10-K 1 ef20026276_10k.htm 10-K

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

FORM 10-K

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

For the fiscal year ended March 31, 2024

or

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

For the transition period from ____________ to ____________

Commission file number 1-1373

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

Wisconsin
 
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

Securities Registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes     No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes     No 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

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

Approximately 98 percent of the outstanding shares are held by non-affiliates.  The aggregate market value of these shares was approximately $2.35 billion based upon the market price of $45.75 per share on September 29, 2023, the last business day of our most recently completed second fiscal quarter.  Shares of common stock held by each executive officer and director and by each person known to beneficially own more than 10 percent of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates.  The determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the registrant’s common stock, $0.625 par value, was 52,322,085 at May 17, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into the parts of this Form 10K designated to the right of the document listed.

Incorporated Document
Location in Form 10-K
   
Proxy Statement for the 2024 Annual
Meeting of Shareholders
Part III of Form 10-K
(Items 10, 11, 12, 13, 14)



MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS

PART I
 

 
  ITEM 1.
1
 
ITEM 1A.
11
  ITEM 1B. 20
  ITEM 1C. 21
  ITEM 2.
22
 
ITEM 3.
22
  ITEM 4.
22
    23
PART II
 

 
  ITEM 5.
24
  ITEM 6.
26
  ITEM 7.
26
  ITEM 7A.
42
  ITEM 8.
45
  ITEM 9.
94
  ITEM 9A.
94
  ITEM 9B.
95
  ITEM 9C.
95
PART III
 

 
  ITEM 10. 95
  ITEM 11. 96
  ITEM 12. 96
  ITEM 13. 97
  ITEM 14. 97
PART IV
 

 
  ITEM 15. 98
  ITEM 16. 98
    99
    100
    104
 

(This page intentionally left blank.)

PART I

ITEM 1.
BUSINESS.

At Modine Manufacturing Company, we are Engineering a Cleaner, Healthier World ™.  Building on more than 100 years of excellence in thermal management, we provide trusted products and technologies that help improve our world.  Our broad portfolio of systems and solutions support our mission of improving indoor air quality, conserving natural resources, lowering harmful emissions, enabling cleaner running vehicles, and using environmentally friendly refrigerants.

We sell innovative and environmentally responsible thermal management products and solutions to diversified customers in a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“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 original equipment manufacturer (“OEM”) vehicular applications.  Our primary customers across the globe include:


Developers and operators of data centers;

Heating, ventilation and cooling OEMs;

Healthcare facility operators and K-12 school systems;

Construction architects and contractors;

Wholesalers of heating equipment;

Agricultural, industrial and construction equipment OEMs;

Commercial and industrial equipment OEMs; and

Automobile, truck, bus, and specialty vehicle OEMs.

We partner with our customers across industries to provide sustainable systems, services, and components to solve complex heat transfer challenges.  We focus on product design, from raw materials to end-of-life recyclability, to optimize total cost of ownership and reduce negative environmental impacts across the product life cycle.  We anticipate and prepare for change in order to be at the forefront of technological advances and to provide innovative solutions to help our customers meet their sustainability targets and comply with an increasingly stringent regulatory environment.

History

Modine was incorporated under the laws of the State of Wisconsin on June 23, 1916 by its founder, Arthur B. Modine.  Mr. Modine’s “Turbotube” radiators became standard equipment on the famous Ford Motor Company Model T.  In response to frigid Wisconsin winter temperatures and inadequate heating options in the market, A.B. Modine combined a radiator, a fan and steam pipes to construct the first unit heater, marking the start of our heating business.  When he died at the age of 95, A.B. Modine had personally been granted more than 120 U.S. patents for his heat transfer innovations.  The standard of innovation exemplified by A.B. Modine remains the cornerstone of Modine today.

Our heritage provides a depth and breadth of expertise in thermal management, which, when combined with our global manufacturing presence, standardized processes, and state-of-the-art technical resources, enables us to rapidly bring highly-valued, customized solutions to our customers.

Terms and Year References

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, unless the context otherwise requires, we are referring to Modine Manufacturing Company.  Our fiscal year ends on March 31 and, accordingly, all references to a particular year mean the fiscal year ended March 31 of that year, unless indicated otherwise.

Business Strategy and Results

Our strategic priorities align with our purpose of Engineering a Cleaner, Healthier World™ and with our mission of helping our customers improve indoor air quality, reduce energy and water consumption, lower harmful emissions, enable cleaner running vehicles, and use more environmentally friendly refrigerants.

In fiscal 2024, we continued our strategic transformation.  We first announced our vision for a “new” Modine in late fiscal 2021.  In fiscal 2022, we onboarded seasoned leaders with the requisite experience to drive transformative change, including new segment presidents for our Climate Solutions and Performance Technologies segments.  Since that time, we have simplified and re-segmented our organization, aligning teams, led by general managers, around specific strategies and market-based verticals within our company.  Our new leadership teams have embraced 80/20 principles, which focus on the rule that 80 percent of outputs result from 20 percent of inputs. By applying 80/20 principles through data analytics to identify these valuable inputs, and instilling the mindset of prioritizing the factors that drive the best results, our teams have created a high-performance culture that focuses resources on products and markets with the highest sustainable growth opportunities and best return profiles, while simplifying and improving our processes.  For example, we are focused on growth opportunities for our Data Center Cooling and Indoor Air Quality businesses and are expanding our product portfolio in order to provide our customers with data center cooling and ventilation solutions for years to come.  In the second quarter of fiscal 2024, we acquired substantially all of the assets of Napps Technology Corporation (“Napps”), a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, which expanded our indoor air quality product portfolio.  Additionally, during the fourth quarter of fiscal 2024, we acquired Scott Springfield Mfg. Inc (“Scott Springfield Manufacturing”), a leading manufacturer of air handling units serving the data center cooling and indoor air quality markets in the U.S. and Canada, and also purchased liquid immersion cooling technology from TMGcore, Inc.  We also recently purchased a new manufacturing site in the U.K., with plans to expand our production capacity in fiscal 2025 to support our data center customers.  Simultaneously, we are rapidly growing our Advanced Solutions business, which provides systems and solutions for zero-emission and hybrid vehicles in the commercial vehicle and off-highway machine markets.  Through our initiatives founded on 80/20 principles, we have achieved significant improvements in our profit margins since we started our transformational journey. Our teams are invigorated by the significant accomplishments and improvements to financial results that we have achieved thus far and are committed to executing on our transformational strategy in fiscal 2025.

During fiscal 2024, our consolidated net sales were $2.4 billion, a 5 percent increase from $2.3 billion in fiscal 2023.  Sales increased in both our Performance Technologies and Climate Solutions segments.  Our operating income of $241 million in fiscal 2024 increased $91 million from the prior year, primarily due to higher gross profit.

Our top five customers are in the commercial vehicle, off-highway machine, data center and automotive and light vehicle markets and our ten largest customers accounted for 40 percent of our fiscal 2024 sales.

Product Groups

We partner with our customers across multiple industries to provide sustainable solutions for a wide range of applications.  The following is a summary of our primary product groups, categorized as a percentage of our net sales:

 
Fiscal 2024
 
Fiscal 2023
Air-cooled
28%
 
28%
Liquid-cooled
21%
 
21%
Heat transfer
18%
 
22%
HVAC&R
14%
 
15%
Data center cooling
12%
 
8%
Advanced solutions
7%
 
6%

Competitive Position

We compete with many manufacturers of heat transfer and HVAC&R solutions, some of which are divisions of larger companies.  The markets for our products continue to be very dynamic.  For example, the expansion of electric vehicle demand has created opportunities to work with our existing OEM customers, as well as emergent customers focused on zero-emission products.  Our data center customers are expanding globally and are requiring new technologies, driving us to invest in geographic and capacity expansion and to expand our product portfolio to meet their needs.  Additionally, our global power generation customers, driven by new data center construction and demand for backup power for critical infrastructure, such as hospitals, mining and airports, are looking for new technologies and global manufacturing capacity to meet their growth demands.  Our HVAC&R OEM customers are faced with significant international competition and maintain global manufacturing footprints to compete in local markets.  In addition, consolidation within the supply base and vertical integration have introduced new or restructured competitors to our markets.  We are investing in geographic and capacity expansion to meet these customer needs, particularly as we experience competition from suppliers in other parts of the world that enjoy economic advantages such as lower labor costs and tax rates.  Many of our customers also continue to ask us, as well as their other primary suppliers, to provide research and development (“R&D”), design, and validation support for new potential projects.  This combined work effort often results in stronger customer relationships and more partnership opportunities for us.

Business Segments

Our chief operating decision maker (“CODM”) reviews the separate financial results for each of our operating segments.  The CODM utilizes the financial results to evaluate the performance of each business segment and in making decisions on the allocation of resources.  See Note 22 of the Notes to Consolidated Financial Statements for segment financial information.

Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.  Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar HVAC&R markets and customers.  We expect that unifying these complimentary 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.

Climate Solutions Segment

The Climate Solutions segment provides energy-efficient, climate-controlled solutions and components for a wide array of applications.  The Climate Solutions segment sells heat transfer products, HVAC&R products, and data center cooling solutions.

The Climate Solutions segment has strategically aligned its teams around three primary market-based verticals: i) Heat Transfer Products; ii) HVAC&R and iii) Data Center Cooling.

Heat Transfer Products
The Heat Transfer Products business provides heat transfer coils, including heat recovery and round tube plate fin coils, to the HVAC&R markets in North America, Europe, and Asia.  Its customers include commercial and industrial equipment manufacturers, distributors, contractors, and end users in a variety of commercial and industrial applications, including commercial and residential HVAC, mobile air conditioning, refrigeration, data center management, and precision and industrial cooling.

In fiscal 2024, the primary HVAC&R markets served by the heat transfer products business were relatively flat.  After European regulatory changes and delays in fiscal 2024, we expect stronger growth in the residential heat pump and data center cooling markets in the second half of fiscal 2025.  In addition, we expect the commercial and residential markets to experience modest growth.  Trends influencing our primary markets include refrigerant substitution and energy efficiency requirements, both of which are expected to benefit the commercial HVAC&R markets.  Demand for more efficient HVAC&R systems in buildings and processes is driven by more stringent energy efficiency regulations.  In addition, the adoption of heat pump technology is expected to contribute to market growth.

HVAC&R
The HVAC&R business provides a wide array of solutions to heating; indoor air quality; commercial and industrial refrigeration; and industrial power generation, conversion, and transmission and industrial process markets in North America, Europe, the Middle East and Africa (“EMEA”), and China.

Heating products, primarily sold to the North American residential and commercial heating markets, include unit heaters (gas-fired, hydronic, electric and oil-fired); roof-mounted direct- and indirect-fired makeup air units; duct furnaces (indoor and outdoor); infrared units (high- and low-intensity); and perimeter heating products (cabinet unit heaters and convectors).  The primary customers for these heating products are HVAC wholesalers, installers, and end users in a variety of residential, commercial and industrial applications, including residential garages, warehousing, manufacturing, and greenhouses.  In fiscal 2024, the North American residential and commercial heating markets experienced moderate declines. The general weakness in the heating markets was caused, in part, by another relatively mild winter.  In addition, the markets were negatively impacted by distributors reducing previously elevated inventory stock levels.  We expect the North American heating markets will experience modest growth in fiscal 2025.  Longer term, we anticipate that increasing demands for energy efficiency as well as decarbonization and lower emission initiatives and regulations will impact the North American heating markets.

Indoor air quality products, primarily sold to the North American school and commercial HVAC markets, include single packaged unit ventilators; modular chillers; air handler units, condensing units; and ceiling cassettes. Customers for these indoor air quality products include mechanical contractors, HVAC wholesalers, installers, and end users in a variety of commercial and industrial applications, primarily connected to the North American education system.  In fiscal 2024, the North American school and commercial HVAC markets experienced strong growth, largely driven by available federal and local government funding for ventilation improvements for schools.  We expect the federal funds available for schools to upgrade facilities, including their HVAC systems, will drive continued strong market growth in fiscal 2025.

Refrigeration products, primarily sold to the commercial and industrial refrigeration markets in EMEA, China, and North America, include evaporator unit coolers, remote condensers, fluid coolers, gas coolers, and dry and brine coolers.  Customers for these coolers and refrigeration products primarily include wholesalers, distributors and resellers, commercial and industrial OEMs, as well as contractors and end users in a variety of commercial and industrial applications, including supermarkets, refrigerated warehouses, logistic centers, cold rooms, precision and industrial cooling, hospitality, hotels, and restaurants.  In fiscal 2024, the commercial and industrial refrigeration markets experienced modest growth.  We expect moderate growth in the global refrigeration markets in fiscal 2025, driven by improving standards of living in emerging countries, as well as more stringent energy efficiency regulations in Europe and North America, partially offset by anticipated investment delays in connection with general market and economic uncertainties.  Regulations focused on eliminating fluorinated gases, which are man-made gases that contribute to the global greenhouse effect, have shifted investments from synthetic to natural gas, including carbon dioxide cooling solutions, and are driving growth in mature markets in Europe and North America.

In addition, the HVAC&R business sells motor and generator cooling coils, transformer oil coolers, radiators, dryers and industrial heat exchangers to the industrial power generation, conversion, and transmission and industrial process markets in EMEA, China, and North America.  Customers for these products primarily include industrial OEMs as well as contractors and end users in industrial applications and for capital projects within the pulp and paper industry.  In fiscal 2024, the pulp and paper sector experienced strong growth and demand for industrial power and process products also improved.  We expect these markets overall will be stable in fiscal 2025, with an increase in demand for transformer oil cooler products, driven by higher electricity demands, and modest demand growth in the pulp and paper sector.

Data Center Cooling
The Data Center Cooling business provides sustainable cooling solutions for data center markets in North America, EMEA, and Asia, including complete system design, controls, maintenance and monitoring.  We provide data center cooling solutions that feature low global warming potential refrigerants, free cooling technology, and lower water consumption, enabling our customers and end-users to meet their environmental and sustainability goals.  Data center products consist of IT cooling solutions, including precision air conditioning units for data center applications; computer room air conditioning (“CRAC”) and computer room air handler (“CRAH”) units; hybrid fan coils; fan walls; chillers; condensers; condensing units; and liquid cooling solutions for high-density computing.  In addition, our data center business sells replacement parts, maintenance service and control solutions for existing equipment and new building management controls and systems.  This business serves data center management customers, including large colocation, cloud service providers and hyperscale customers, as well as customers in the commercial and industrial sectors such as telecommunications, healthcare and commercial real estate.

In fiscal 2024, the data center cooling markets that we serve experienced another year of strong growth.  We expect continued strong growth in these markets in fiscal 2025, driven by the increasing reliance on digital technologies, specifically colocation and cloud usage.  Market demand for data usage and storage continues to rise, driven by the increased use of IoT (Internet of Things) technology, which connects various devices through the internet, artificial intelligence and machine learning, smart phones, and digital transformation trends.  In addition, artificial intelligence, machine learning, and other trends are driving increased high performance computing, which increases heat loads and the need for high-density cooling solutions such as liquid cooling.  Digital transformation trends driving market demand include employers offering remote work arrangements, an increased focus on the digital customer experience, as more transactions and customer interactions are taking place virtually through websites and mobile applications, and the increasing use of 5G technology and its application across global enterprise opportunities, particularly in the healthcare, manufacturing, and energy sectors.

Performance Technologies Segment

The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that provide mission critical energy for a variety of end market applications.  The segment also provides solutions that increase fuel economy, reduce harmful emissions and maximize range in zero emission applications.  In light of increasingly stringent government regulations, the Performance Technologies segment designs and manufactures products and solutions using air-cooled and liquid-cooled technology for vehicular, stationary power, and industrial applications.  In addition, the Performance Technologies segment provides advanced thermal solutions to zero-emission and hybrid commercial vehicle and off-highway customers and coating products and application services.

The Performance Technologies segment has strategically aligned its teams around three primary market-based verticals: i) Air-Cooled Applications; ii) Liquid-Cooled Applications, and iii) Advanced Solutions.

Air-Cooled Applications
The Air-Cooled Applications business provides air-cooled heat exchangers and modules for vehicular, mission critical stationary power, and industrial applications.  This business primarily serves the commercial vehicle, off-highway and power generation markets in North America, Brazil, China, India, Europe and South Korea.  It primarily sells powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fan shrouds, and surge tanks; and cooling module generator sets (“Gensets”).  Its customers include commercial, medium- and heavy-duty truck and engine manufacturers; construction, agricultural, and mining equipment, and mission critical power generation manufacturers; and industrial manufacturers of material handling equipment, Gensets and compressors.

During fiscal 2024, the commercial vehicle and off-highway markets in North America experienced moderate to strong growth.  The commercial vehicle market in North America benefited from strong demand, as supply chain challenges eased and OEMs increased production to reduce order backlog.  In addition, regarding the off-highway markets, the heavy equipment construction market experienced growth, largely driven by higher government-backed infrastructure spending.  We believe the North American agriculture market peaked in fiscal 2024, particularly for larger agricultural equipment.  In addition, the power generation market in North America experienced strong growth, largely driven by growth in new data centers, where Gensets are used as a mission critical power source.  In Brazil, the commercial vehicle and off-high markets experienced declines during fiscal 2024, including the impacts of OEMs reducing previously elevated inventory levels and the impacts of the new Proconve P8 emission standards, which is similar to Euro 6.  The commercial vehicle market in India experienced strong growth during fiscal 2024, while the off-highway markets in Asia experienced declines resulting from cyclical market weakness.

In fiscal 2025, we expect the North American commercial vehicle and off-highway markets to contract.  While we expect slightly favorable market trends in heavy construction due to government stimulus programs and anticipated continued infrastructure spending, we expect a decline in the North American agriculture market, as crop prices are expected to decrease and interest rates remain elevated.  We expect strong growth in the power generation market, driven by new data center construction and demand for backup power Gensets for critical infrastructure, such as hospitals, mining and airports.  For Brazil, we expect the commercial vehicle and off-highway markets to recover and experience moderate growth in fiscal 2025.  We also expect commercial vehicle market growth in India will continue, while off-highway markets in Asia are expected to experience further declines.  We are monitoring potential infrastructure stimulus programs in China that could stabilize these markets.

Liquid-Cooled Applications  
The Liquid-Cooled Applications business provides heat exchangers for engine, stationary power, and industrial applications.  This business primarily serves the commercial vehicle, off-highway and automotive markets in North America, Europe, China, and India.  Its products and solutions include aluminum and stainless steel engine oil coolers, exhaust gas recirculation (“EGR”) coolers, liquid charge air coolers, transmission and retarder oil coolers, chillers, and condensers.  Its customers include commercial, medium- and heavy-duty truck engine manufacturers and automobile and light truck OEMs; and Tier-1 construction, agricultural equipment, and automotive module manufacturers.

During fiscal 2024, the global commercial vehicle and off-highway markets generally experienced moderate growth, with the largest gains in the medium- and heavy-duty truck markets.  For fiscal 2025, we expect modest growth in the commercial vehicle and off-highway markets in North America and China, yet slight declines in these markets in Europe based upon recent OEM order trends.

The global automotive market experienced moderate growth during fiscal 2024, as semiconductor chip shortages eased throughout the year, particularly in Europe and North America.  In addition, the automotive market in China recovered from the negative impacts associated with COVID-19 and supply chain challenges in the prior year.  In fiscal 2025, we expect the global automotive market will experience modest growth.  We expect this growth will be tempered, however, by inflation concerns.  Overall, we expect that longer-term growth of the global automotive market will be supported by increasingly stringent government emissions standards for internal combustion engines, in-vehicle technology enhancements and growth in emerging markets.

Advanced Solutions
Our Advanced Solutions business provides products and solutions for zero-emission and hybrid vehicles.  These products and solutions, which are primarily sold to the commercial vehicle, bus and specialty vehicle, off-highway machine and automotive markets in North America and Europe, include complete battery thermal management systems, electronics cooling packages, battery chillers, battery cooling plates, coolers and casings for electronics cooling, and coolers for electric axles (“e-axles”).  Customers for these products include commercial vehicle, bus and specialty vehicle, off-highway machine, and automotive OEMs, e-axle producers, and power electronics providers.  In fiscal 2024, the primary vehicular markets served by the Advanced Solutions business experienced strong growth.  We expect continued strong growth in fiscal 2025, as government policies in the U.S. and Europe are driving investments in electric vehicles, as well as the infrastructure necessary for wide-scale adoption of alternative powertrains.

Our Advanced Solutions business also provides coatings products and application services to the HVAC&R markets in North America and Europe.  Our coatings products are designed to extend the life of equipment and components by protecting against corrosion and foreign matter.  Customers for these products and services include manufacturers of commercial and residential HVAC&R systems, and distributors, contractors, and end users of HVAC&R equipment.  In fiscal 2024, the primary HVAC&R markets served by the coatings business experienced moderate growth.  We expect this trend to continue in fiscal 2025, with growth within the commercial air conditioning market, driven by expected growth in the U.S. market, and higher demand for coatings for systems and chillers used in data center cooling applications.

Geographic Areas

We maintain administrative organizations in all key geographic regions to facilitate customer support, development and testing, and other administrative functions.  We operate in four continents and within the following countries:

North America
South America
Europe
Asia
       
Canada
Brazil
Germany
China
Mexico
 
Hungary
India
United States
 
Italy
South Korea
   
Netherlands
United Arab Emirates
   
Serbia
 
   
Spain
 
   
Sweden
 
   
United Kingdom
 

Our non-U.S. subsidiaries and affiliates manufacture and sell a number of commercial, industrial and building HVAC&R and vehicular products similar to those produced in the U.S.

Exports

Export sales from the U.S. to foreign countries, as a percentage of consolidated net sales, were 7 percent in fiscal 2024, 2023, and 2022.

We believe our international presence positions us to benefit from the anticipated long-term growth of the global commercial, industrial and building HVAC&R, data center cooling and vehicular markets.  We are committed to increasing our involvement and investment in these international markets in the years ahead.

Customer Dependence

Our ten largest customers, some of which are conglomerates or otherwise affiliated with one another, accounted for 40 percent of our consolidated net sales in fiscal 2024.  In fiscal 2024, 2023 and 2022, our largest customer accounted for less than 10 percent of our sales.

Our top customers operate primarily in the data center cooling, commercial air conditioning and refrigeration, commercial vehicle, off-highway, and automotive and light vehicle markets.  Our top customers across both of our segments, listed alphabetically, include: Carrier; Caterpillar; Daimler Truck AG (including Detroit Diesel, Freightliner, Thomas Built Buses, and Western Star Trucks); Deere & Company; Mercedes-Benz Group AG (including AMG, Athlon, and Maybach); Stellantis (including Chrysler, Fiat, PSA-Peugeot-Citroen, and VM Motori); Trane Technologies; Volkswagen AG (including Audi, MAN, Porsche, Scania, and Navistar); and Volvo Group (including Mack Trucks and Renault Trucks).  In addition, our Climate Solutions segment includes significant sales to a global technology customer with which we are party to confidentiality agreements.  Generally, we supply products to our customers on the basis of individual purchase orders received from them.  When it is in the mutual interest of Modine and our customers, we utilize long-term sales agreements to minimize investment risks and provide the customer with a proven source of competitively-priced products.  These contracts are typically three to five years in duration.

Backlog of Orders

Our operating segments maintain their own inventories and production schedules.  We believe that our segment teams can manage their operations and production capacity effectively and efficiently based upon expected sales volume in fiscal 2025 and beyond.

Raw Materials

We purchase aluminum, copper, steel and stainless steel (nickel) from several domestic and foreign suppliers.  In general, we do not rely on any one supplier for these materials, which are, for the most part, available from numerous sources in quantities required by us.  The supply of copper and brass material is concentrated between two global suppliers, with other suppliers qualified and supplying lesser amounts to mitigate risk.  While our suppliers may become constrained due to global demand, we typically do not experience raw material shortages and believe that our suppliers’ production of these metals will be adequate throughout the next fiscal year.  We typically adjust metals pricing with our raw material suppliers on a monthly basis and our major fabricated component suppliers on a quarterly basis.  When possible, we have included provisions within our long-term customer contracts which provide for adjustments to customer prices, on a prospective basis, based upon increases and decreases in the cost of key raw materials.  When applicable, however, these contract provisions are limited to the underlying cost of the material based upon a relevant pricing source, such as the London Metal Exchange, American Metal Market, or Platts index, and typically do not include related metals premiums or fabrication costs.  In addition, there can often be a three-month to one-year lag until the time that the price adjustments take effect.

Patents and Other Intellectual Property

We protect our intellectual property through patents, trademarks, trade secrets and copyrights.  As a part of our ongoing R&D activities, we routinely seek patents on new products and processes.  Our Patent Review Committee manages our intellectual property strategy and portfolio.  We own or license numerous patents worldwide related to our products and operations.  Also, because we have many product lines, we believe that our business as a whole is not materially dependent upon any particular patent or license, or any particular group of patents or licenses.  We consider each of our patents, trademarks, and licenses to be of value and aggressively defend our rights throughout the world against infringement.

Research and Development and Investments in Technology

We are committed to building better products that will, in turn, help create a better world.  We focus our investments in technology on innovative solutions to meet the challenging thermal management and air quality needs of our customers within the markets we serve.  Our products are often aimed at solving difficult and complex heat transfer challenges requiring advanced thermal management solutions, while meeting the demand for increased energy efficiency and compliance with increasingly stringent regulations.  Our heritage includes a depth and breadth of expertise in thermal management that, combined with our global manufacturing presence, standardized processes, and state-of-the-art technical resources, enables us to rapidly bring customized solutions to our customers.

We strive to be at the forefront of technological advances through both strategic inorganic investments in new technologies and meaningful internal R&D projects.  During fiscal 2024, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps.  This acquisition expanded our indoor air quality product portfolio and supports our growth strategy and mission of improving indoor air quality.  In addition, we are strategically expanding our technology and product portfolio in the Data Center Cooling business within our Climate Solutions segment.  We recognize the need for investment in technology in this area as artificial intelligence, machine learning, and other trends are driving increased high performance computing, which increases heat loads and is driving the need for high-density cooling solutions.  We recently completed the acquisition of Scott Springfield Manufacturing, a leading manufacturer of air handling units for customers, including hyperscale data centers, in the U.S. and Canada, and purchased liquid immersion cooling technology from TMGcore, Inc.  In addition to these inorganic investments, we are internally developing a cooling distribution unit to provide critical cooling capacity for heat removal in high-density data center environments.  Through our data center cooling technology investments, we are able to offer our customers multiple efficient, customizable products and solutions to elevate their performance while meeting their sustainability targets around power and water usage.  Likewise, through both our Scott Springfield Manufacturing and Napps acquisitions, we invested in new product offerings in our indoor air quality business.  By acquiring an expanded product offering of air- and water-cooled chillers, condensing units and heat pumps, we are able to offer a wider portfolio of solutions to the school, commercial and healthcare end-users of our products.

R&D expenditures, including certain application engineering costs for specific customer solutions, totaled $42 million, $44 million, and $50 million in fiscal 2024, 2023, and 2022, respectively.  As a percentage of our consolidated net sales, we spent approximately 2 percent on R&D in each fiscal 2024, fiscal 2023 and 2022.  To ensure efficient and cost-effective development of technologies, our R&D teams work closely with our customers on projects and system designs.  Current internal development projects for the HVAC&R markets are primarily focused on sustainable solutions that optimize thermal efficiency and manufacturing to support decarbonization efforts and the use of next generation refrigerants, which help minimize climate change potential.  Regarding the vehicular markets, our development projects include solutions to provide advanced thermal solutions for electric vehicles that improve fuel efficiency and reduce overall energy consumption.  We also collaborate with industry, university, and government-sponsored research organizations that conduct research and provide data on practical applications in the markets we serve.  In addition, we engage in external research projects that complement our strategic internal research initiatives to further leverage our significant thermal technology expertise and capabilities.

Quality Improvement

Globally, we drive quality improvement by maintaining the Global Modine Management System and executing the Modine Quality Strategy.

Our actions and decisions are driven by our purpose: Engineering a Cleaner, Healthier World™.  Our strategic journey requires a uniting culture that grounds us, inspires us and energizes us as we address the world’s most important challenges through innovative products and services with superior quality.

Through our integrated and process-oriented Global Modine Management System, the majority of our manufacturing facilities and administrative offices are registered to ISO 9001:20015 or IATF 16949:2016 standards, helping to ensure that our customers receive high quality products and services.  We regularly monitor our process performance to meet or exceed rising customer expectations for products, services and quality.

Our Global Modine Management System supports our mission and values by applying well-defined improvement principles and leadership behaviors, all based on our 80/20 mindset to facilitate rapid improvements. We drive sustainable and systematic continual improvement throughout our company by utilizing the principles, processes and behaviors of the Global Modine Management System.

To ensure future quality, we continue to execute the Modine Quality Strategy, which focuses on people, process, performance, quality engineering and the Global Modine Management System.

Environmental Matters

We are committed to Engineering a Cleaner, Healthier World™ and are working every day to deliver systems and solutions that improve air quality and conserve natural resources.  We concentrate on the benefits our products deliver, including reducing water and energy consumption, lowering harmful emissions, and enabling our customers to use environmentally friendly refrigerants.  In addition, we are committed to conducting business at our global locations in an environmentally conscious manner, specifically by preventing pollution, reducing water and energy consumption, eliminating waste, and reducing environmental risks.  We employ resource tracking technologies and waste management programs to advance our environmental stewardship and minimize our environmental footprint.  The majority of our facilities maintain Environmental Management System (“EMS”) certification to the international ISO14001 standard through independent third-party audits.

In regard to providing innovative, climate-resilient solutions that enable our customers to meet their sustainability goals, we are continuously driving energy efficiency across our product portfolio.  Our Climate Solutions segment continues to develop high-efficiency heating and indoor air quality products and data center cooling solutions that reduce both electrical and water usage.  Our AirWall One™ fan wall, for example, was designed, in collaboration with the data center industry, to prioritize energy efficiency for data centers that utilize high air and water temperatures.  We are also shifting our product portfolios toward lower-emission propellants and refrigerants which greatly reduce the environmental impact of and enhance energy efficiency for our customers’ heating and cooling systems.  Our Performance Technologies segment offerings focus on fuel efficiency and lower emissions.  Our oil, charge-air, and EGR coolers, radiators, air conditioning condensers, and battery thermal management systems for trucks, buses, cars, specialty vehicles, and off-highway equipment allow both electric vehicle and internal combustion systems to run at optimal temperatures, which promotes better fuel efficiency, lower emissions, and improved vehicle lifespans, while still providing the vehicle performance that our customers expect.

In our global business operations, we are working to reduce both our energy and water usage and have empowered each of our global facilities to create and carry out action plans that contribute to our company-wide reduction goals.  Examples of steps we are taking to meet these goals include the utilization of resource tracking technologies, installation of solar panel systems, conversion to more efficient LED lighting systems, the replacement of inefficient boilers and air compressors, improved building HVAC management systems, increased industrial water recycling, and the installation of water-saving faucets.

Obligations for remedial activities may arise at our facilities due to past practices, or as a result of a property purchase or sale.  These obligations most often relate to sites where past operations followed practices that were considered acceptable under then-existing regulations, but now require investigative and/or remedial work to ensure appropriate environmental protection or where we are a successor to the obligations of prior owners and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.  We have recorded liabilities for environmental monitoring and remediation work at sites in the U.S. and abroad totaling $18 million at March 31, 2024.

Seasonal Nature of Business

Our overall operating performance is generally not subject to a significant degree of seasonality.  The Climate Solutions segment experiences some seasonality, as demand for HVAC&R products can be affected by heating and cooling seasons, weather patterns, project construction, and other factors.  Sales volume for our Climate Solutions heating products is generally stronger in our second and third fiscal quarters, corresponding with demand for these products.  We generally expect sales volume for our Climate Solutions refrigeration, power generation and conversion, and heat transfer products to be higher during our first and second fiscal quarters due to the construction seasons in the northern hemisphere.  Sales to Performance Technologies vehicular OEM customers are dependent upon market demand for new vehicles.  However, our second fiscal quarter production schedules are typically impacted by customer summer shutdowns and our third fiscal quarter is affected by customer holiday shutdowns.

Working Capital

We manufacture products for the majority of customers on an as-ordered basis, which makes large inventories of finished products unnecessary, with the exception of certain products in our Climate Solutions segment.  Within our Climate Solutions segment, we maintain varying levels of finished goods inventory, primarily related to our heating, indoor air quality, and data center products, due to seasonal demand and the timing of sales programs.  In Brazil, within our Performance Technologies segment, we maintain aftermarket product inventory in order to timely meet customer needs in the Brazilian commercial vehicle and automotive aftermarkets.  We have not experienced a significant number of returned products within any of our businesses.

Human Capital Resource Management

As of March 31, 2024, we employed approximately 11,400 persons worldwide.

We recognize that our continued success is a direct result of the quality of our people.  As such, we strive to be an employer of choice in every community in which we operate.  We do this by fostering a fair, respectful, and safe work environment for our people in alignment with our core values.

We have identified priorities that we believe are essential to attract, develop and retain highly-qualified talent.  These include, among others, i) providing career development programs; ii) promoting health and safety; iii) fostering values of diversity, inclusion and belonging in the workplace; and iv) providing competitive compensation and benefits.

Workforce development

Our operations require expertise across a wide range of disciplines, from engineering and manufacturing to accounting and finance to information technology.  Our human resources team, in connection with our Company leaders across the globe, work to hire talented individuals who align with our values.

All of our new employees go through a comprehensive onboarding program with their managers to ensure proper training is provided to succeed in their respective roles.  We also encourage our employees to further develop their skills through both internal and external training programs.

We are committed to growing our employees’ capabilities.  Through our Performance and Development Process (“PDP”), we provide all salaried employees with a consistent, structured development and performance review experience.  The PDP provides employees with a development pathway that focuses on both annual performance goals and longer-term career development.  In addition, we perform strategic talent reviews and succession planning on a regular cadence.

Health and safety

The health and safety of our employees is paramount to us.  We are committed to conducting our business operations in a safe and healthy manner.  We employ a behavior-based safety program which proactively seeks to correct at-risk behaviors while positively reinforcing safe behaviors.  We educate and train employees on safe practices and promote personal accountability and responsibility for safety at all levels of our organization.

We have consistently out-performed the private-industry Recordable Incident Rate (“RIR” as defined by the Occupational Safety and Health Administration) average for the manufacturing sector, which was 3.2 in 2022, the most recent year for which data is available.  During fiscal 2024, we recorded an RIR of 1.35, well below the manufacturing sector average.

Diversity, inclusion and belonging

We are committed to fostering working environments where all of our employees feel a sense of belonging.  We emphasize people-centric values that are founded on respect and value for people of different backgrounds, experiences, and perspectives.  Incorporating diverse talent and fostering an inclusive environment where employees feel valued and appreciated for who they are and what they can contribute is a key focus of our talent management strategy.  In addition to emphasizing and recognizing employees who live our values through our Modine Values People Awards, we track and focus on qualitative indicators of diversity and inclusion across our global operations, including the number of women in supervisory roles and minority new hires in the U.S.

Competitive compensation and benefits

We offer our employees competitive compensation and comprehensive benefit packages.  We regularly benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.  We believe that our compensation and employee benefits are competitive and allow us to attract and retain talent throughout our organization.

Available Information

Through our website, www.modine.com (Investors link), we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, other Securities Exchange Act reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).  Our reports are also available free of charge on the SEC’s website, www.sec.gov.  Also available free of charge on our website are the following corporate governance documents, among others:


Code of Conduct, which is applicable to all Modine directors and employees, including our executive officers;

Guidelines on Corporate Governance;

Audit Committee Charter;

Human Capital and Compensation Committee Charter;

Corporate Governance and Nominating Committee Charter; and

Technology Committee Charter.

All of the reports and corporate governance documents referenced above and other materials relating to corporate governance may also be obtained without charge by contacting Corporate Secretary, Modine Manufacturing Company, 1500 DeKoven Avenue, Racine, Wisconsin 53403-2552.  We do not intend to incorporate our internet website and the information contained therein or incorporated therein into this Annual Report on Form 10-K.

ITEM 1A.
RISK FACTORS.

In the ordinary course of our business, we face various market, operational, strategic, financial and general risks.  These risks could have a material impact on our business, financial condition, results of operations and cash flows.  Please consider each of the risks described below, along with other information contained in this Annual Report on Form 10-K, when making any investment decisions with respect to our securities.

Our Enterprise Risk Management process seeks to identify and address material risks.  We believe that risk-taking is an inherent aspect of operating a global business and, in particular, one focused on growth and cost-competitiveness.  Our goal is to proactively manage risks in a structured approach in conjunction with strategic planning, while preserving and enhancing shareholder value.  However, the risks set forth below and elsewhere in this report, as well as other risks currently unknown or deemed immaterial at the date of this report, could materially adversely affect us and cause our financial results to vary materially from recent or anticipated future results.

A.
MARKET RISKS

Economic uncertainties

Economic, political, and general market conditions could adversely affect our business, financial position, results of operations and cash flows.

We operate in 16 countries on four continents and serve customers in a wide array of data center, Genset, HVAC&R markets, including commercial and residential, and vehicular markets, including commercial vehicle, off-highway machine, automotive and light vehicle.  As such, our business is impacted by general economic, political, and industry conditions globally as well as in the regions and countries in which we conduct business. While the global supply chain challenges and inflationary market conditions experienced in fiscal 2023 have generally improved, we are subject to the risk of further disruptions or significant deterioration in market conditions, which could have a material impact on our business, financial position, results of operations and cash flows.  Military conflicts, including the ongoing conflicts in Ukraine and in the Middle East and heightened tensions resulting from recent attacks on shipping vessels in the Red Sea, could negatively impact or cause significant business disruptions in the global markets we operate in.  In addition, customer demand for our products and system solutions is impacted by the overall strength of the economy, employment levels, consumer confidence levels, the availability and cost of credit, and the cost of fuel.  For example, rising interest rates associated with inflationary market conditions may drive a higher cost of capital for our customers, which may have a deteriorating impact on overall economic activity and the financial condition of our customers, which could negatively impact the demand for our products.  Prolonged recessionary or adverse economic conditions, such as disruptions in the global financial system, could result in our customers or suppliers experiencing significant economic constraints, including potential bankruptcies.

A future widespread outbreak of an illness or other public health threat could adversely affect our business, financial position, results of operations and cash flows.

An outbreak of a disease or public health threat, including a significant resurgence of COVID-19, in the future could create economic and financial disruptions and adversely affect our businesses around the world.  Potential impacts of epidemics, pandemics, or other health crises including, but are not limited to, (i) staffing shortages if portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures, or other restrictions; (ii) short- or long-term disruptions in our supply chain and our ability to deliver products to our customers; (iii) deterioration in the markets that we or our customers operate in, which may result in lower sales or a deterioration in the ability of our customers to pay us; and (iv) significant volatility or negative pressure in the financial markets, which could adversely affect our access to capital and/or financing and could have a material impact on our business, financial position, results of operations and cash flows.
 
Customer and supplier matters

Increases in costs of materials, including aluminum, copper, steel and stainless steel (nickel), other raw materials and purchased components, could place significant pressure on our results of operations.

Increases in the costs of raw materials and other purchased components, which may be impacted by a variety of factors, including changes in trade laws, tariffs, sanctions, inflation, geopolitical and military conflicts, the behavior of our suppliers and significant fluctuations in demand, could have a significant negative impact on our results of operations.  In the shorter-term, our ability to adjust for cost increases is limited when prices are fixed for current orders.  In these cases, if we are not able to recover such cost increases through price increases to our customers, such cost increases will have an adverse effect on our results of operations.  With regard to our longer-term sales programs, we have sought to reduce the risk of cost increases by including provisions within our customer contracts, where possible, which provide for prospective price adjustments based upon increases and decreases in the cost of key raw materials.  However, where these contract provisions are applicable, there can often be a three-month to one-year lag until the time of the price adjustment.  To further mitigate our exposure, from time to time we enter into forward contracts to hedge a portion of our forecasted aluminum and copper purchases.  However, these hedges may only partially offset increases in material costs, and significant increases could have a material adverse effect on our results of operations and cash flows.

We could be adversely affected if we experience shortages of components or materials from our suppliers.

We regularly engage with our suppliers to ensure availability of purchased commodities and components used in manufacturing our products.  We use a limited number of suppliers for certain components, including aluminum, copper, steel and stainless steel (nickel).  We select our suppliers based upon total value (including price, delivery and quality), taking into consideration their production capacities, financial condition and willingness and ability to meet our demand.  In some cases, it can take several months or longer to identify and accept a new supplier due to qualification requirements.

Strong demand, the potential effects of trade laws and tariffs, sanctions, capacity constraints, financial instability, geopolitical and military conflicts, public health crises, such as pandemics and epidemics, or other circumstances experienced by our suppliers could result in shortages or delays in their supply of product to us, or a significant price increase resulting in our need to resource to a different supplier.  If we experience significant or prolonged shortages of critical components or materials from our suppliers and could not procure the components or materials from other sources, we may be unable to meet our production schedules and could miss product delivery dates, which would adversely affect our sales, results of operations, cash flows and customer relationships.

Our net sales and profitability could be adversely affected from business losses or declines with major customers.

Deterioration of a business relationship with a major customer could cause our sales and profitability to suffer.  In certain areas of our businesses, including data centers, Gensets, and some portions of our vehicular businesses, a large portion of sales are attributable to a relatively small number of customers.  The failure to obtain new business, or to retain historical order volumes or monetary values from a concentrated customer base could adversely affect our business and financial results.  In addition, as a result of relatively long lead times required for many of our complex products and systems, it may be difficult in the short term for us to obtain new sales to replace a significant decline in sales of existing products.  The loss of a major customer in any of our businesses, or a significant decline in order volumes or quantities, or in the overall market demand for our products or services, could have an adverse effect on our business, results of operations and cash flows.

Our results of operations could be adversely affected by pricing pressures from our OEM customers.

We have historically faced price-reduction pressure from our vehicular OEM customers.  While we have significantly reduced our exposure to the potential impacts of such price-reduction pressures through negotiations and our application of 80/20 principles, a limited number of contractual price reductions remain in legacy contracts.  In those instances, if we are unable to offset price reductions through improved operating efficiencies and manufacturing processes, sourcing alternatives, technology enhancements and other cost reduction initiatives, or through price negotiations, our results of operations could be adversely affected.

In addition, vehicular OEM customers often request that we pay for design, engineering and tooling costs that are incurred prior to the start of production and recover these costs through amortization in the piece price of the product.  Some of these costs cannot be capitalized, which adversely affects our profitability until the programs for which they have been incurred are launched.  If a given program is not launched, or is launched with significantly lower volumes than planned, we may not be able to recover the design, engineering and tooling costs from our customers, further adversely affecting our results of operations.

As part of our application of the 80/20 principles, we have improved our commercial acumen, including our pricing methodology, have clear, strategic profit margin targets for new sales programs, and have successfully negotiated with many of our customers to allow for adjustments to our pricing in the event of certain fluctuations in raw material and commodity costs.  While we believe that our 80/20 pricing strategy will strengthen our business and allow us to focus our resources on higher margin sales programs, it is possible that it may result in a lower overall win rate for new business in the shorter-term.  If our pricing strategy results in winning less new business, our results of operations and cash flows could be adversely affected.

Climate change and ESG-related risks

Global climate change and related emphasis on ESG matters by various stakeholders could negatively affect our business.

Increased public awareness and concern regarding links between greenhouse gas emissions and global climate changes may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions.  There continues to be ambiguity regarding the promulgation and enforcement of climate change regulations, which creates uncertainty in the markets in which we operate. This uncertainty extends to the use or adoption rate of our product portfolio and our overall costs of regulatory compliance, which may impact the demand for our products and/or may require us to make increased capital expenditures to meet new standards and regulations.  Further, our customers, other market participants, or government entities may impose emissions or other environmental standards upon us through regulation, market-based emissions policies or consumer preference that we may not be able to timely meet, or which may not be economically feasible for us, due to the required level of capital investment or required speed of technological advancement.

Additionally, climate changes, such as extreme weather conditions, create financial risk and uncertainty for our business.  For example, the demand for our products and services may be affected by unpredictable or unseasonable weather conditions.  Climate changes could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase our insurance and other operating costs. In addition, any natural disasters or extreme weather events, including those as a result of climate change, could disrupt our manufacturing operations and our ability to manufacture and deliver products to our customers and adversely impact our results of operations and cash flows.  We could also face indirect financial risks passed through the supply chain, and process disruptions due to climate changes could result in price modifications for our products and the resources needed to produce them.

Furthermore, customer, investor, and employee expectations in areas such as the environment, social matters and corporate governance (ESG) have been rapidly evolving.  Specifically, certain customers are requiring information on our environmental sustainability goals and commitments, which we have not yet released publicly.  There can be no assurance of the extent to which any of our future goals will be achieved, or that any investments we make in furtherance of achieving any such plans, targets, goals or other commitments will meet regulatory or legal standards regarding sustainability performance or any customer, investor, employee or other stakeholder expectations and desires regarding such goals or commitments.

Additionally, the enhanced stakeholder focus on ESG matters requires the continuous monitoring of various and evolving expectations, tolerances, and standards – and the reporting requirements associated with our disclosures on our ESG-related goals and initiatives.  A failure to adequately meet stakeholder expectations may result in the loss of business, diluted market valuation, an inability to attract and retain customers or an inability to attract and retain top talent.  Likewise, a failure to comply with any current or future ESG reporting requirements, as established by regulators in the U.S., Europe and beyond, may result in loss of business, regulatory penalties, litigation, and/or reputational damage.

Competitive environment

Continued and increased competition could adversely affect our business and our results of operations.

We experience competition from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs, lower health care costs, lower tariff or tax rates, lower costs associated with legal compliance, and, in some cases, export or raw materials subsidies.  In addition, consolidation and vertical integration within the supply base have introduced new or restructured competitors to our markets.  Increased competition could adversely affect our business and our results of operations.

B.
OPERATIONAL RISKS

Complexities of global presence

We are subject to risks related to our international operations and global customer and supplier base.

We have manufacturing and technical facilities located in North America, South America, Europe, and Asia.  Our global operations are subject to complex international laws and regulations and numerous risks and uncertainties, including changes in monetary and fiscal policies, including those related to tax and trade, cross-border trade restrictions or prohibitions, import or export duties or other charges or taxes, fluctuations in foreign currency exchange and interest rates, inflation, changing economic and employment conditions, public health crises, unreliable intellectual property protection and legal systems, insufficient infrastructures, social unrest, political instability and disputes (including, for example, impacts of the military conflicts in Ukraine and in the Middle East and heightened tensions in the Red Sea), incompatible business practices, and international terrorism.  Changes in policies or laws governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we either manufacture products, such as Mexico or China, or buy raw materials, such as China, could have a material negative impact on our results of operations.  In particular, increased tariffs or taxes on imported goods or raw materials from countries, such as China, where there are insufficient quantities or economically prohibitive U.S. or other alternative geographic sources of those goods or raw materials could materially impact our results of operations. In addition, compliance with multiple and often conflicting laws and regulations of various countries can be challenging and expensive.

Embargoes or sanctions imposed by the U.S. government or those abroad that restrict or prohibit sales to or purchases from specific persons or countries or based upon product classification may expose us to potential criminal and civil sanctions to the extent that we are alleged or found to be in violation, whether intentional or unintentional.  In connection with the military conflict in Ukraine, governments in the U.S. and abroad have recently extended and expanded imposed sanctions against Russia and entities known to be supporting Russian interests, including on certain companies located in countries in which we operate, including China, Germany, and Serbia.  We do not have manufacturing operations in Ukraine or Russia nor any significant business relationships in or associated with Ukraine or Russia, however we are actively monitoring the sanctions requirements and reacting as necessary to ensure compliance.  We cannot predict future regulatory requirements to which our business operations may be subject or the manner in which existing laws might be administered or interpreted.  Significant developments or changes in these regulatory requirements could have a material adverse impact on our results of operations and cash flows.

In addition, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar anti-corruption laws generally prohibit companies and their intermediaries from making payments to improperly influence foreign government officials or other persons for the purpose of obtaining or retaining business.  In recent years, there has been a substantial increase in the global enforcement of anti-corruption laws.  In the event that we believe our employees or agents may have violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may have to expend significant time and financial resources toward the investigation and remediation of the matter, which could disrupt our business and result in a material impact on our financial condition, results of operations and reputation.

Challenges of maintaining a competitive cost structure

We may be unable to maintain competitive cost structures.

As we progress towards our vision of a “new” Modine by applying 80/20 principles across our businesses to focus resources on products and markets with the highest sustainable growth opportunities and return profiles, it is imperative that we effectively and efficiently manage our operations in response to sales volume changes.  This includes ramping up and maintaining adequate production capacity to meet demand in our growing businesses, while also completing restructuring activities in order to optimize our manufacturing footprint and cost structure, particularly in light of changes in our mix of business and in areas where we are strategically refraining from further investments.  For example, we are currently working to close a technical service center in Germany to optimize the utilization of our global technical service capacity.  In addition, we have implemented targeted headcount reductions that support our objective of reducing operational and selling, general, and administrative (“SG&A”) cost structures and have consolidated or closed certain manufacturing facilities.  We are also focused on applying 80/20 principles across our businesses, including within our manufacturing facilities, to drive simplification and production efficiencies.

Our successful execution of these initiatives, and our ability to optimize and maintain competitive cost structures, is critical in sustaining our long-term competitiveness.  Any failure to do so could, in turn, adversely affect our results of operations, cash flows and financial condition.

Challenges of technology advantage and program launches

If we cannot differentiate ourselves from our competitors with our technology, our existing and potential customers may seek lower prices and our sales and earnings may be adversely affected.

Price, quality, delivery, technological innovation, application engineering development and, with regard to our system designs, the reliability of our ongoing post-sale service, are the primary elements of competition in our markets.  If we fail to be at the forefront of technological advances and cannot differentiate ourselves from our competitors with our technology or fail to provide high quality, innovative products and services that both meet or exceed customer expectations and address their ever-evolving needs, we may experience price erosion, lower sales, and lower profit margins.  Significant technological developments by our competitors or others also could adversely affect our business and results of operations.

Changes in the adoption rate for newer technologies could adversely affect our business.

Changes in or shifts in the adoption rate of technologies or products that we expect to drive sales growth, including liquid immersion technology for data center applications, and technology related to electric vehicles, heat pumps and Gensets, could adversely affect our results of operations and financial condition.  For example, we are rapidly growing and investing in our Advanced Solutions business, which provides battery thermal management and electronics cooling products and solutions for zero-emission and hybrid vehicles.  We expect government policies and funding legislation in the U.S. and Europe will drive further investments in electric vehicles, and the infrastructure necessary for wide-scale adoption of alternative powertrains, as well as in the proliferation of heat pumps and Gensets in commercial or residential applications.  If technology adoption rates slow or the market transition towards the use of electric vehicles, Gensets or heat pumps are significantly delayed, our sales growth in these areas of our business could be limited.

Developments or assertions by or against us relating to intellectual property rights could adversely affect our business.

We own and license significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets.  Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve.  As we maintain or expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite our efforts to protect them.  Developments or assertions by or against us relating to intellectual property rights could adversely affect our business and results of operations.  Additionally, any inability to acquire or secure intellectual property relating to newer technologies in areas of our business that we expect to drive sales growth could negatively impact our competitive positions in these growth areas of our business.

We regularly launch new programs, products and system designs at our facilities across the world.  The success of these launches is critical to our business.

We design technologically advanced products and systems, and the processes and time required to develop, design and produce these products and systems can be lengthy, difficult and complex.  We spend significant time and financial resources to ensure the successful launch of new products and programs.  Due to our high level of launch activity, we must appropriately manage these launches and deploy our capital and operational and administrative resources to take advantage of the resulting increase in our business.  If we do not successfully or timely launch new products, systems and programs, we may lose market share or damage relationships with our customers, which could negatively affect our business.  In addition, any failure in our manufacturing strategy for these new products or programs could result in operating inefficiencies or asset impairment charges, which could adversely affect our results of operations.

Information technology (IT) systems

We may be adversely affected by a substantial disruption in, or material breach of, our IT systems or IT systems of our service providers.

We are dependent upon IT infrastructure, including network, hardware, and software systems owned by us and our service providers, to conduct our business.  Despite network and other cybersecurity measures we and our service providers have in place, IT systems could be damaged, compromised, or interrupted by intentional or unintentional events or natural disasters.  We could also be negatively impacted by a cybersecurity breach from computer viruses, ransomware, phishing, break-ins or similar disruptions.  Cybersecurity risk may be heightened by the increased prevalence of hybrid and/or remote work arrangements.  Further, the military conflicts in Ukraine and the Middle East, as well as current geopolitical uncertainties involving Russia and China, among other nations, may increase the threat of cyberattacks on the global financial markets, supply chain, and IT infrastructure, which could directly or indirectly impact our operations.

A material breach or a substantial disruption in our IT systems for a prolonged time period, or the failure of one or more legacy IT systems no longer supported by service providers, could result in delays in receiving inventory and supplies or filling customer orders.  In addition, these events or the inadvertent use of OpenAI technologies, could result in the release of otherwise confidential information, including personal information that is protected by the General Data Protection Regulation.  Any such events and the related delays, problems or costs, including potentially significant remediation expenses and litigation risks, could have material negative impacts on our business, financial condition, results of operations, business relationships and reputation.

Internal controls over financial reporting

We have identified a material weakness in our internal control over financial reporting that, if not remediated, could result in financial reporting errors.

Effective internal controls are necessary for accurate and appropriate financial reporting.  As disclosed in Item 9A. “Control and Procedures,” in this Annual Report on Form 10-K, we identified a material weakness in our information technology general controls (“ITGCs”) during the fourth quarter of fiscal 2024 related to access to systems in Europe that support our accounting and financial reporting processes.  While this material weakness did not result in any identified misstatements to the financial statements, nor were there changes to previously reported financial results, a risk exists that financial reporting errors could occur if we fail to remediate this material weakness or if we experience other internal control deficiencies.  If that were to happen, it could have a material adverse impact on our business, financial condition, results of operations, and cash flows.

Environmental, health and safety regulations

We could be adversely impacted by the costs of environmental, health and safety regulations.

Our operations are subject to various federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials.  The operation of our manufacturing facilities entails risks in these areas and there can be no assurance we will avoid material costs or liabilities relating to such matters.  Our financial responsibility to clean up contaminated property may extend to previously-owned or used property, properties owned by unrelated companies, as well as properties we currently own and use, regardless of whether the contamination is attributable to prior owners.  In addition, potentially material expenditures could be required in order for our products and operations to comply with evolving environmental, health and safety laws, regulations (including those developed as a concern to climate control), or other requirements that may be adopted or imposed in the future.  Future costs to remediate contamination or to comply with environmental, health and safety laws and regulations could adversely affect our business, results of operations and financial condition.

Claims and litigation

We may incur material losses and costs as a result of warranty and product liability claims and litigation or other legal proceedings.

In the event our products or systems fail to perform as expected, we are exposed to warranty and product liability claims and may be required to participate in a recall or other field campaign of such products.  Many of our vehicular customers offer extended warranty protection for their vehicles and pressure their supply base to extend warranty coverage as well.  If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material negative effect on our results of operations and financial condition.  We are also involved in various legal proceedings from time to time incidental to our business.  If any such proceeding has a negative result, it could adversely affect our business, results of operations, financial condition and reputation.

C.
STRATEGIC RISKS

Business optimization and growth strategies

Inability to execute on our strategic initiatives or to successfully integrate recent acquisitions may adversely impact our business and operating results.

Under our strategy based in 80/20 principles, we have invested in acquiring businesses and technologies that we expect to accelerate our strategic growth in select markets.  During the last fiscal year, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units, and heat pumps; we purchased liquid immersion cooling technology assets from TMGcore, Inc., and we completed the acquisition of Scott Springfield Manufacturing, a leading manufacturer of air handling units serving customers in the U.S. and Canada.  These investments have expanded our data center cooling and indoor air quality product portfolios, and we are rapidly growing our Advanced Solutions business, which provides battery thermal management and electronics cooling products and solutions for zero-emission and hybrid vehicles.

If we are unable to successfully integrate these acquired businesses and/or technologies into our existing operations, capitalize on expected market share or revenue gains, realize anticipated cost or revenue synergies, or operate these growth businesses profitably, we may not achieve the financial or operational success expected from these investments.  Additionally, if we are unable to successfully execute our organic growth strategic initiatives, our results of operations and cash flows could be negatively impacted.

We will continue to review our business portfolio and pursue sales and margin growth through both organic and inorganic opportunities.  There can be no assurance we will be able to identify additional attractive acquisition targets.  If we are unable to successfully execute on further organic growth opportunities or complete acquisitions in the future, our growth may be limited.  In addition, future acquisitions will require integration of operations, sales and marketing, information technology, finance, and administrative functions.  If we are unable to successfully integrate future acquisitions and operate these businesses profitably, we may not achieve the financial or operational success expected from the acquisitions.

Future acquisitions could include the issuance of shares of our common stock as all or a portion of the consideration paid to the sellers.  Any such issuance would be dilutive to the interests of our existing shareholders and may adversely affect the market price of our shares.

D.
FINANCIAL RISKS

Liquidity and access to cash

Our indebtedness may limit our use of cash flow to support operating, development and investment activities, and failure to comply with our debt covenants could adversely affect our liquidity and financial results.

As of March 31, 2024, we had total outstanding indebtedness of $432 million.  Our indebtedness and related debt service obligations (i) require that a certain portion of cash flow from operations be used for principal and interest payments, which reduces the funds we have available for other business purposes; (ii) limit our flexibility in planning for or reacting to changes in our business and market conditions; and (iii) expose us to interest rate risk, since the majority of our debt obligations carry variable interest rates.

Our credit agreements contain financial covenants that, among other things, require us to maintain a minimum interest coverage ratio and impose a maximum leverage ratio.  Failure to comply with debt covenants could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date.  If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and interest rates.

Market trends and regulatory requirements may require additional funding for our pension plans.

Our defined benefit pension plans in the U.S. are frozen to new participants.  Our 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.  Our domestic plans have an unfunded liability totaling $16 million as of March 31, 2024.  We expect to make cash contributions to our U.S. plans during fiscal 2025 totaling $8 million.  Funding requirements for our defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns, mortality rate assumptions, and the impact of legislative or regulatory changes.  Should changes in actuarial assumptions or other factors result in the requirement of significant additional funding contributions, our cash flows and financial condition could be adversely affected.

Goodwill and intangible assets

Our balance sheet includes significant amounts of goodwill and intangible assets.  An impairment of a significant portion of these assets would adversely affect our financial results.

Our balance sheet includes goodwill and intangible assets totaling $419 million at March 31, 2024.  We perform goodwill impairment tests annually, as of March 31, or more frequently if business events or other conditions exist that require a more frequent evaluation.  In addition, we review intangible assets for impairment whenever business conditions or other events indicate that the assets may be impaired.  If we determine the carrying value of an asset is impaired, we write down the asset to fair value and record an impairment charge to current operations.

We use judgment in determining if an indication of impairment exists.  For our annual goodwill impairment tests, we use estimates and assumptions, including revenue growth rates and operating profit margins to calculate estimated future cash flows and risk-adjusted discount rates.  We cannot predict the occurrence of future events or circumstances, including lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and the continued general economic uncertainties, which could adversely affect the carrying value of goodwill and intangible assets.  An impairment of a significant portion of goodwill or intangible assets could have a negative impact on our financial results.

Income taxes

We may be subject to additional income tax expense or become subject to additional tax exposures.

Our effective tax rates in the future may be impacted by changes in the mix of earnings in countries with differing statutory rates and changes in tax laws, or their interpretation.  The subjectivity of or changes in tax laws and regulations in jurisdictions where we operate could materially affect our results of operations and financial condition.  For example, the Organization for Economic Cooperation and Development (“OECD”) has issued significant global tax policy changes.  In October 2021, the OECD and G20 Finance Ministers reached an agreement, known as Base Erosion and Profit Shifting Pillar Two (“Pillar Two”), that, among other things, provides that income earned in each jurisdiction that a multinational company operates in is subject to a minimum corporate income tax rate of at least 15 percent.  Discussions related to the formal implementation of Pillar Two, including with respect to the tax law of each member jurisdiction, including the United States, are ongoing.  Enactment of this regulation could result in an increase in our income tax expense and adversely impact our results of operations, cash flows and financial condition.  We are also subject to tax audits in each jurisdiction in which we operate.  Unfavorable or unexpected outcomes from one or more tax audits could adversely affect our results of operations and financial condition.

In addition, as of March 31, 2024, our net deferred tax assets totaled $45 million.  Each quarter, we evaluate the probability that our deferred tax assets will be realized and determine whether valuation allowances or adjustments thereto are needed.  This determination involves judgment and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could require us to establish further valuation allowances, which could negatively impact our results of operations and financial condition.

E.
GENERAL RISKS

Customers and markets

We are dependent upon the health of the customers and markets we serve.

We are highly susceptible to unfavorable trends or disruptions in the markets we serve, as our customers’ financial condition and performance are affected by demands for their goods or services, regulatory initiatives and incentives and general economic conditions, including supply chain challenges, access to credit, the price of fuel and electricity, employment levels and trends, interest rates, labor relations issues, regulatory requirements and incentives, technology demands and advancements, government-imposed restrictions relating to health crises or other unusual events, trade agreements and other market factors, as well as by customer-specific issues.  Any significant decline in demand for our products and solutions, including those driven by end-market demands or demand for our customer’s products or services, by current and future customers could result in asset impairment charges and a reduction in our sales, thereby adversely impacting our results of operations, cash flows and financial condition.

Exposure to foreign currencies

As a global company, we are subject to foreign currency rate fluctuations, which affect our financial results.

Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in foreign currencies.  Our sales and profitability are affected by movements of the U.S. dollar against foreign currencies in which we generate sales and incur expenses.  To the extent that we are unable to match sales in foreign currencies with costs paid in the same currency, exchange rate fluctuations in any such currency could have an adverse effect on our financial results.  During times of a strengthening U.S. dollar, our reported sales and earnings from our international operations will be lower because the applicable local currency will be translated into fewer U.S. dollars.  In certain instances, currency rate fluctuations may create pricing pressure relative to competitors quoting in different currencies, which could result in our products becoming less competitive.  Significant long-term fluctuations in relative currency values could have an adverse effect on our results of operations and financial condition.

Attracting and retaining talent

Our continued success is dependent on our ability to attract, develop and retain qualified personnel.

Our ability to sustain and grow our business requires us to hire, develop, and retain skilled and diverse personnel throughout our organization.  We depend significantly on the engagement of our employees and their skills, experience and industry knowledge to support our objectives and initiatives, and have attracted a leadership team executing on strategic initiatives informed by our 80/20 mindset.  Our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain talented personnel, including our leadership team.  We compete with other companies for talented personnel in the locations and labor markets in which we operate, all of which are very competitive, and we may lose key personnel or fail to attract other talented personnel, including at our manufacturing locations.  Any prolonged labor shortages or significant employee turnover could negatively impact productivity and result in increased labor costs, such as increased overtime to meet demand or increased wage rates necessary to attract and retain employees.  Overall, difficulty in attracting, developing, and retaining qualified personnel could adversely affect our business and results of operations.

ITEM 1B.
UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C.
CYBERSECURITY.

Cybersecurity Risk Management and Strategy

We have an established framework for assessing, identifying, and mitigating cybersecurity and information security risks.  The processes we employ under this framework are part of our overall risk management strategy, as overseen by our Board of Directors, and are aimed at enhancing the security of our information systems, software, networks, and the protection or privacy of our data.  We have based our management of cybersecurity risk upon recognized cybersecurity industry frameworks, including those of the National Institute of Standards and Technology and the International Organization for Standardization, and internal risk assessments.  We periodically engage third parties, including consulting firms with expertise in IT risk management, to evaluate our cybersecurity risk management processes and potential cybersecurity threats to our company.  We also conduct security assessments for new vendors and third-party service providers and have monitoring procedures to mitigate risks related to data breaches or other security incidents originating from third parties.

Governance

Board of Directors

Our Board of Directors has oversight responsibility for cybersecurity risk management.  As part of its oversight activities, the Board regularly receives written updates regarding cybersecurity and information technology risks and management’s response to them from our Vice President of IT and our Chief Information Security Officer (CISO).  Additionally, the Board of Directors meets with the Vice President of IT and CISO to discuss matters of IT and data governance strategy, as well as cybersecurity, data and IT system risk management.  The Board of Directors has designated two of its members to serve as primary board liaisons with management regarding matters of cybersecurity.  In the event of a potentially material cybersecurity incident, these designated cybersecurity liaisons will meet with the management incident response team to review the cybersecurity event, a materiality analysis, and, if appropriate, any information to be disclosed in a Current Report on Form 8-K.  The full Board of Directors will also receive information regarding any material cybersecurity incident, with the Board liaisons helping to facilitate efficient communications between management and the full Board in advance of any necessary Form 8-K filing.

Management

Our CISO leads our management of cybersecurity risks and our incident response plan.  Our CISO coordinates with legal counsel and third parties, as applicable, in assessing and managing cybersecurity risks.  Our CISO has more than eight years of experience in leading global security functions and strategies for Modine and similar global companies.  The CISO reports to our Vice President of IT who, in turn, reports to our Executive Vice President and Chief Financial Officer.  Our Vice President of IT and CISO regularly provide updates to our Board of Directors regarding cybersecurity and information technology matters, including cybersecurity threats and our risk management strategy.

We maintain a cybersecurity incident response process to analyze, contain, eradicate, and recover from cybersecurity incidents.  The incident response process includes an escalation protocol, wherein our CISO raises any cybersecurity incidents that could potentially be material to our business, operations, or financial condition to a cross-functional management incident response team.  This management incident response team is comprised of members of our senior leadership team, including, but not limited to, our Chief Executive Officer, Chief Financial Officer, General Counsel and Chief Compliance Officer, and Vice President of IT.  In addition, depending on the circumstances of any cybersecurity incident, third-party advisors may be engaged to assist in the investigation and response.

Additionally, we have implemented an Information Security Risk Management Framework (RMF) which is a strategy for protecting the Company, the Board, employees, and other stakeholders from unnecessary information security injuries, losses or damage. The framework further establishes the context for assessing information security risks, managing those risks and making risk-based decisions through the information security lifecycle. Among other tools that we use to proactively manage information security risk to the organization, the RMF contains a vendor risk assessment tool that is used to assess any new vendor being considered for use within Modine.

We also provide cybersecurity training to our workforce to ensure our employees are properly equipped to identify and report cybersecurity incidents.  The training programs highlight areas such as the protection of confidential information, phishing attacks, and emerging cybersecurity threats and best practices.

At this time, we are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition.  For further discussion of the risks associated with potential future cybersecurity incidents, see the risk factor regarding cybersecurity in the section entitled “Item 1A. Risk Factors.”

ITEM 2.
PROPERTIES.

We operate manufacturing facilities in the U.S. and in multiple foreign countries.  Our world headquarters, including general offices and laboratory, experimental and prototype facilities, is located in Racine, Wisconsin.  We have additional technical support functions located in Grenada, Mississippi; Allen, Texas; Leeds, United Kingdom; Pocenia, Italy; Guadalajara, Spain; Söderköping, Sweden; Mezökövesd, Hungary; Sao Paulo, Brazil; Changzhou, China; and Chennai, India.

The table below summarizes the number of manufacturing facilities within each of our operating segments as of March 31, 2024.  Eighteen of these facilities include leased manufacturing space.

 
 
Americas
 
Europe
 
Asia
 
Total
Climate Solutions
 
9
 
10
 
1
 
20
Performance Technologies
 
7
 
5
 
6
 
18
Total manufacturing facilities
 
16
 
15
 
7
 
38

In addition to the manufacturing facilities summarized in the table above, we also operate four coatings facilities in North America and Europe, which primarily enhance customer-owned products with coatings solutions and operate at a smaller scale than our other manufacturing facilities.

We consider all of our facilities and equipment to be well maintained and suitable for their purposes.  We review our manufacturing capacity regularly and make the determination as to our need to expand or, conversely, rationalize our facilities as necessary to meet changing market conditions and our operating needs.

ITEM 3.
LEGAL PROCEEDINGS.

The information required hereunder is incorporated by reference from Note 20 of the Notes to Consolidated Financial Statements.

ITEM 4.
MINE SAFETY DISCLOSURES.

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS.

The following sets forth the name, age (as of March 31, 2024), business experience during at least the last five years, and certain other information relative to each executive officer of the Company.

Name
 
Age
 
Position
Brian J. Agen
 
55
 
Vice President, Chief Human Resources Officer (with a title change from Vice President, Human Resources) (October 2012 – Present).
Neil D. Brinker
 
48
 
President and Chief Executive Officer (December 2020 – Present).  Prior to joining Modine, Mr. Brinker served as President and Chief Operating Officer of Advanced Energy Industries, Inc. (June 2020 – December 2020) after serving as its Executive Vice President and Chief Operating Officer (June 2018 – June 2020).
Michael B. Lucareli
 
55
 
Executive Vice President, Chief Financial Officer (May 2021 – Present); previously Vice President, Finance and Chief Financial Officer for the Company (July 2010 – May 2021).
Eric S. McGinnis
 
53
 
President, Climate Solutions (April 2022 – Present); previously Vice President, Building HVAC upon joining Modine in August 2021.  Prior to joining Modine, Mr. McGinnis served as President, Industrial Systems at Regal Beloit (March 2017 – August 2021).
Adrian I. Peace
 
56
 
President, Performance Technologies (April 2022 – Present); previously Vice President, Commercial & Industrial Solutions upon joining Modine in August 2021.  Prior to joining Modine, Mr. Peace served as a Strategy Advisor for AIP LLC (March 2019 – August 2021).  Prior to AIP LLC, Mr. Peace served as Senior Vice President, Emerging Business Operations for Republic Services (June 2017 – March 2019).
Erin J. Roth
 
48
 
Vice President, General Counsel and Chief Compliance Officer (November 2023 – Present).  Prior to joining Modine, Ms. Roth served in a General Counsel and Corporate Secretary capacity for U.S. publicly traded companies, including with Infrastructure & Energy Alternatives, Inc. (now a subsidiary of MasTec, Inc.) (June 2021 – May 2023) and Wabash National Corporation (January 2007 – December 2017), as well as with the U.S. not-for-profit, Strada Education Network (now Strada Education Foundation) (December 2017 – May 2021).

Executive officer positions are designated in our Bylaws and the persons holding these positions are elected annually by the Board.  In addition, the Human Capital and Compensation Committee of the Board may recommend and the Board of Directors may approve promotions and other actions with regard to executive officers at any time during the fiscal year.

There are no family relationships among the executive officers and directors.  There are no arrangements or understandings between any of the executive officers and any other person pursuant to which he or she was elected an officer of Modine.

PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is listed on the New York Stock Exchange.  Our trading symbol is MOD.  As of March 31, 2024, shareholders of record numbered 1,930.

We did not pay dividends during fiscal 2024 or 2023.  Under our credit agreements, we are permitted to pay dividends on our common stock, subject to certain restrictions based upon the calculation of debt covenants, as defined in our credit agreements.  We currently do not intend to pay dividends in fiscal 2025.

The following describes the Company’s purchases of common stock during the fourth 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)
 
January 1 – January 31, 2024
52 (b)
$66.01
 _______
 
$32,063,074
           
 
February 1 – February 29, 2024
 1,129 (b)
$81.80
 _______
 
$32,063,074
           
 
March 1 – March 31, 2024
470 (b)
$101.11
 _______
 
$32,063,074
           
 
Total
1,651 (b)
$86.80
 _______
 
 

(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.

PERFORMANCE GRAPH

The following graph compares the cumulative five-year total return on our common stock with similar returns on the Russell 2000 Index, the Standard & Poor’s (S&P) MidCap 400 Industrials Index, and the S&P SmallCap 600 Industrials Index.  Based upon the Company’s higher market capitalization as compared with the prior year, the Company determined the S&P MidCap 400 Industrials Index was more representative of its business and plans to replace the S&P SmallCap 600 Industrials Index for purposes of this graph beginning in fiscal 2025.  The graph assumes a $100 investment and reinvestment of dividends.  The return shown on the graph is not necessarily indicative of future performance.

graphic
 
         
Indexed Returns
 
   
Initial Investment
   
Years ended March 31,
 
Company / Index
 
March 31, 2019
   
2020
   
2021
   
2022
   
2023
   
2024
 
Modine Manufacturing Company
 
$
100
   
$
23.43
   
$
106.49
   
$
64.96
   
$
166.19
   
$
686.30
 
Russell 2000 Index
   
100
     
76.01
     
148.10
     
139.53
     
123.34
     
147.65
 
S&P MidCap 400 Industrials Index
   
100
     
81.32
     
152.53
     
159.15
     
165.64
     
224.20
 
S&P SmallCap 600 Industrials Index
   
100
     
77.48
     
151.37
     
151.37
     
158.44
     
212.62
 

ITEM 6.
RESERVED.

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

At Modine, we are Engineering a Cleaner, Healthier World ™.  We provide trusted products and technologies that help improve our world.  Our broad portfolio of systems and solutions support our mission of improving indoor air quality, conserving natural resources, lowering harmful emissions, enabling cleaner running vehicles, and using environmentally friendly refrigerants.  We operate in four continents, in 16 countries, and employ approximately 11,400 persons worldwide.

We sell innovative and environmentally responsible thermal management products and solutions to diversified customers in a wide array of commercial, industrial, and building HVAC&R markets.  In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway OEM vehicular applications.  Our primary product groups include i) heat transfer; ii) HVAC&R; iii) data center cooling; iv) air-cooled; v) liquid-cooled; and vi) advanced solutions.

Company Strategy
 
Our purpose is to engineer a cleaner, healthier world by providing products and services that improve indoor air quality, reduce water and energy consumption, lower harmful emissions, enable cleaner running vehicles, and use environmentally friendly refrigerants.
 
In fiscal 2024, we continued our strategic transformation.  We first announced our vision for a “new” Modine in late fiscal 2021.  In fiscal 2022, we onboarded seasoned leaders with the requisite experience to drive transformative change, including new segment presidents for our Climate Solutions and Performance Technologies segments.  Since that time, we have simplified and segmented our organization, aligning teams, led by general managers, around specific strategies and market-based verticals within our company.  Our leadership teams have created a high-performance culture and are prioritizing resources on products and markets with the highest growth opportunities and best return profiles.  We have been focused on growth opportunities in the Data Center Cooling and Indoor Air Quality businesses and have strategically expanded our product offerings in these businesses.  In the second quarter of fiscal 2024, we acquired substantially all of the assets of Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, which expanded our indoor air quality product portfolio.  Additionally, during the fourth quarter of fiscal 2024, we completed the acquisition of Scott Springfield Mfg. Inc (“Scott Springfield Manufacturing”), a leading manufacturer of air handling units serving the data center cooling and indoor air quality markets in the U.S. and Canada, and also purchased liquid immersion cooling technology from TMGcore, Inc.  We also recently purchased a new manufacturing site in the U.K., with plans to expand our production capacity to support our data center customers.  Simultaneously, we are rapidly growing our Advanced Solutions business, which provides systems and solutions for zero-emission and hybrid vehicles in the commercial vehicle and off-highway machine markets.  Through our initiatives based upon 80/20 principles, we have achieved significant improvements in our profit margins since we started our transformational journey.

Entering fiscal 2025, we are focused on organic and inorganic growth opportunities in the key markets we serve and the incremental value we believe we can unlock in Modine by applying 80/20 principles across our businesses.  We are strengthening key customer relationships and pursuing strategic growth opportunities, particularly in the data center cooling, commercial HVAC&R, and specialty electric vehicle markets where we see the best opportunities for profitable growth.  In addition, we will continue to utilize an 80/20 mindset within our manufacturing facilities and expect to achieve production efficiency improvements as a result. 

Our ultimate objective for our transformational strategy is to accelerate profitable growth.  We expect to change our mix of business, as we grow certain areas and strategically deemphasize others.  We expect these changes will fuel improvements in both earnings and cash flow, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.

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. 
 
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.
 
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.
 
Strategic Planning and Corporate Development
 
We employ both short-term (one-to-three year) and longer-term (five-to-seven year) strategic planning processes, which enable us to continually assess our opportunities, competitive threats, and economic market challenges. 
 
We devote significant resources to global strategic planning and development activities to strengthen our competitive position.  During fiscal 2024, we acquired Scott Springfield Manufacturing, a leading manufacturer of air handling units serving customers in the U.S. and Canada, and purchased liquid immersion cooling technology from TMGcore, Inc.  Earlier in the fiscal year, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units, and heat pumps.  These investments have expanded our data center cooling and indoor air quality product portfolios and are accelerating our strategic growth.  We are actively engaged in integration activities and expect to realize cost and revenue synergies.

We will continue to pursue organic- and external-growth opportunities, particularly to grow our global, market leading positions in the HVAC&R and data center cooling markets.  In addition, we have a dedicated team focused on products and solutions for electric vehicles, supporting demands for climate-friendly alternative powertrains.  We have provided our general managers with the tools that they need to be successful, including dedicated resources to create an entrepreneurial environment and to challenge the status quo.

Operational and Financial Discipline

We are using 80/20 principles to guide our path forward toward commercial excellence.  Through closely analyzing our customer and product data with our 80/20 mindset, we focus our commercial and operational actions in areas that drive our profitability and also in areas requiring improvement.  Our Climate Solutions and Performance Technologies segments have strategically aligned their teams around their primary market-based verticals and are driving transformative change.  The general manager for each vertical is working toward strategic objectives specifically tailored to his or her business and we expect these strategies will continue to generate earnings and cash flow improvements.

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.  In addition, we provide a long-term incentive compensation plan for officers and certain key leaders throughout our organization to attract, retain, and motivate these employees who are responsible for driving the long-term success of our company.  The fiscal 2024 plan is comprised of restricted stock awards and performance-based share awards.  The performance-based awards for the fiscal 2024 through 2026 performance period are based upon a target three-year average growth in Adjusted EBITDA and a target three-year average cash flow return on invested capital.

Segment Information – Strategy, Market Conditions and Trends
 
Each of our operating segments is managed by a segment president and has separate strategic and financial plans and financial results which are reviewed by our chief operating decision maker.  These plans and results are used by management to evaluate the performance of each segment and to make decisions on the allocation of resources.
 
Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.  Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar HVAC&R markets and customers.  We expect that unifying these complementary 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.
 
Climate Solutions (43 percent of fiscal 2024 net sales)
 
Our Climate Solutions segment provides energy-efficient, climate-controlled solutions and components for a wide array of applications.  The Climate Solutions segment sells heat transfer, HVAC&R, and data center cooling solutions to customers in North America, EMEA, and Asia.  Heat transfer products include heat transfer coils used in commercial and residential HVAC&R applications.  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.  Data center cooling solutions, which are integrated with system controls, include air- and liquid-cooled chillers, CRAC and CRAH units, and fan walls.  We sell our products and solutions both directly to commercial and industrial OEM and end user customers and through wholesalers, distributors, consulting engineers, contractors and data center operators for applications such as data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing facilities, and other commercial and industrial applications.

During fiscal 2024, Climate Solutions segment sales increased compared with the prior year, primarily driven by higher sales of data center cooling products, partially offset by lower sales of heat transfer products, largely due to market weakness and our strategic exit from lower margin business in connection with 80/20 product rationalization initiatives.  We executed on strategic growth opportunities in areas where we see the best return profiles, including for our Data Center Cooling and Indoor Air Quality businesses.  During the fourth quarter of fiscal 2024, we completed the acquisition of Scott Springfield Manufacturing, a leading manufacturer of air handling units serving customers in the U.S. and Canada, and purchased liquid immersion cooling technology from TMGcore, Inc.  Earlier in the fiscal year, we acquired Napps, a Texas-based manufacturer of air- and water-cooled chillers, condensing units, and heat pumps.  These investments have expanded our data center cooling and indoor air quality product portfolios and are accelerating our strategic growth.

Looking ahead, we are excited about the growth opportunities in key markets served by the Climate Solutions segment.  We expect particularly strong growth in the data center markets during fiscal 2025, as the need for digital infrastructure continues to expand.  Through our recent acquisition and investment in liquid immersion cooling technology, we are expanding our product portfolio to support our customers with data center cooling solutions as they manage the demands of high performance computing.  In addition, we are working to expand our production capacity for data center cooling products and have purchased a new manufacturing site in the U.K.  We also expect the North American school and commercial HVAC markets, to which we sell our indoor air quality products, will experience strong growth during fiscal 2025, driven by federal and local funding for ventilation improvements for schools.  In addition, after European regulatory changes and delays this past year, we expect stronger growth in the residential heat pump market in the second half of fiscal 2025 and our manufacturing facilities are poised to support higher production levels.

In fiscal 2025, we will continue to utilize an 80/20 mindset across our Climate Solutions businesses.  We are focused on engaging with key customers and are pursuing strategic growth opportunities to gain market share, particularly within the North American data center, school and commercial HVAC markets.  We are also focused on growing our refrigeration sales and believe we can become a market leader in more environmentally friendly carbon dioxide gas coolers and adiabatic solutions in North America and Europe.  Finally, we are focused on applying the 80/20 principles within our manufacturing facilities and expect to achieve further production efficiency improvements as a result.

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.  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.  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.  These solutions include battery thermal management systems, electronics cooling packages, and battery chillers.  The advanced solutions provided by the segment also include coating products and application services that extend the life of equipment and components by protecting against corrosion.

During fiscal 2024, Performance Technologies segment sales increased compared with the prior year, primarily driven by higher average selling prices and the favorable impact of foreign currency exchange rates.  Compared with the prior year, sales of air-cooled, liquid-cooled, and advanced solutions products each increased.  In fiscal 2024, we focused on applying 80/20 principles to our businesses.  The Performance Technologies team sharpened their commercial acumen and made strong progress in simplifying their businesses, and achieved improvements in the segment’s profit margins as a result.  We also completed the sale of three automotive businesses based in Germany to support our strategic prioritization of resources towards higher-margin technologies, and also sold two coatings spray application facilities in the U.S.  In addition, we are working towards closing a technical service center in Germany to optimize the utilization of our global technical service center capacity.

Looking ahead, we are excited about the growth opportunities in key markets served by the Performance Technologies segment and the benefits expected to be achieved as management continues to apply 80/20 principles across the segment’s businesses.  Our Advanced Solutions business is dedicated to increasing the performance, durability, and longevity of zero-emission vehicles.  The Advanced Solutions business is focused on market penetration and recently announced an important partnership with Bosch Rexroth, a recognized leader in drive and control technologies, to bring our EVantage™ thermal management systems to their portfolio of products to provide solutions for electrified off-highway machinery.  We believe government policies in the U.S. and Europe will drive customer investments in electric and alternative powertrains and will support market growth in this area.  In addition, our Air-Cooled Applications business is focused on growing the sales of Gensets and are offering both aluminum and copper-brass heat exchanger modules.  We believe our aluminum Gensets have both a cost and performance advantage and are prioritizing resources to capitalize on sales growth opportunities related to new data center construction and demand for Gensets for hospitals and airports.  We will continue applying an 80/20 mindset to achieve further manufacturing efficiencies and to further simplify our business.  We are focusing our resources on higher margin products and actively working on product line simplification initiatives and expect to achieve incremental improvements to the Performance Technologies segment’s profit margins as a result.

Consolidated Results of Operations

Fiscal 2024 acquisitions

On July 1, 2023, we acquired substantially all of the net operating assets of Napps for consideration totaling $6 million.  Napps is a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps.  This acquisition expands our indoor air quality product portfolio and supports our growth strategy and mission of improving indoor air quality.  Napps has historical annual sales of approximately $5 million.  Since the date of the acquisition, we have reported the financial results of the Napps business within the Climate Solutions segment.

On March 1, 2024, we acquired all of the issued and outstanding shares in the capital of Scott Springfield Manufacturing for consideration totaling $184 million.  Scott Springfield Manufacturing is a Canadian-based manufacturer of air- handling units.  This acquisition expands our data center and indoor air quality product portfolios and manufacturing footprint and supports our growth strategy.  Prior to being acquired by us, Scott Springfield Manufacturing reported $110 million of net sales during the year ended December 31, 2023.  Since the date of the acquisition, we have reported the financial results of the Scott Springfield Manufacturing within the Climate Solutions segment.

Fiscal 2024 dispositions

On September 19, 2023, we sold two coatings facilities, located in California and Florida, to Protecall, LLC.  These facilities provide aftermarket application services, in which HVAC units are sprayed with an anti-corrosion protective coating.  Our other coatings businesses continue to own and license spray-applied coatings used in aftermarket applications and are strategically pursuing growth through product licensing arrangements.  Prior to the disposition, we reported the financial results of these businesses within the Performance Technologies segment.  In fiscal 2023, net sales of these two businesses totaled $6 million.  As a result of this transaction, we recorded a gain on sale of less than $1 million during the second quarter of fiscal 2024.

On October 31, 2023, we sold three automotive businesses based in Germany to affiliates of Regent, L.P.  The sale of these businesses, which produce air- and liquid-cooled products for internal combustion diesel and gasoline engines for the European automotive market, supports our strategic prioritization of resources towards higher-margin technologies.  Prior to the disposition, we reported the financial results of these businesses within the Performance Technologies segment.  During fiscal 2024 and 2023, net sales of these three businesses totaled $54 million and $79 million, respectively.  As a result of the sale, we recorded a $4 million gain on sale during the third quarter of fiscal 2024.

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

Fiscal 2024 highlights

Fiscal 2024 net sales increased $110 million, or 5 percent, from the prior year, primarily due to higher sales in our Performance Technologies and Climate Solutions segments.  Cost of sales decreased $27 million, or 1 percent, primarily due to lower material costs and improved operating efficiencies.  Gross profit increased $137 million and gross margin improved 490 basis points to 21.8 percent.  SG&A expenses increased $40 million, primarily due to higher compensation-related expenses.  Operating income of $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.

Fiscal 2023 highlights

Fiscal 2023 net sales increased $248 million, or 12 percent, from the prior year, primarily due to higher sales in our Performance Technologies and Climate Solutions segments.  Cost of sales increased $168 million, or 10 percent, primarily due to higher sales volume and higher raw material costs.  Gross profit increased $80 million and gross margin improved 180 basis points to 16.9 percent.  SG&A expenses increased $19 million, primarily due to higher compensation-related expenses.  Operating income of $150 million during fiscal 2023 increased $31 million from the prior year, primarily due to higher gross profit, partially offset by the absence of a $56 million net impairment reversal recorded in the prior year related to the liquid-cooled automotive business.

The following table presents our consolidated financial results on a comparative basis for fiscal years 2024, 2023 and 2022.

   
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.  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.  These decreases were partially offset by a $22 million unfavorable impact of foreign currency exchange rates and higher labor and inflationary costs.  In addition, cost of sales was negatively impacted by an inventory purchase accounting adjustment of $2 million recorded at Corporate related to the acquisition of Scott Springfield Manufacturing.  As a percentage of sales, cost of sales decreased 490 basis points to 78.2 percent, primarily due to the favorable impact of higher sales, lower material costs, and improved operating efficiencies, partially offset by higher labor and inflationary costs.

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

Fiscal 2024 SG&A expenses increased $40 million, or 17 percent.  As a percentage of sales, SG&A expenses increased by 120 basis points.  The increase in SG&A expenses was primarily driven by higher compensation-related expenses, which increased approximately $22 million, and increases across other general and administrative expenses, such as higher product development costs, professional service fees, and employee travel expenses.  The compensation-related expenses included higher incentive compensation expenses driven by improved financial results, as compared with the prior year.  In addition, we recorded $2 million of costs related to the acquisition and integration of Scott Springfield Manufacturing in fiscal 2024.

Restructuring expenses during 2024 increased $10 million compared with the prior year, primarily due to higher severance expenses in the Performance Technologies segment.

We sold three automotive businesses based in Germany on October 31, 2023.  As a result of the sale, we recorded a $4 million gain on sale at Corporate during fiscal 2024.

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

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

The provision for income taxes was $51 million in fiscal 2024, compared with a benefit for income taxes of $28 million in fiscal 2023.  The $79 million change was primarily due to the absence of a $57 million income tax benefit recorded in the prior year related to the reversal of the valuation allowance on certain deferred tax assets in the U.S. and higher earnings in the current year, as compared with the prior year.  These drivers, which increased the provision for income taxes, were partially offset by a $3 million income tax benefit recorded in fiscal 2024 related to the sale of three automotive businesses in Germany.

Year ended March 31, 2023 compared with year ended March 31, 2022
Fiscal 2023 net sales of $2,298 million were $248 million, or 12 percent, higher than the prior year, primarily due to higher sales volume in both of our segments and higher average selling prices, including adjustments in response to raw material price increases.  These increases were partially offset by a $111 million unfavorable impact of foreign currency exchange rates.  Sales in the Performance Technologies and Climate Solutions segments increased $144 million and $101 million, respectively.

Fiscal 2023 cost of sales of $1,909 million increased $168 million, or 10 percent, primarily due to higher sales volume and higher raw material prices, which increased $34 million.  These increases were partially offset by a $95 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 180 basis points to 83.1 percent, primarily due to the favorable impact of higher sales, partially offset by higher material, labor and other inflationary costs.

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

Fiscal 2023 SG&A expenses increased $19 million, yet decreased 30 basis points as a percentage of sales.  The higher SG&A expenses were primarily driven by higher compensation-related expenses, which increased $20 million and included higher incentive compensation and commission-related expenses, and, to a lesser extent, increases in other general and administrative expenses that have been impacted by inflationary market conditions.  These increases were partially offset by an $8 million favorable impact of foreign currency exchange rates.  In addition, strategic reorganization costs, costs associated with our review of strategic alternatives for our automotive businesses, and environmental charges related to a previously-closed manufacturing facility in the U.S., which are each recorded at Corporate, decreased $3 million, $2 million, and $2 million, respectively, during fiscal 2023 compared with the prior year.

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

The net impairment reversal of $56 million during fiscal 2022 primarily related to the liquid-cooled automotive business within the Performance Technologies segment.   In connection with the termination of an agreement to sell this business, we reversed a significant amount of previously-recorded impairment charges during fiscal 2022.

We sold our Austrian air-cooled automotive business on April 30, 2021.  As a result of the sale, we recorded a $7 million loss on sale at Corporate during fiscal 2022.

Operating income of $150 million during fiscal 2023 increased $31 million from the prior year, primarily due to an $80 million increase in gross profit, a $19 million decrease in restructuring expenses, and the absence of the $7 million loss on the sale of the Austrian air-cooled automotive business in the prior year.  These drivers, which favorably impacted operating income in fiscal 2023, were partially offset by the absence of the $56 million net impairment reversal recorded in the prior year and higher SG&A expenses.

Interest expense in fiscal 2023 increased $5 million compared with the prior year, primarily due to unfavorable changes in interest rates.  In addition, we amended and extended our U.S. credit agreement that provides for a multi-currency revolving credit facility and U.S. dollar- and euro- denominated term loans maturing in October 2027, along with shorter-duration swingline loans.  In connection with this credit agreement modification, we recorded $1 million of costs as interest expense during fiscal 2023.

The benefit for income taxes was $28 million in fiscal 2023, compared with a provision for income taxes of $15 million in fiscal 2022.  The $43 million change was primarily due to a $57 million income tax benefit recorded in fiscal 2023 related to the reversal of the valuation allowance on certain deferred tax assets in the U.S., partially offset by the absence of a net $11 million income tax benefit related to valuation allowances on deferred tax assets in foreign jurisdictions in the prior year.

Segment Results of Operations

Effective April 1, 2024, we moved our Coatings business, which was previously managed by and reported within the Performance Technologies segment, under the leadership of the Climate Solutions segment.  Under this refined organizational structure, the Coatings business is better aligned with the Climate Solution’s Heat Transfer Products business, which serves similar HVAC&R markets and customers.  We expect that unifying these complementary 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.

Climate Solutions
                                   
   
Years ended March 31,
 
   
2024
   
2023
   
2022
 
(in millions)
 
$’s
   
% of sales
   
$’s
   
% of sales
   
$’s
   
% of sales
 
Net sales
 
$
1,055
     
100.0
%
 
$
1,012
     
100.0
%
 
$
911
     
100.0
%
Cost of sales
   
779
     
73.9
%
   
788
     
77.9
%
   
744
     
81.7
%
Gross profit
   
275
     
26.1
%
   
224
     
22.1
%
   
166
     
18.3
%
Selling, general and administrative expenses
   
106
     
10.0
%
   
97
     
9.6
%
   
90
     
9.9
%
Restructuring expenses
   
3
     
0.3
%
   
2
     
0.2
%
   
2
     
0.2
%
Operating income
 
$
167
     
15.8
%
 
$
124
     
12.3
%
 
$
73
     
8.1
%

Year ended March 31, 2024 compared with year ended March 31, 2023
Climate Solutions net sales increased $43 million, or 4 percent, in fiscal 2024 compared with the prior year, primarily due to higher sales volume and a $14 million favorable impact of foreign currency exchange rates.  The higher sales volume includes $8 million of incremental sales from Scott Springfield Manufacturing, which we acquired on March 1, 2024.  Compared with the prior year, sales of data center cooling products increased $120 million, primarily due to higher sales to both hyperscale and colocation customers.  Sales of heat transfer and HVAC&R products decreased $77 million and $1 million, respectively.  The decrease in sales of heat transfer products was largely due to market weakness and lower customer demand compared with the prior year and the strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives.

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.  As a percentage of sales, cost of sales decreased 400 basis points to 73.9 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $51 million and gross margin improved 400 basis points to 26.1 percent.

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

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

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.

Year ended March 31, 2023 compared with year ended March 31, 2022
Climate Solutions net sales increased $101 million, or 11 percent, in fiscal 2023 compared with the prior year, primarily due to higher sales volume and higher average selling prices.  These increases were partially offset by a $52 million unfavorable impact of foreign currency exchange rates.  Compared with the prior year, sales of data center cooling, heat transfer, and HVAC&R products increased $36 million, $36 million, and $30 million, respectively.

Climate Solutions cost of sales increased $44 million, or 6 percent, in fiscal 2023, primarily due to higher sales volume, partially offset by a $44 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 380 basis points to 77.9 percent, primarily due to the favorable impact of higher sales and improved operating efficiencies, partially offset by higher labor and inflationary costs.

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

Climate Solutions SG&A expenses increased $7 million compared with the prior year, yet decreased 30 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to a $5 million increase in compensation-related expenses, including commission expenses, and increases in other general and administrative expenses that have been impacted by inflationary market conditions.  These increases were partially offset by a $4 million favorable impact of foreign currency exchange rate changes.

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

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

Performance Technologies
                                   
   
Years ended March 31,
 
   
2024
   
2023
   
2022
 
(in millions)
 
$’s
   
% of sales
   
$’s
   
% of sales
   
$’s
   
% of sales
 
Net sales
 
$
1,378
     
100.0
%
 
$
1,316
     
100.0
%
 
$
1,172
     
100.0
%
Cost of sales
   
1,127
     
81.8
%
   
1,150
     
87.4
%
   
1,030
     
87.9
%
Gross profit
   
251
     
18.2
%
   
166
     
12.6
%
   
142
     
12.1
%
Selling, general and administrative expenses
   
116
     
8.4
%
   
98
     
7.4
%
   
99
     
8.4
%
Restructuring expenses
   
12
     
0.9
%
   
3
     
0.2
%
   
22
     
1.9
%
Impairment charges (reversals) - net
   
-
     
-
     
-
     
-
     
(56
)
   
-4.8
%
Operating income
 
$
123
     
9.0
%
 
$
66
     
5.0
%
 
$
77
     
6.6
%

Year ended March 31, 2024 compared with year ended March 31, 2023
Performance Technologies net sales increased $62 million, or 5 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.  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.

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.  As a percentage of sales, cost of sales decreased 560 basis points to 81.8 percent, primarily due to the favorable impact of higher sales and lower material costs, partially offset by higher labor and inflationary costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $85 million and gross margin improved 560 basis points to 18.2 percent.

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.

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.

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.

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.  These increases were partially offset by a $59 million unfavorable impact of foreign currency exchange rates and, to a lesser extent, the absence of sales from the Austrian air-cooled automotive business, which we sold on April 30, 2021.  Sales of air-cooled, liquid-cooled, and advanced solutions products increased $86 million, $36 million, and $25 million, respectively.

Performance Technologies cost of sales increased $120 million, or 12 percent, primarily due to higher sales volume and higher raw material prices, which increased $29 million.  In addition, to a lesser extent, higher labor costs and higher depreciation expenses negatively impacted cost of sales.  During fiscal 2022, we did not depreciate the held for sale property, plant and equipment assets within the liquid-cooled automotive business until they reverted back to held and used classification during the third quarter of fiscal 2022.  These increases were partially offset by a $52 million favorable impact of foreign currency exchange rates.  As a percentage of sales, cost of sales decreased 50 basis points to 87.4 percent, primarily due to the favorable impact of higher sales volume and higher average selling prices, partially offset by higher material, labor and inflationary costs.

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

Performance Technologies SG&A expenses decreased $1 million compared with the prior year.  As a percentage of sales, SG&A expenses decreased by 100 basis points.  The decrease in SG&A expenses was primarily due to a $4 million favorable impact of foreign currency exchange rate changes and, to a lesser extent, lower compensation-related expenses, partially offset by higher general and administrative expenses that have been impacted by inflationary market conditions.

Restructuring expenses during fiscal 2023 totaled $3 million, a decrease of $19 million compared with the prior year.  This decrease was primarily driven by lower severance expenses in Europe for targeted headcount reductions.

The net impairment reversal of $56 million in fiscal 2022 primarily related to assets in our liquid-cooled automotive business.  See Note 2 of the Notes to Consolidated Financial Statements for further information.

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

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of March 31, 2024 of $60 million, and an available borrowing capacity of $177 million under our revolving credit facility.  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.  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 $29 million as of March 31, 2024.  We expect to contribute approximately $9 million to our global pension plans during fiscal 2025.

Operating activities

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

Net cash provided by operating activities in fiscal 2023 was $108 million, an increase of $96 million from $12 million in the prior year.  This increase in operating cash flow was primarily due to the favorable impact of higher earnings and favorable net changes in working capital, as compared with the prior year.

Investing activities

Capital expenditures
Capital expenditures of $88 million during fiscal 2024 increased $37 million compared with fiscal 2023.  Our capital spending in fiscal 2024 in the Climate Solutions and Performance Technologies segments totaled $51 million and $36 million, respectively.  Capital spending in the Climate Solutions segment includes investments supporting our strategic growth initiatives.  We are growing our data center business and recently purchased a new manufacturing site in the U.K., where we plan to expand production capacity for data center cooling products.  In addition, we opened a second facility in Serbia and are manufacturing coils for commercial and residential heat pump applications.  Capital expenditures in the Performance Technologies segment include tooling and equipment purchases in conjunction with new and renewal programs with customers.

Business and asset acquisitions
During fiscal 2024, we made cash payments totaling $186 million to acquire Scott Springfield Manufacturing and Napps.  In addition, we paid $12 million to purchase intellectual property and other specific assets from TMGcore, Inc.  These investments support our strategy to grow our data center cooling and indoor air quality product offerings in our Climate Solutions segment.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding acquisitions.

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.

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 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.

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

Share repurchase program
We repurchased $13 million and $7 million of our common stock during fiscal 2024 and 2023, respectively.  As of March 31, 2024, we had $32 million of authorized share repurchases remaining under our current repurchase program, which expires in November 2024.  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.
 
Critical Accounting Policies
 
The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.  Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.  The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.  In addition, recently issued accounting pronouncements that either have or could materially impact our financial statements are disclosed in Note 1 of the Notes to Consolidated Financial Statements.
 
Revenue recognition
 
We recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment terms.  A limited number of our customer contracts provide an enforceable right to payment for performance completed to date.  For these contracts, we recognize revenue over time based upon our estimated progress toward the satisfaction of the contract’s performance obligations.  We record an allowance for credit losses and we accrue for estimated warranty costs at the time of sale.  We base these estimates upon historical experience, current business trends and economic conditions, and risks specific to the underlying accounts receivable or warranty claims.
 
Impairment of long-lived assets
 
We perform impairment evaluations of long-lived assets, including property, plant and equipment and intangible assets, whenever business conditions or events indicate that those assets may be impaired.  We consider factors such as operating losses, declining financial outlooks and market conditions when evaluating the necessity for an impairment analysis.  In the event the net asset values exceed undiscounted cash flows expected to be generated by the assets, we write down the assets to fair value and record an impairment charge.  We estimate fair value in various ways depending on the nature of the underlying assets.  Fair value is generally based upon appraised value, estimated salvage value, or selling prices under negotiation, as applicable.
 
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.  Our most significant intangible assets evaluated are customer relationships, trade names, and acquired technology.  The majority of our intangibles assets are related to our Climate Solutions segment and include $102 million of intangibles recently recorded from our acquisition of Scott Springfield Manufacturing.  We evaluate impairment at the lowest level of separately identifiable cash flows, which is generally at the manufacturing plant level.  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.  When such indicators are present, we perform an impairment evaluation.
 
 
During fiscal 2022, we recorded a net impairment reversal of $56 million, primarily related to assets that were held for sale in the Performance Technologies segment.  In fiscal 2022, we adjusted the long-lived assets in the liquid-cooled automotive business to the lower of carrying or fair value when they no longer met the held for sale classification criteria.  See Note 2 of the Notes to the Consolidated Financial Statements for additional information.
 
Impairment of goodwill
 
We perform goodwill impairment tests annually, as of March 31, unless business events or other conditions exist that require a more frequent evaluation.  We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.  We test goodwill for impairment at a reporting unit level.  Goodwill resulting from recent acquisitions generally represents the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.  We test goodwill for impairment by comparing the fair value of each reporting unit with its carrying value.  We determine the fair value of a reporting unit based upon the present value of estimated future cash flows.  If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, goodwill is not impaired.  However, if the carrying value of the reporting unit’s net assets exceeds its fair value, we would conclude goodwill is impaired and would record an impairment charge equal to the amount that the reporting unit’s carrying value exceeds its fair value.
 
Determining the fair value of a reporting unit involves judgment and the use of estimates and assumptions, which include assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows and risk-adjusted discount rates.  We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance.  The discount rates used in determining discounted cash flows are rates corresponding to our cost of capital, adjusted for country- and business-specific risks where appropriate.  While we believe the assumptions used in our goodwill impairment tests are appropriate and result in a reasonable estimate of the fair value of each reporting unit, future events or circumstances could have a potential negative effect on the estimated fair value of our reporting units.  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.  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.
 
Acquisitions
 
From time to time, we make strategic acquisitions that have a material impact on our consolidated results of operations or financial position.  We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed in the transaction based upon their estimated fair values as of the acquisition date.  We determine the estimated fair values using information available to us and engage third-party valuation specialists when necessary.  The estimates we use to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments.  While we use our best estimates and assumptions, our estimates are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.  Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statement of operations.  We also estimate the useful lives of intangible assets to determine the amount of amortization expense to record in future periods.  We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.  During fiscal 2024, we acquired Scott Springfield Manufacturing and Napps.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding these acquisitions.
 
Pension obligations

Our calculation of the expense and liabilities of our pension plans is dependent upon various assumptions.  At March 31, 2024, our global pension liabilities totaled $29 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.  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.  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.

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.  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 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.  We determined these rates based upon a yield curve that was created following an analysis of the projected cash flows for our plans.  See Note 18 of the Notes to Consolidated Financial Statements for additional information.  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.  Due to the application of complex and sometimes ambiguous tax laws and rulings in the jurisdictions in which we do business, there is an inherent level of uncertainty within our worldwide tax provisions.  Despite our belief that our tax return positions are consistent with applicable tax laws, it is possible that taxing authorities could challenge certain positions.

Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes.  We adjust these amounts to reflect changes in tax rates expected to be in effect when the temporary differences reverse.  We record a valuation allowance if we determine it is more likely than not that the net deferred tax assets in a particular jurisdiction will not be realized.  This determination, which is made on a legal entity-by-legal entity basis, involves judgment and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  We believe the assumptions that we used are appropriate and result in a reasonable determination regarding the future realizability of deferred tax assets.  However, future events or circumstances, such as lower-than-expected taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could cause us to record additional valuation allowances.

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.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  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. 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 this report and identified in our other public filings with the U.S. Securities and Exchange Commission.  Other risks and uncertainties include, but are not limited to, the following:

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

 
Our ability to be at the forefront of technological advances 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.

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.

Strategic Risks

 
Our ability to successfully realize anticipated benefits, including improved profit margins and cash flow, from strategic initiatives and our continued application of 80/20 principles across our businesses; and

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

Financial Risks

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

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

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

 
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.

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

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
In the normal course of business, we are subject to market exposure from changes in foreign currency exchange rates, interest rates, commodity prices, credit risk and other market changes.
 
Foreign Currency Risk
 
We are subject to the risk of changes in foreign currency exchange rates due to our operations in foreign countries.  We have manufacturing facilities in Brazil, Canada, China, India, Mexico, and throughout Europe.  We also have joint ventures in China and South Korea.  We sell and distribute products throughout the world and also purchase raw materials from suppliers in foreign countries.  As a result, our financial results are affected by changes in foreign currency exchange rates and economic conditions in the foreign markets in which we do business.  Whenever possible, we attempt to mitigate foreign currency risks on transactions with customers and suppliers in foreign countries by entering into contracts that are denominated in the functional currency of the entity engaging in the transaction.  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, 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 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 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.  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.
 
We maintain foreign currency-denominated debt obligations and intercompany loans that are subject to foreign currency exchange risk.  We seek to mitigate this risk through maintaining offsetting positions between external and intercompany loans; however, from time to time, we also enter into foreign currency derivative contracts to manage the currency exchange rate exposure.  These derivative instruments are typically not accounted for as hedges, and accordingly, gains or losses on the derivatives are recorded in other income and expense in the consolidated statements of operations and typically offset the foreign currency changes on the outstanding loans.
 
Interest Rate Risk

We seek to reduce the potential volatility of earnings that could arise from changes in interest rates.  We generally utilize a mixture of debt maturities and both fixed-rate and variable-rate debt to manage exposure to changes in interest rates.  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.  As a result, we are subject to risk of fluctuations in SOFR and EURIBOR and changes in our leverage ratio, which would affect the variable interest rate on our term loans and revolving credit facility and could create variability in interest expense.

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.

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.

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.  These prospective price adjustments generally lag behind the actual raw material price fluctuations by three months or longer, and the contract provisions are limited to the underlying material cost based upon a relevant pricing source, such as the London Metal Exchange, American Metal Market, or Platts index, and typically exclude additional cost elements, such as related metals premiums and fabrication.  In instances where the risk is not covered contractually, we seek to adjust product pricing in response to price increases, including through our quotation process and through price list increases.  Nevertheless, we are still subject to the risk of price increases on commodities, components, and other goods and services that we purchase.

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.  We 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.

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.  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.

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, 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.  In the past, credit losses from our customers have not been significant, nor have we experienced a significant increase in credit losses in connection with the current inflationary market conditions.

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.  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.  After credit is granted, we actively monitor the customer’s financial condition and applicable business news;

Pension assets – We have retained outside advisors to assist in the management of the assets in our pension plans.  In making investment decisions, we utilize an established risk management protocol that focuses on protection of the plan assets against downside risk.  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 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.

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.  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 continue to pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market conditions.  We pursue new market opportunities after careful consideration of the potential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of new and emerging markets for us include those related to electric vehicles, 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.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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.

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.

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.

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
   
$