $126.4 million, respectively, of accounts receivable to accelerate cash receipts.
Removed
During fiscal 2024, 2023, and 2022, the Company recorded costs totaling $1.6 million, $1.2 million, and $0.3 million, respectively, related to selling accounts receivable in the consolidated statements of operations. Warranty The Company provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded.
Removed
The Company records warranty expense, within cost of sales, based upon historical and current claims data or based upon estimated future claims. Accrual balances, which are recorded within other current liabilities, are monitored and adjusted if it is probable that expected claims will differ from previous estimates. See Note 15 for additional information.
Removed
Tooling The Company accounts for production tooling costs as a component of property, plant and equipment when it owns title to the tooling and amortizes the capitalized cost to cost of sales over the estimated life of the asset, which is generally three years .
Removed
At March 31, 2024 and 2023 , Company-owned tooling totaled $16.1 million and $17.1 million , respectively. In certain instances, tooling is owned by the customer.
Removed
At the time customer-owned tooling is completed and customer acceptance is obtained, the Company records tooling revenue and related production costs within net sales and cost of sales, respectively, in the consolidated statements of operations. If the customer has agreed to reimburse the Company, unbilled customer-owned tooling costs are recorded as a receivable within other current assets.
Removed
No significant arrangements exist where customer-owned tooling costs were not accompanied by guaranteed reimbursement. At March 31, 2024 and 2023 , customer-owned tooling receivables totaled $7.6 million and $10.9 million , respectively. Stock-based compensation The Company recognizes stock-based compensation using the fair value method.
Removed
Accordingly, compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair value of the instruments at the time of grant and is recognized as expense over the respective vesting periods. See Note 5 for additional information.
Removed
Research and development The Company expenses research and development costs as incurred within selling, general, and administrative (“SG&A”) expenses. During fiscal 2024, 2023, and 2022 , research and development costs totaled $42.0 million, $44.0 million, and $50.3 million, respectively.
Removed
Translation of foreign currencies The Company translates assets and liabilities of foreign subsidiaries into U.S. dollars at the period-end exchange rates and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur. The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders’ equity.
Removed
The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense. Derivative instruments The Company enters into derivative financial instruments from time to time to manage certain financial risks.
Removed
The Company enters into forward contracts to reduce exposure to changing future purchase prices for aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and liabilities as well as forecasted transactions. The Company designates certain derivative financial instruments as cash flow hedges for accounting purposes.
Removed
These instruments are used to manage financial risks and are not speculative. See Note 19 for additional information.
Removed
Income taxes The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.
Removed
The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized. The Company records the tax effects of global intangible low-taxed income (“GILTI”) as a period expense in the applicable tax year.
Removed
The Company uses the portfolio approach for releasing income tax effects from accumulated other comprehensive income (loss).
Removed
See Note 8 for additional information. 51 Table of Contents MODINE MANUFACTURING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share amounts) Earnings per share The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.
Removed
The calculation of diluted earnings per share excludes potential common shares if their inclusion would have an anti-dilutive effect. See Note 9 for additional information. Cash and cash equivalents The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.
Removed
Short-term investments The Company invests in time deposits with original maturities of more than three months but not more than one year. The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets. As of March 31, 2023, the Company’s short-term investments totaled $3.5 million.
Removed
The Company had no short-term investments as of March 31, 2024. Inventories The Company values inventories using a first-in, first-out or weighted-average basis, at the lower of cost and net realizable value. Property, plant and equipment The Company records property, plant and equipment at cost.
Removed
For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets. The Company expenses maintenance and repair costs as incurred. The Company capitalizes costs of improvements.
Removed
Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations. Capital expenditures of $22.7 million , $13.6 million, and $9.0 million were accrued within accounts payable at March 31, 2024, 2023 and 2022 , respectively.
Removed
Leases The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings. The Company also leases manufacturing and information technology equipment and vehicles. The Company recognizes right-of-use (“ROU”) assets and lease liabilities at the lease commencement date, based upon the present value of lease payments over the lease term.
Removed
See Note 16 for additional information. Goodwill The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that would require a more frequent evaluation. The Company performs an assessment of the fair value of its reporting units for goodwill impairment testing based upon, among other things, the present value of expected future cash flows.
Removed
The Company performed its goodwill impairment tests as of March 31, 2024 and determined the fair value of each of its reporting units exceeded the respective book value. See Note 14 for additional information.
Removed
I mpairment of held and used long-lived assets The Company reviews held and used long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.
Removed
In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value. If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.
Removed
The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.
Removed
Assets held for sale The Company classifies an asset as held for sale when (i) management approves and commits to a formal plan to actively market the asset for sale at a reasonable price in relation to its fair value; (ii) the asset is available for immediate sale in its present condition; (iii) an active program to locate a buyer and other actions required to complete the sale have been initiated; (iv) the sale of the asset is expected to be completed within one year; and (v) it is unlikely that significant changes will be made to the plan.
Removed
Upon classification as held for sale, the Company records the carrying value of the asset at the lower of its carrying value or its estimated fair value, less costs to sell. In addition, the Company ceases to record depreciation for assets held for sale.
Removed
The Company had no assets classified as held for sale as of March 31, 2024 and 2023. 52 Table of Contents MODINE MANUFACTURING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share amounts) Deferred compensation trusts The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plans.
Removed
The trusts’ investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.
Removed
Self-insurance reserves The Company retains a portion of the financial risk for certain insurance coverage, including property, general liability, workers compensation, and employee healthcare, and therefore maintains reserves that estimate the impact of unreported and under-reported claims that fall below various stop-loss limits and deductibles under its insurance policies.
Removed
The Company maintains reserves for the estimated settlement cost of known claims, as well as estimates of incurred but not reported claims. The Company charges costs of claims, including the impact of changes in reserves due to claim experience and severity, to cost of sales or SG&A expenses.
Removed
The Company reviews and updates the amount of its insurance-related reserves on a quarterly basis. Environmental liabilities The Company records liabilities for environmental assessments and remediation activities in the period in which its responsibility is probable and the costs can be reasonably estimated. The Company records environmental indemnification assets from third parties, including prior owners, when recovery is probable.
Removed
To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change. See Note 20 for additional information.
Removed
S upplemental cash flow information Years ended March 31, 2024 2023 2022 Interest paid $ 23.3 $ 18.4 $ 14.1 Income taxes paid 46.9 31.9 21.8 See Note 16 for supplemental cash flow information related to the Company’s leases.
Removed
New accounting guidance Supplier finance programs In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding disclosure of supplier finance programs including the key terms, outstanding obligations, and where such obligations are presented within the financial statements. In addition, beginning for fiscal 2025, a roll forward of obligations under such programs is required annually.
Removed
The new guidance does not impact the recognition, measurement or financial statement presentation of supplier finance program obligations. The Company adopted this guidance as of April 1, 2023. In addition, the Company early adopted the disclosure requirements regarding roll forward information.
Removed
The Company facilitates a voluntary supplier finance program through a financial institution that allows certain suppliers in the U.S. and Europe to request early payment for invoices, at a discount, from the financial institution. The Company or the financial institution may terminate the supplier finance program upon 90 days’ notice.
Removed
The Company’s obligations to its suppliers, including amounts due and payment terms, are consistent, irrespective of whether a supplier participates in the program. The Company is not party to the arrangements between the participating suppliers and the financial institution.
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