UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from ____________ to ____________

Commission file number 1-1373

MODINE MANUFACTURING COMPANY

(Exact name of registrant as specified in its charter)

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

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

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, $0.625 par value	MOD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

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

Large Accelerated Filer ☐		Accelerated Filer ☑

Non-accelerated Filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares outstanding of the registrant’s common stock, $0.625 par value, was 52,283,256 at July 28, 2023.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended June 30, 2023 and 2022

(In millions, except per share amounts)

(Unaudited)

	Three months ended June 30,
	2023			2022
Net sales	$	622.4		$	541.0
Cost of sales		494.5			457.6
Gross profit		127.9			83.4
Selling, general and administrative expenses		61.4			56.3
Restructuring expenses		-			1.5
Operating income		66.5			25.6
Interest expense		(5.9	)		(4.1	)
Other expense – net		(0.6	)		(2.3	)
Earnings before income taxes		60.0			19.2
Provision for income taxes		(14.7	)		(4.9	)
Net earnings		45.3			14.3
Net earnings attributable to noncontrolling interest		(0.5	)		-
Net earnings attributable to Modine	$	44.8		$	14.3

Net earnings per share attributable to Modine shareholders:
Basic	$	0.86		$	0.27
Diluted	$	0.85		$	0.27

Weighted-average shares outstanding:
Basic		52.3			52.2
Diluted		53.0			52.4

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended June 30, 2023 and 2022

(In millions)

(Unaudited)

	Three months ended June 30,
	2023			2022
Net earnings	$	45.3		$	14.3
Other comprehensive income (loss), net of income taxes:
Foreign currency translation		(0.8	)		(23.9	)
Defined benefit plans, net of income taxes of $0.2 and $0 million		0.8			1.3
Cash flow hedges, net of income taxes of ($0.2) and $0 million		(0.7	)		(1.6	)
Total other comprehensive income (loss)		(0.7	)		(24.2	)

Comprehensive income (loss)		44.6			(9.9	)
Comprehensive (income) loss attributable to noncontrolling interest		(0.3	)		0.4
Comprehensive income (loss) attributable to Modine	$	44.3		$	(9.5	)

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED BALANCE SHEETS

June 30, 2023 and March 31, 2023

(In millions, except per share amounts)

(Unaudited)

	June 30, 2023			March 31, 2023
ASSETS
Cash and cash equivalents	$	92.5		$	67.1
Trade accounts receivable – net		399.8			398.0
Inventories		333.5			324.9
Other current assets		68.3			56.4
Total current assets		894.1			846.4
Property, plant and equipment – net		310.3			314.5
Intangible assets – net		79.1			81.1
Goodwill		165.6			165.6
Deferred income taxes		81.2			83.7
Other noncurrent assets		77.6			74.6
Total assets	$	1,607.9		$	1,565.9

LIABILITIES AND SHAREHOLDERS’ EQUITY
Short-term debt	$	8.0		$	3.7
Long-term debt – current portion		19.7			19.7
Accounts payable		317.5			332.8
Accrued compensation and employee benefits		81.7			89.8
Other current liabilities		79.8			61.1
Total current liabilities		506.7			507.1
Long-term debt		330.0			329.3
Deferred income taxes		5.3			4.8
Pensions		39.7			40.2
Other noncurrent liabilities		81.7			84.9
Total liabilities		963.4			966.3
Commitments and contingencies (see Note 17)
Shareholders’ equity:
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none		-			-
Common stock, $0.625 par value, authorized 80.0 million shares, issued 55.6 million and 55.4 million shares		34.7			34.6
Additional paid-in capital		272.7			270.8
Retained earnings		542.3			497.5
Accumulated other comprehensive loss		(161.6	)		(161.1	)
Treasury stock, at cost, 3.4 million and 3.3 million shares		(50.2	)		(49.0	)
Total Modine shareholders’ equity		637.9			592.8
Noncontrolling interest		6.6			6.8
Total equity		644.5			599.6
Total liabilities and equity	$	1,607.9		$	1,565.9

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

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MODINE MANUFACTURING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended June 30, 2023 and 2022

(In millions)

(Unaudited)

	Three months ended June 30,
	2023			2022
Cash flows from operating activities:
Net earnings	$	45.3		$	14.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		13.7			13.9
Stock-based compensation expense		1.5			1.1
Deferred income taxes		3.1			(0.9	)
Other – net		1.4			0.8
Changes in operating assets and liabilities:
Trade accounts receivable		(2.7	)		0.7
Inventories		(7.9	)		(38.5	)
Accounts payable		(9.5	)		6.8
Other assets and liabilities		(3.2	)		16.3
Net cash provided by operating activities		41.7			14.5

Cash flows from investing activities:
Expenditures for property, plant and equipment		(15.1	)		(10.4	)
Other – net		(3.3	)		-
Net cash used for investing activities		(18.4	)		(10.4	)

Cash flows from financing activities:
Borrowings of debt		116.1			86.7
Repayments of debt		(107.8	)		(74.3	)
Borrowings (repayments) on bank overdraft facilities – net		(3.8	)		1.8
Purchases of treasury stock under share repurchase program		-			(1.1	)
Dividend paid to noncontrolling interest		(0.5	)		(0.6	)
Other – net		(0.3	)		(0.5	)
Net cash provided by financing activities		3.7			12.0

Effect of exchange rate changes on cash		(0.2	)		(2.6	)
Net increase in cash, cash equivalents and restricted cash		26.8			13.5

Cash, cash equivalents and restricted cash – beginning of period		67.2			45.4
Cash, cash equivalents and restricted cash – end of period	$	94.0		$	58.9

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

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MODINE MANUFACTURING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three months ended June 30, 2023 and 2022

(In millions)

(Unaudited)

									Accumulated
					Additional				other			Treasury			Non-
	Common stock				paid-in		Retained		comprehensive			stock, at			controlling
	Shares		Amount		capital		earnings		loss			cost			interest			Total
Balance, March 31, 2023		55.4	$	34.6	$	270.8	$	497.5	$	(161.1	)	$	(49.0	)	$	6.8		$	599.6
Net earnings		-		-		-		44.8		-			-			0.5			45.3
Other comprehensive loss		-		-		-		-		(0.5	)		-			(0.2	)		(0.7	)
Stock options and awards		0.2		0.1		0.4		-		-			-			-			0.5
Purchase of treasury stock		-		-		-		-		-			(1.2	)		-			(1.2	)
Stock-based compensation expense		-		-		1.5		-		-			-			-			1.5
Dividend paid to noncontrolling interest		-		-		-		-		-			-			(0.5	)		(0.5	)
Balance, June 30, 2023		55.6	$	34.7	$	272.7	$	542.3	$	(161.6	)	$	(50.2	)	$	6.6		$	644.5

									Accumulated
					Additional				other			Treasury			Non-
	Common stock				paid-in		Retained		comprehensive			stock, at			controlling
	Shares		Amount		capital		earnings		loss			cost			interest			Total
Balance, March 31, 2022		54.8	$	34.2	$	261.6	$	344.4	$	(149.5	)	$	(40.0	)	$	7.4		$	458.1
Net earnings		-		-		-		14.3		-			-			-			14.3
Other comprehensive loss		-		-		-		-		(23.8	)		-			(0.4	)		(24.2	)
Stock options and awards		0.1		0.1		-		-		-			-			-			0.1
Purchase of treasury stock		-		-		-		-		-			(1.7	)		-			(1.7	)
Stock-based compensation expense		-		-		1.1		-		-			-			-			1.1
Dividend paid to noncontrolling interest		-		-		-		-		-			-			(0.6	)		(0.6	)
Balance, June 30, 2022		54.9	$	34.3	$	262.7	$	358.7	$	(173.3	)	$	(41.7	)	$	6.4		$	447.1

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 1: General

The accompanying unaudited condensed consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements. The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods. Results for the first three months of fiscal 2024 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10-K for the year ended March 31, 2023.

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 will be required annually. The new guidance does not impact the recognition, measurement or financial statement presentation of supplier finance program obligations. The Company adopted this guidance as of April 1, 2023.

The Company facilitates a voluntary supplier finance program through a financial institution that allows certain suppliers in the U.S. and Europe to request early payment for invoices, at a discount, from the financial institution. The Company or the financial institution may terminate the supplier finance program upon 90 days’ notice. The Company’s obligations to its suppliers, including amounts due and payment terms, are consistent, irrespective of whether a supplier participates in the program. The Company is not party to the arrangements between the participating suppliers and the financial institution. Under this program, the Company confirms the validity of supplier invoices to the financial institution and remits payments to it based on the original payment terms, which typically range from 60 to 120 days. The outstanding obligations under this program, included within accounts payable in the consolidated balance sheets, totaled $18.5 million and $21.2 million at June 30, 2023 and March 31, 2023, respectively.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 2: Revenue Recognition

Disaggregation of Revenue

The table below presents revenue for each of the Company’s operating segments. Each segment’s revenue is disaggregated by product group, by geographic location and based upon the timing of revenue recognition.

Beginning in fiscal 2024 and in connection with the Company’s strategic transformation and continued application of 80/20 principles across its businesses, the Company has refined its reporting of disaggregated revenue within the Climate Solutions segment to be more consistent with how the segment has aligned its teams around three market-based verticals: i) heat transfer products; ii) HVAC & refrigeration; and iii) data center cooling. For the refined fiscal 2024 presentation, the Company reports revenue based upon the respective product lines and related customer relationships managed by each market-based vertical team. The disaggregated revenue information presented in the table below for fiscal 2023 has been recast to be comparable with the fiscal 2024 presentation.

	Three months ended June 30, 2023						Three months ended June 30, 2022
	Climate Solutions		Performance Technologies		Segment Total		Climate Solutions		Performance Technologies		Segment Total
Product groups:
Heat transfer	$	125.9	$	-	$	125.9	$	134.7	$	-	$	134.7
HVAC & refrigeration		77.7		-		77.7		79.0		-		79.0
Data center cooling		68.2		-		68.2		30.5		-		30.5
Air-cooled		-		172.7		172.7		-		153.0		153.0
Liquid-cooled		-		134.7		134.7		-		110.9		110.9
Advanced solutions		-		43.2		43.2		-		32.9		32.9
Inter-segment sales		-		8.3		8.3		0.2		7.5		7.7
Net sales	$	271.8	$	358.9	$	630.7	$	244.4	$	304.3	$	548.7

Geographic location:
Americas	$	141.6	$	185.0	$	326.6	$	139.4	$	164.3	$	303.7
Europe		123.7		123.5		247.2		99.0		96.1		195.1
Asia		6.5		50.4		56.9		6.0		43.9		49.9
Net sales	$	271.8	$	358.9	$	630.7	$	244.4	$	304.3	$	548.7

Timing of revenue recognition:
Products transferred at a point in time	$	257.7	$	341.4	$	599.1	$	230.8	$	281.8	$	512.6
Products transferred over time		14.1		17.5		31.6		13.6		22.5		36.1
Net sales	$	271.8	$	358.9	$	630.7	$	244.4	$	304.3	$	548.7

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Contract Balances

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

	June 30, 2023		March 31, 2023
Contract assets	$	26.6	$	19.3
Contract liabilities		35.5		21.5

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed. The $7.3 million increase in contract assets during the first three months of fiscal 2024 primarily resulted from an increase in contract assets for revenue recognized over time.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. The $14.0 million increase in contract liabilities during the first three months of fiscal 2024 primarily resulted from payments received in advance of the Company’s satisfaction of performance obligations.

Note 3: Fair Value Measurements

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

•

Level 1 – Quoted prices for identical instruments in active markets.

•

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

•

Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

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

The carrying values of cash, cash equivalents, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. The fair value of the Company’s long-term debt is disclosed in Note 16.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 4: Pensions

Pension cost included the following components:

	Three months ended June 30,
	2023			2022
Service cost	$	0.1		$	0.1
Interest cost		2.4			2.0
Expected return on plan assets		(2.6	)		(2.9	)
Amortization of unrecognized net loss		1.1			1.4
Net periodic benefit cost	$	1.0		$	0.6

The Company’s funding policy is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations. In connection with funding relief provisions within the American Rescue Plan Act of 2021, the Company does not expect to make cash contributions to its U.S. pension plans during fiscal 2024.

Note 5: Stock-Based Compensation

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

The Company calculates compensation expense based upon the fair value of the awards at the time of grant and subsequently recognizes expense ratably over the respective vesting periods of the stock-based awards. The Company recognized stock-based compensation expense of $1.5 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively.

During the first quarter of fiscal 2024, the Company granted performance-based stock awards and restricted stock awards. The performance metrics for the performance-based stock awards are based upon a target three-year average cash flow return on invested capital and a target three-year average growth in consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”) at the end of the performance period ending March 31, 2026.

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

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

	Three months ended June 30,
	2023				2022
	Shares		Fair Value Per Award		Shares		Fair Value Per Award
Performance stock awards		0.3	$	27.29		-		-
Restricted stock awards		0.1	$	27.29		0.2	$	12.28
Stock options		-		-		0.2	$	6.92

As of June 30, 2023, unrecognized compensation expense related to non-vested stock-based compensation awards, which will be recognized as expense over the remaining service periods, was as follows:

	Unrecognized Compensation Expense		Weighted-Average Remaining Service Period in Years
Performance stock awards	$	12.9		2.7
Restricted stock awards		7.2		2.1
Stock options		1.9		1.9
Total	$	22.0		2.4

Note 6: Restructuring Activities

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

Restructuring and repositioning expenses were as follows:

	Three months ended June 30,
	2023		2022
Employee severance and related benefits	$	-	$	1.4
Other restructuring and repositioning expenses		-		0.1
Total	$	-	$	1.5

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements. Changes in accrued severance were as follows:

	Three months ended June 30,
	2023			2022
Beginning balance	$	10.6		$	20.2
Additions		-			1.4
Payments		(1.8	)		(3.3	)
Effect of exchange rate changes		0.1			(0.9	)
Ending balance	$	8.9		$	17.4

Note 7: Other Income and Expense

Other income and expense consisted of the following:

	Three months ended June 30,
	2023			2022
Interest income	$	0.5		$	0.1
Foreign currency transactions (a)		(0.3	)		(2.0	)
Net periodic benefit cost (b)		(0.8	)		(0.4	)
Total other expense – net	$	(0.6	)	$	(2.3	)

(a)

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

(b)

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

Note 8: Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2023 and 2022 was 24.5 percent and 25.5 percent, respectively. The effective tax rate for the first quarter of fiscal 2024 is lower than the first quarter of the prior year, primarily due to changes in the mix and amount of foreign and U.S. earnings.

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

At June 30, 2023, valuation allowances against deferred tax assets in the U.S. and in certain foreign jurisdictions totaled $35.5 million and $27.6 million, respectively. The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in the U.S. and certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

Accounting policies for interim reporting require the Company to adjust its effective tax rate each quarter to be consistent with its estimated annual effective tax rate. Under this methodology, the Company applies its estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The Company records the tax impacts of certain significant, unusual or infrequently occurring items in the period in which they occur. The Company excluded the impact of its operations in certain foreign locations from the overall effective tax rate methodology and recorded them discretely based upon year-to-date results because the Company anticipates net operating losses for the full fiscal year in these jurisdictions. The Company estimates a $2.1 million net decrease in unrecognized tax benefits during the remainder of fiscal 2024 mainly due to lapses in statutes of limitations.

Note 9: Earnings Per Share

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

	Three months ended June 30,
	2023		2022
Net earnings attributable to Modine	$	44.8	$	14.3

Weighted-average shares outstanding – basic		52.3		52.2
Effect of dilutive securities		0.7		0.2
Weighted-average shares outstanding – diluted		53.0		52.4

Earnings per share:
Net earnings per share – basic	$	0.86	$	0.27
Net earnings per share – diluted	$	0.85	$	0.27

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

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 10: Cash, Cash Equivalents and Restricted Cash

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

	June 30, 2023		March 31, 2023
Cash and cash equivalents	$	92.5	$	67.1
Restricted cash		1.5		0.1
Total cash, cash equivalents and restricted cash	$	94.0	$	67.2

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

Note 11: Inventories

Inventories consisted of the following:

	June 30, 2023		March 31, 2023
Raw materials	$	216.8	$	218.3
Work in process		52.7		49.9
Finished goods		64.0		56.7
Total inventories	$	333.5	$	324.9

Note 12: Property, Plant and Equipment

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

	June 30, 2023			March 31, 2023
Land	$	16.5		$	16.4
Buildings and improvements (10-40 years)		265.2			264.0
Machinery and equipment (3-15 years)		855.9			853.3
Office equipment (3-10 years)		94.5			93.6
Construction in progress		46.6			47.5
		1,278.7			1,274.8
Less: accumulated depreciation		(968.4	)		(960.3	)
Net property, plant and equipment	$	310.3		$	314.5

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 13: Goodwill and Intangible Assets

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

	Climate Solutions		Performance Technologies		Total
Goodwill, March 31, 2023	$	105.7	$	59.9	$	165.6
Effect of exchange rate changes		-		-		-
Goodwill, June 30, 2023	$	105.7	$	59.9	$	165.6

Intangible assets consisted of the following:

	June 30, 2023							March 31, 2023
	Gross					Net		Gross					Net
	Carrying		Accumulated			Intangible		Carrying		Accumulated			Intangible
	Value		Amortization			Assets		Value		Amortization			Assets
Customer relationships	$	60.3	$	(24.3	)	$	36.0	$	60.3	$	(23.4	)	$	36.9
Trade names		50.1		(16.5	)		33.6		50.1		(15.9	)		34.2
Acquired technology		22.6		(13.1	)		9.5		22.6		(12.6	)		10.0
Total intangible assets	$	133.0	$	(53.9	)	$	79.1	$	133.0	$	(51.9	)	$	81.1

The Company recorded amortization expense of $2.0 million for both the three months ended June 30, 2023 and 2022. The Company estimates that it will record approximately $6.0 million of amortization expense during the remainder of fiscal 2024. The Company estimates that it will record approximately $8.0 million of annual amortization expense in fiscal 2025 through 2028 and approximately $7.0 million in fiscal 2029. These estimates exclude amortization expense associated with the acquisition that closed during the second quarter of fiscal 2024, as discussed in Note 20.

Note 14: Product Warranties

Changes in accrued warranty costs were as follows:

	Three months ended June 30,
	2023			2022
Beginning balance	$	6.9		$	6.3
Warranties recorded at time of sale		1.5			1.4
Adjustments to pre-existing warranties		0.6			(0.2	)
Settlements		(1.1	)		(1.1	)
Effect of exchange rate changes		-			(0.2	)
Ending balance	$	7.9		$	6.2

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 15: Leases

Lease Assets and Liabilities

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

	Balance Sheet Location	June 30, 2023		March 31, 2023
Lease Assets
Operating lease ROU assets	Other noncurrent assets	$	57.4	$	59.1
Finance lease ROU assets (a)	Property, plant and equipment – net		7.0		7.1

Lease Liabilities
Operating lease liabilities	Other current liabilities	$	11.8	$	11.8
Operating lease liabilities	Other noncurrent liabilities		47.3		48.9
Finance lease liabilities	Long-term debt – current portion		0.4		0.4
Finance lease liabilities	Long-term debt		2.2		2.3

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

Components of Lease Expense

The components of lease expense were as follows:

	Three months ended June 30,
	2023		2022
Operating lease expense (a)	$	5.9	$	5.3
Finance lease expense:
Depreciation of ROU assets		0.1		0.1
Interest on lease liabilities		-		-
Total lease expense	$	6.0	$	5.4

(a)	For the three months ended June 30, 2023 and 2022, operating lease expense included short-term lease expense of $1.5 million and $1.3 million, respectively. Variable lease expense was not significant.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 16: Indebtedness

Long-term debt consisted of the following:

	Fiscal year of maturity	June 30, 2023			March 31, 2023
Term loans	2028	$	213.2		$	215.7
5.9% Senior Notes	2029		100.0			100.0
5.8% Senior Notes	2027		33.3			33.3
Revolving credit facility	2028		3.2			-
Other (a)			2.6			2.7
			352.3			351.7
Less: current portion			(19.7	)		(19.7	)
Less: unamortized debt issuance costs			(2.6	)		(2.7	)
Total long-term debt		$	330.0		$	329.3

(a)

Other long-term debt primarily includes finance lease obligations.

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

Fiscal Year
Remainder of 2024	$	16.9
2025		19.7
2026		44.7
2027		44.7
2028		200.9
2029 & beyond		25.4
Total	$	352.3

The Company maintains a credit agreement with a syndicate of banks that provides for a multi-currency $275.0 million revolving credit facility and U.S. dollar- and euro-denominated term loan facilities maturing in October 2027. In addition, the credit agreement provides for shorter-duration swingline loans. Borrowings under the revolving credit, swingline and term loan facilities bear interest at a variable rate, based upon the applicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as described below. At June 30, 2023, the weighted-average interest rates for revolving credit facility borrowings and the term loans were 6.3 and 6.4 percent, respectively. Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and swingline facilities as long-term and short-term debt, respectively, on its consolidated balance sheets.

At June 30, 2023, the Company’s borrowings under its revolving credit and swingline facilities totaled $3.2 million and $8.0 million, respectively, and domestic letters of credit totaled $5.5 million. As a result, available borrowing capacity under the Company’s revolving credit facility was $258.3 million as of June 30, 2023. At March 31, 2023, the Company had no outstanding borrowings under these facilities.

The Company also maintains credit agreements for its foreign subsidiaries. The outstanding short-term borrowings related to these foreign credit agreements totaled $3.7 million at March 31, 2023. There were no short-term borrowings related to these agreements at June 30, 2023.

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Indebtedness under the Company’s credit agreement and Senior Note agreements is secured by liens on substantially all domestic assets. These agreements further require compliance with various covenants that may limit the Company’s ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; and make restricted payments including dividends. In addition, the agreements may require prepayment in the event of certain asset sales.

Financial covenants within its credit agreements require the Company to limit its consolidated indebtedness, less a portion of its cash balances, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA.”) The Company must also maintain a ratio of Adjusted EBITDA of at least three times consolidated interest expense. As of June 30, 2023, the Company was in compliance with its debt covenants.

The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for similar debt instruments of comparable maturities. As of June 30, 2023 and March 31, 2023, the carrying value of the Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of $125.9 million at each reporting date. The fair value of the Company’s long-term debt is categorized as Level 2 within the fair value hierarchy. Refer to Note 3 for the definition of a Level 2 fair value measurement.

Note 17: Risks, Uncertainties, Contingencies and Litigation

Environmental

The Company has recorded environmental investigation and remediation accruals related to manufacturing facilities in the U.S., one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands. These accruals primarily relate to soil and groundwater contamination at facilities where past operations followed practices and procedures that were considered acceptable under then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance. In instances where a range of loss can be reasonably estimated for a probable environmental liability, but no amount within the range is a better estimate than any other amount, the Company accrues the minimum of the range. The Company’s accruals for environmental matters totaled $17.5 million and $17.6 million as of June 30, 2023 and March 31, 2023, respectively. As additional information becomes available regarding environmental matters, the Company will re-assess the liabilities and revise the estimated accruals, if necessary. While it is possible that the ultimate environmental remediation costs may be in excess of amounts accrued, the Company believes, based upon currently available information, that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on its financial position. However, these matters are subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages.

Other Litigation

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 18: Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:

	Three months ended June 30, 2023
	Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total
Beginning balance	$	(57.5	)	$	(104.4	)	$	0.8		$	(161.1	)

Other comprehensive income (loss) before reclassifications		(0.6	)		-			(0.4	)		(1.0	)
Reclassifications:
Amortization of unrecognized net loss (a)		-			1.0			-			1.0
Realized gains – net (b)		-			-			(0.5	)		(0.5	)
Income taxes		-			(0.2	)		0.2			-
Total other comprehensive income (loss)		(0.6	)		0.8			(0.7	)		(0.5	)

Ending balance	$	(58.1	)	$	(103.6	)	$	0.1		$	(161.6	)

	Three months ended June 30, 2022
	Foreign Currency Translation			Defined Benefit Plans			Cash Flow Hedges			Total
Beginning balance	$	(39.1	)	$	(111.1	)	$	0.7		$	(149.5	)

Other comprehensive income (loss) before reclassifications		(23.5	)		-			(1.2	)		(24.7	)
Reclassifications:
Amortization of unrecognized net loss (a)		-			1.3			-			1.3
Realized gains – net (b)		-			-			(0.4	)		(0.4	)
Income taxes		-			-			-			-
Total other comprehensive income (loss)		(23.5	)		1.3			(1.6	)		(23.8	)

Ending balance	$	(62.6	)	$	(109.8	)	$	(0.9	)	$	(173.3	)

(a)

Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which include pension and other postretirement plans. See Note 4 for additional information about the Company’s pension plans.

(b)

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

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

Note 19: Segment Information

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

	Three months ended June 30,
	2023								2022
	External Sales		Inter-segment Sales			Total			External Sales		Inter-segment Sales			Total
Net sales:
Climate Solutions	$	271.8	$	-		$	271.8		$	244.2	$	0.2		$	244.4
Performance Technologies		350.6		8.3			358.9			296.8		7.5			304.3
Segment total		622.4		8.3			630.7			541.0		7.7			548.7
Corporate and eliminations		-		(8.3	)		(8.3	)		-		(7.7	)		(7.7	)
Net sales	$	622.4	$	-		$	622.4		$	541.0	$	-		$	541.0

	Three months ended June 30,
	2023					2022
	_$’s		% of sales			_$’s		% of sales
Gross profit:
Climate Solutions	$	69.0		25.4	%	$	50.4		20.6	%
Performance Technologies		58.6		16.3	%		33.0		10.8	%
Segment total		127.6		20.2	%		83.4		15.2	%
Corporate and eliminations		0.3		-			-		-
Gross profit	$	127.9		20.6	%	$	83.4		15.4	%

	Three months ended June 30,
	2023			2022
Operating income:
Climate Solutions	$	44.3		$	27.0
Performance Technologies		32.0			7.4
Segment total		76.3			34.4
Corporate and eliminations		(9.8	)		(8.8	)
Operating income	$	66.5		$	25.6

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MODINE MANUFACTURING COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share amounts)

(unaudited)

The following is a summary of segment assets, comprised entirely of trade accounts receivable and inventories, and other assets:

	June 30, 2023		March 31, 2023
Assets:
Climate Solutions	$	355.0	$	334.8
Performance Technologies		378.3		388.1
Other (a)		874.6		843.0
Total assets	$	1,607.9	$	1,565.9

(a)

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

Note 20: Subsequent Event

On July 1, 2023, the Company acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for a purchase price of $5.3 million. Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps primarily for the K-12 school market. This acquisition expands the Company’s indoor air quality product portfolio and supports its growth strategy and mission of improving indoor air quality. Napps has historical annual sales of approximately $5.0 million, and will be reported within the Company’s Climate Solutions segment beginning in the second quarter of fiscal 2024.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended June 30, 2023 was the first quarter of fiscal 2024.

First Quarter Highlights

Net sales in the first quarter of fiscal 2024 increased $81.4 million, or 15 percent, from the first quarter of fiscal 2023, primarily due to higher sales in our Performance Technologies and Climate Solutions segments. Cost of sales increased $36.9 million, or 8 percent, primarily due to higher sales volume. Gross profit increased $44.5 million and gross margin improved 520 basis points to 20.6 percent. Selling, general and administrative (“SG&A”) expenses increased $5.1 million, primarily due to higher compensation-related expenses. Operating income of $66.5 million during the first quarter of fiscal 2024 increased $40.9 million from the prior year, primarily due to higher earnings in our operating segments.

Recent Event

On July 1, 2023, we acquired substantially all of the net operating assets of Napps Technology Corporation (“Napps”) for a purchase price of $5.3 million. Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps primarily for the K-12 school market. This acquisition expands our indoor air quality product portfolio and supports our growth strategy and mission of improving indoor air quality. Napps has historical annual sales of approximately $5.0 million. We will report the financial results from this business within our Climate Solutions segment beginning in the second quarter of fiscal 2024.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three months ended June 30, 2023 and 2022:

	Three months ended June 30,
	2023						2022
(in millions)	$’s			% of sales			$’s			% of sales
Net sales	$	622.4			100.0	%	$	541.0			100.0	%
Cost of sales		494.5			79.4	%		457.6			84.6	%
Gross profit		127.9			20.6	%		83.4			15.4	%
Selling, general and administrative expenses		61.4			9.9	%		56.3			10.4	%
Restructuring expenses		-			-			1.5			0.3	%
Operating income		66.5			10.7	%		25.6			4.7	%
Interest expense		(5.9	)		-1.0	%		(4.1	)		-0.8	%
Other expense – net		(0.6	)		-0.1	%		(2.3	)		-0.4	%
Earnings before income taxes		60.0			9.6	%		19.2			3.5	%
Provision for income taxes		(14.7	)		-2.4	%		(4.9	)		-0.9	%
Net earnings	$	45.3			7.3	%	$	14.3			2.6	%

First quarter net sales of $622.4 million were $81.4 million, or 15 percent, higher than the first quarter of the prior year, primarily due to higher sales volume in each of our segments and favorable commercial pricing. Sales in the Performance Technologies and Climate Solutions segments increased $54.6 million and $27.4 million, respectively.

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First quarter cost of sales increased $36.9 million, or 8 percent, primarily due to higher sales volume, partially offset by lower raw material prices, which decreased approximately $16.0 million. As a percentage of sales, cost of sales decreased 520 basis points to 79.4 percent, primarily due to the favorable impact of higher sales, partially offset by higher labor and inflationary costs.

As a result of higher sales and lower cost of sales as a percentage of sales, first quarter gross profit increased $44.5 million and gross margin improved 520 basis points to 20.6 percent.

First quarter SG&A expenses increased $5.1 million. As a percentage of sales, SG&A expenses decreased by 50 basis points. The increase in SG&A expenses was primarily driven by higher compensation-related expenses, which increased approximately $4.0 million. The compensation-related expenses included higher incentive compensation expenses driven by improved financial results, as compared with the prior year. These increases were partially offset by lower environmental charges related to a previously-closed manufacturing facility in the U.S., which decreased $1.0 million and were recorded at Corporate.

Restructuring expenses decreased $1.5 million compared with the first quarter of fiscal 2023. The fiscal 2023 restructuring expenses primarily consisted of severance expenses in the Performance Technologies segment.

Operating income of $66.5 million in the first quarter of fiscal 2024 increased $40.9 million compared with the first quarter of fiscal 2023, primarily due to higher gross profit in our operating segments.

Interest expense during the first quarter of fiscal 2024 increased $1.8 million compared with the first quarter of fiscal 2023, primarily due to unfavorable changes in interest rates.

The provision for income taxes was $14.7 million and $4.9 million in the first quarter of fiscal 2024 and 2023, respectively. The $9.8 million increase was primarily due to higher earnings in the current year as compared with the same period in the prior year.

SEGMENT RESULTS OF OPERATIONS

The following is a discussion of our segment results of operations for the three months ended June 30, 2023 and 2022:

Climate Solutions

	Three months ended June 30,
	2023					2022
(in millions)	$’s		% of sales			$’s		% of sales
Net sales	$	271.8		100.0	%	$	244.4		100.0	%
Cost of sales		202.8		74.6	%		194.0		79.4	%
Gross profit		69.0		25.4	%		50.4		20.6	%
Selling, general and administrative expenses		24.7		9.1	%		23.4		9.6	%
Operating income	$	44.3		16.3	%	$	27.0		11.0	%

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Climate Solutions net sales increased $27.4 million, or 11 percent, from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher sales volume. Compared with the first quarter of the prior year, sales of data center cooling products increased $37.7 million. Sales of heat transfer and HVAC & refrigeration products decreased $8.8 million and $1.3 million, respectively.

Climate Solutions cost of sales increased $8.8 million, or 5 percent, from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher sales volume, partially offset by lower raw material prices, which decreased approximately $8.0 million. As a percentage of sales, cost of sales decreased 480 basis points to 74.6 percent, primarily due to the favorable impact of higher sales volume and improved operating efficiencies, partially offset by higher labor and inflationary costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $18.6 million and gross margin improved 480 basis points to 25.4 percent.

SG&A expenses increased $1.3 million, yet decreased 50 basis points as a percentage of sales. The increase in SG&A expenses was primarily driven by higher compensation-related expenses.

Operating income of $44.3 million increased $17.3 million from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher gross profit.

Performance Technologies

	Three months ended June 30,
	2023					2022
(in millions)	$’s		% of sales			$’s		% of sales
Net sales	$	358.9		100.0	%	$	304.3		100.0	%
Cost of sales		300.3		83.7	%		271.3		89.2	%
Gross profit		58.6		16.3	%		33.0		10.8	%
Selling, general and administrative expenses		26.6		7.4	%		24.1		7.9	%
Restructuring expenses		-		-			1.5		0.5	%
Operating income	$	32.0		8.9	%	$	7.4		2.4	%

Performance Technologies net sales increased $54.6 million, or 18 percent, from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher sales volume and favorable commercial pricing. Compared with the first quarter of the prior year, sales of liquid-cooled, air-cooled, and advanced solutions products increased $23.8 million, $19.7 million, and $10.3 million, respectively.

Performance Technologies cost of sales increased $29.0 million, or 11 percent, from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher sales volume, partially offset by lower raw material prices, which decreased approximately $8.0 million. As a percentage of sales, cost of sales decreased 550 basis points to 83.7 percent, primarily due to the favorable impact of higher sales, partially offset by higher labor and inflationary costs.

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As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $25.6 million and gross margin improved 550 basis points to 16.3 percent.

SG&A expenses increased $2.5 million compared with the first quarter of the prior year. As a percentage of sales, SG&A expenses decreased by 50 basis points. The increase in SG&A expenses was primarily due to higher compensation-related expenses.

Restructuring expenses decreased $1.5 million compared with the first quarter of fiscal 2023. The fiscal 2023 restructuring expenses primarily consisted of severance expenses.

Operating income of $32.0 million increased $24.6 million from the first quarter of fiscal 2023 to the first quarter of fiscal 2024, primarily due to higher gross profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of June 30, 2023 of $92.5 million, and available borrowing capacity of $258.3 million under our revolving credit facility. Given our extensive international operations, approximately $89.0 million of our cash and cash equivalents are held by our non-U.S. subsidiaries. Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be subject to foreign withholding taxes if repatriated. We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the three months ended June 30, 2023 was $41.7 million, which represents a $27.2 million increase compared with the same period in the prior year. This increase in operating cash flow was primarily due to the favorable impact of higher earnings, partially offset by unfavorable net changes in working capital, as compared with the same period in the prior year. The unfavorable changes in working capital include higher payments for incentive compensation, as compared with the same period in the prior year.

Capital Expenditures

Capital expenditures of $15.1 million during the first three months of fiscal 2024 increased $4.7 million compared with the same period in the prior year. The fiscal 2024 capital expenditures include investments supporting our strategic growth initiatives across several of our business units.

Debt

Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant, which are discussed further below. Indebtedness under our credit agreements is secured by liens on substantially all domestic assets. These agreements further require compliance with various covenants that may limit our ability to incur additional indebtedness; grant liens; make investments, loans, or guarantees; engage in certain transactions with affiliates; or make restricted payments including dividends. Also, the credit agreements may require prepayments in the event of certain asset sales.

The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a portion of our cash balance, both as defined by the credit agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”). We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense. As of June 30, 2023, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during the remainder of fiscal 2024 and beyond.

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Forward-Looking Statements

This report, including, but not limited to, the discussion under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, including information about future financial performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors” in Item 1A. in Part I. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. 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, including rising energy costs, along with supply chain challenges, tariffs, sanctions and other trade issues or cross-border trade restrictions (and any potential resulting trade war), and including impacts associated with the military conflict between Russia and Ukraine;

•

The impact of 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. These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and significant fluctuations in demand. This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, including through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions;

•

Our ability to mitigate increased labor costs and labor shortages;

•

The impact of 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.

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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 price-reduction 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;

•

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

•

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.

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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;

•

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

•

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

Financial Risks:

•

Our ability to fund our global liquidity requirements efficiently for our current operations and meet our long-term commitments in the event of disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;

•

The impact of increases in interest rates in relation to our variable-rate debt obligations;

•

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

•

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

•

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

•

Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

The Company’s quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, Item 7A. of the Company’s Annual Report on Form 10-K for the year ended March 31, 2023. The Company’s market risks have not materially changed since the fiscal 2023 Form 10-K was filed.

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Item 4.

Controls and Procedures.

Evaluation Regarding Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, management of the Company, under the supervision, and with the participation, of the Company’s President and Chief Executive Officer and Executive Vice President, Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures, at a reasonable assurance level, as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the President and Chief Executive Officer and Executive Vice President, Chief Financial Officer have concluded that the design and operation of the Company’s disclosure controls and procedures were effective, at a reasonable assurance level, as of June 30, 2023.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting during the first quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

The following describes the Company’s purchases of common stock during the first quarter of fiscal 2024:

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (a)
April 1 – April 30, 2023	_______	_______	_______	$45,372,391

May 1 – May 31, 2023	16,633 (b)	$26.32	_______	$45,372,391

June 1 – June 30, 2023	26,166 (b)	$30.69	_______	$45,372,391

Total	42,799	$28.99

(a)	Effective November 5, 2022, the Company’s Board of Directors authorized the Company to repurchase up to $50.0 million of Modine common stock at such times and prices that it deems to be appropriate. This authorization expires in November 2024.

(b)

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

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Item 5.

Other Information.

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6.

Exhibits.

(a)

Exhibits:

Exhibit No.	Description	Incorporated Herein By Reference To	Filed Herewith
10.1	Form of Fiscal 2024 Performance Stock Award Agreement.		X

10.2	Form of Fiscal 2024 Restricted Stock Unit Award Agreement.		X

10.3	Form of Fiscal 2024 Modine Non-Employee Director Restricted Stock Unit Award Agreement with Deferral.		X

10.4	Form of Fiscal 2024 Modine Non-Employee Director Restricted Stock Unit Award Agreement without Deferral.		X

31.1	Rule 13a-14(a)/15d-14(a) Certification of Neil D. Brinker, President and Chief Executive Officer.		X

31.2	Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.		X

32.1	Section 1350 Certification of Neil D. Brinker, President and Chief Executive Officer.		X

32.2	Section 1350 Certification of Michael B. Lucareli, Executive Vice President, Chief Financial Officer.		X

101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).		X

101.SCH	Inline XBRL Taxonomy Extension Schema.		X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.		X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.		X


101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	X

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).	X

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SIGNATURE

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

MODINE MANUFACTURING COMPANY

(Registrant)

By: /s/ Michael B. Lucareli

Michael B. Lucareli, Executive Vice President, Chief Financial Officer*

Date: August 3, 2023

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

PART I. FINANCIAL INFORMATION

	Item 1. Financial Statements.	1

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	21

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	27

	Item 4. Controls and Procedures.	28

PART II. OTHER INFORMATION

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	29

	Item 5. Other Information.	30

	Item 6. Exhibits.	30

SIGNATURE		31