MOD 10-K & 10-Q changes, risk factors and insider trading

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. These disclosures reflect our beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.

We operate in 16numerous countries on four continents and serve customers in a wide array of commercial, industrial, HVAC&R, and vehicular markets. 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. We are subject to the risk of disruptions or significant deterioration in market conditions, which could have a material impact on our business, financial position, results of operations and cash flows. MilitaryGeopolitical tensions and military conflicts, including the ongoingconflict conflictsbetween inthe UkraineU.S. and inIran, theas Middlewell Eastas andrelated heightenedregional tensioninstability inor theproxy Red Sea,conflicts, could negatively impact or cause significant business disruptions in the global markets we operate in. InOngoing addition, customer demand for our productsconflicts and systemany solutionspotential isfurther 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, whichescalation, could negativelylead impactto thesignificant demanddisruption fornear ourmajor products.oil Prolongedproducing recessionaryregions or adverse economic conditions, such as disruptions in theshipping globalcorridors financial system,and could result in ourhigher customersenergy and fuel prices, shipping delays, increased freight and manufacturing costs, and increased cyberattacks from state-sponsored or suppliersother experiencingactors. significantSuch economicdevelopments constraints,could also contribute to broader inflationary pressures across the global economy and supply chains, including potentialincreased bankruptcies.costs for materials, transportation and labor, which may not be fully recoverable through pricing and could impact the availability, reliability, and overall viability of certain supply sources.

Changes in U.S. or international trade policies, including the imposition of or increases in tariffs, could adversely affect our business, financial position, results of operations and cash flows.

There is uncertainty regarding future relationships between the U.S. and numerous other countries, particularly China, Canada, Mexico, and in Europe, with respect to trade policies, tariffs, treaties, and government regulations. Changes in U.S. policies could lead to changes to existing trade agreements, significant increases in tariffs, more restrictions on free trade, and restrictions on the importation of certain goods and components into the U.S. or other countries. A trade war or escalation of trade tensions, including increased tariffs and retaliatory measures by foreign governments, should they be sustained for an extended period of time, or changes in U.S. or international trade agreements, could negatively impact our supply chain, increase costs, and reduce demand for our products. Changes to or uncertainty in the marketplace related to U.S. social, political, regulatory and economic conditions or in laws and policies related to foreign trade in countries where we currently manufacture and sell our products, and any resulting negative sentiments towards the U.S., could adversely affect our business, financial position, results of operations and cash flows. Additional risks related to international trade policies and related matters are discussed throughout this section.

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.operations and cash flows.

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, inflation, 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. In addition, cost increases passed through to our customers may have a negative effect on demand for our products, which could lead to decreases in purchase orders or non-renewal of customer contracts.

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,raw materials, including aluminum, copper, steel and stainless steel (nickel)., and third-party parts and components required to make our products. 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 monthsmonths, or longerlonger, to identify and accept a new supplier due to qualification and/or customer approval requirements.

Strong or rapidly increasing demand, including significant or unanticipated increases in demand for certain components driven by elevated levels of capital investment in end markets such as data centers, as well as the potential effects of trade laws and tariffs, sanctions, geopolitical and military conflicts, 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 increaseincreases. resultingIn certain cases, such demand may exceed available market supply for key components, limiting our ability to obtain sufficient quantities from existing or alternative suppliers. We began experiencing supply shortages of certain data center product components in the fourth quarter of fiscal 2026, which are negatively impacting our needproduction toschedules resourcefor tothe afirst differentquarter supplier.of fiscal 2027. 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.

Global climate change and related emphasis on ESGsustainability mattersgoals 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 changeclimate-related regulations, which creates uncertainty in the markets in which we operate. This uncertainty extends to the use or adoption rate of many products within 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 meet on a timely meet, or whichcost-effective may not be economically feasible for us,basis, due to the required level of capital investment or required speedpace of technological advancement.

Additionally, climateClimate changes, such as extreme weather conditions, also create financial risk and uncertainty for our business. For example, the demandDemand 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 and resources needed for manufacturing and could increase our insurance and other operating costs. In addition, natural disasters or extreme weather events, including those as a result of climate change,changes, 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.

We experience competition from supplierscompanies 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 results of operations.

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, changes in foreign visitor and immigration policies, 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 inand Ukraine andtensions in the Middle East and heightened tension in the Red SeaUkraine), incompatible business practices, and international terrorism.

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 with Iran, the U.S. government has expanded sanctions against Iran, including entities involved in Ukraine,Iran’s oil transportation infrastructure and countries that trade with Iran. In addition, governments in the U.S. and abroad have extended and expanded 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 Ukrainethe Middle East, Ukraine, or RussiaRussia, nor any significant business relationships in or associated with Iran, Ukraine or Russia, however we are continuing to monitor 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 adverse impact on our financial condition, results of operationsoperations, cash flows and reputation.

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, whileparticularly alsoin Data Centers, and completing restructuring activities, including targetedtransferring headcountproduction reductionsfor andcertain product linelines transfers,among inour orderfacilities, to both support our growth initiatives and 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.footprint.

Our successful execution of these initiatives,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.

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

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 activities 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.business and results of operations. 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.operations and cash flows.

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,malware, ransomware, phishing, break-insunauthorized access or similar disruptions. Cybersecurity risk may be heightened by the increased prevalence of hybrid and/or remote work arrangements.arrangements, mergers, acquisitions and dispositions, rapid business growth activities, and reliance on third-party service providers. Further, the military conflicts in Ukraine and the Middle East,East and Ukraine, as well as current geopolitical uncertainties involving Russia, Iran 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 have an adverse impact on our results of operations and cash flows.

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, financial condition, results of operations and financialcash condition.flows.

Business growth and optimization and growth strategies

Under our strategy based on 80/20 principles, we are focused on acquiring businesses and investing in technologies that we expect to accelerate our strategic growth in select markets. If we are unable to successfully execute on further organic growth opportunities or complete acquisitions in the future, our growth may be limited. There can be no assurance we will be able to identify and complete the purchase of additional attractive acquisition targets, including obtaining financing, if necessary, to facilitate such transactions. 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 into our existing operations, capitalize on expected market share or revenue gains, realize anticipated cost or revenue synergies, or operate any acquired businesses profitably, we may not achieve the financial or operational success expected. In addition, 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 of shares would be dilutive to the interests of our existing shareholders and may adversely affect the market price of our shares.

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 adversely impact our results of operations.

We are highly susceptible to unfavorable trends or disruptions in the markets we serve, as our customers’ financial condition and performance are affected by demand 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.

At Modine, we are Engineering a Cleaner, Healthier World ™. Our mission is to use our thermal management expertise to help our customers improve indoor air quality, reduce energy and water consumption, lower harmful emissions, enable cleaner running vehicles, and use more environmentally friendly refrigerants. We operate in four continents, in 16numerous countries, and employ approximately 11,30013,200 persons worldwide.

We sell customer-centric thermal management solutions in a wide array of commercial, industrial, and building HVAC&R markets. In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway OEM vehicular applications. Our primary product groups include i) dataData center coolingCenters; ii) heatHeat transferTransfer Solutions; iii) HVAC&R Technologies; iv) air-cooledHeavy-Duty Equipment; and v) liquid-cooled;On-Highway and vi) advanced solutions.Applications.

Our purpose of Engineering a Cleaner, Healthier World™ guides our strategic direction. Our mission is to use our thermal management expertise to help our customers improve indoor air quality, reduce energy and water consumption, lower harmful emissions, enable cleaner running vehicles, and use more environmentally friendly refrigerants. We are committed to evolving our product portfolio in pursuit of highly engineered, mission-critical thermal solutions. We are strategically investing in end markets where we see the highest growth prospects. These markets continue to shift to low-carbon energy solutions, driving demand for cleaner, more efficient thermal management.

In fiscal 2025, we continued our strategic transformation. We first announced our vision for a “new” Modine in late fiscal 2021. Over the last fourfive fiscal years, we have simplified and re-segmented our organization and have aligned resources around specific strategies and market-based verticals. Our leadership and teams have embraced 80/20 principles and have created a high-performance culture that focuses resources on products and markets with the highest sustainable growth opportunities and best return profiles, while simplifying and improving our processes. We have strategically expanded our Data Center Cooling and Indoor Air Quality businesses. Through initiatives based upon 80/20 principles, we have achieved significant improvements in our profit margins since we started our transformational journey.

Entering fiscal 2026,2027, we are committed to executing our strategic priorities, including further expanding our Data Centers business and completing the transaction with Gentherm. We will continue to apply our strategic pillars across our businesses to drive value creation. We aim to capitalize on our expertise in thermal management to provide differentiated solutions and sustain market leadership. We are focused on leveraging our product portfolio to accelerate growth, with particular focus on long-term growth drivers tied to secular mega-trends. We will continue to elevate our 80/20 discipline throughout our businesses and use 80/20 to guide our daily decision making. Finally, we will continue to evolve our portfolio to compoundincrease shareholder value. As we continue on our strategic transformation, we expect to change our mix of business. We are growing our data center cooling, heating and indoor air quality businesses, for example, while strategically deemphasizing others. Most notably, we are working towards exiting our automotive business since it does not align with our transformation goals. We expect these changes will fuel improvements in both profit margins and cash flows, all while supporting our customers with innovative and environmentally responsible thermal management solutions to succeed in the ever-changing global marketplace.

We devote significant resources to global strategic planning and development activities to strengthen our competitive position. During fiscal 2025,2026, we integratedsignificantly Scottexpanded Springfieldproduction Manufacturing, a leading manufacturer of air handling units serving customerscapacity in theour U.S.Data Centers business and Canada,integrated three acquired businesses, AbsolutAire, L.B. White, and Climate by Design, into our ModineClimate businesses.Solutions segment. We will continue to pursue growth opportunities, particularly to grow our global, market leading positions in the data center cooling and commercial HVAC&R markets. We have provided our general managersbusinesses with the tools that they need to be successful, including dedicated resources to create an entrepreneurial environment and to challenge the status quo.

Our fiscal 20252026 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.company. The fiscal 20252026 plan is comprised of performance-based share awards and restricted stock awards. The performance-based awards for the fiscal 20252026 through 20272028 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.

Our Climate Solutions segment provides energy-efficient, safe, climate-controlled solutions and components for a wide range of criticalapplications, including data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing and construction sites, poultry and swine facilities, and other commercial and industrial applications. The Climate Solutions segment sells data center cooling solutions,center, heat transfer products,solutions, and HVAC&R technologies products to customers in North America, EMEA, and Asia.Asia Pacific. Data center cooling solutions, which are integrated with system controls,products include air-chillers, anddry liquid-cooledcoolers, chillers,precision air handling units, CRAC and CRAH units, fan walls, rear-door heat exchangers, CDUs, and CDUs.immersion solutions. In addition, the Data Centers business sells modular data center solutions, replacement parts, maintenance service and control solutions for existing equipment and new building management controls and systems. Heat transfer productssolutions include heat exchanger coilscoils, usedanti-corrosion incoating commercial,products, industrial,commercial and residentialindustrial HVAC&Rrefrigeration applicationsproducts, and coatingpower productsgeneration and applicationtransmission servicescooling that extend the life of equipment and components by protecting against corrosion.solutions. HVAC&R technologies products include commercialheating andproducts, residentialincluding unit heaters, verticalroof-mounted direct- and horizontalindirect-fired makeup air units, duct furnaces, infrared units, and perimeter heating products. HVAC technologies products also include indoor air quality products, including single packaged unit ventilators, airceiling conditioningcassettes, modular chillers, lowair globalhandling warmingunits, potentialcondensing unit coolers, air-cooled condensers,units, and drydesiccant coolers.dehumidifiers. 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 operatorsmanagement for applications such as data centers, schools, greenhouses, healthcare systems, warehouses, residential garages, manufacturing facilities, and other commercial and industrial applications.customers.

The Performance Technologies segment provides products and solutions that enhance the performance of customer applications and develops solutions that provide mission criticalmission-critical energy for a variety of end market applications. The segment also provides solutions that increase fuel economy, reduce harmful emissions and maximize range in zero emission applications. The Performancesegment’s TechnologiesHeavy-Duty segmentEquipment designsbusiness provides heat exchangers and manufacturescooling modules for off-highway markets, including agricultural and construction. In addition, the Heavy-Duty Equipment business sells cooling module generator sets that provide mission-critical stationary power. Heavy-Duty Equipment products and solutions using air-cooled and liquid-cooled technology for vehicular, stationary power, and industrial applications. Air-cooled products consist primarily ofinclude powertrain cooling products, such as radiators, condensers, engine cooling modules, charge air coolers, fanoil shrouds,coolers, and surgeengine tankscooling modules; and Gensets. Liquid-cooledThe segment’s On-Highway Applications business provides heat exchangers and cooling systems for commercial vehicle, automotive, bus and specialty vehicle customers. Its products and solutions include products for traditional powertrains, including aluminum and stainless steel engine oil coolers, EGR coolers, liquid charge air coolers, transmission and retarder oil coolers, chillers, condensers, fan shrouds, and condensers.surge tanks. In addition, the PerformanceOn-Highway TechnologiesApplications segmentbusiness provides advancedproducts thermaland solutions designed to improve battery range and vehicle life tofor zero-emission and hybrid passenger car, commercial vehiclevehicle, bus and off-highwayspecialty customers.vehicles, Theseincluding solutions includecomplete battery thermal management systems, electronics cooling packages, andbattery chillers, battery chillers.cooling plates, coolers and casings for electronics cooling, and coolers for e-axles.

AcquisitionsFiscal 2024 acquisitions and dispositions

During fiscal 2024, we acquired two businesses within our Climate Solutions segment. On March 1, 2024, we acquired Scott Springfield Manufacturing, a Canadian-based manufacturer of air handling units, for consideration totaling $184 million. On July 1, 2023, we acquired Napps Technology Corporation (“Napps”), a Texas-based manufacturer of air- and water-cooled chillers, condensing units and heat pumps, for consideration totaling $6 million. These acquisitions expanded our data center and indoor air quality product portfolios and support our growth strategy and mission of improving indoor air quality. We have reported the financial results of these businesses within the Climate Solutions segment since the acquisition dates.

In SeptemberOctober 2023, we sold twothree coatingsautomotive facilities,businesses locatedbased in California and Florida.Germany. Sales from these twothree businesses, which provided aftermarket application services,businesses totaled $6$54 million in fiscal 2023.2024.

Fiscal 2025 net sales increased $175 million, or 7 percent, from the prior year, primarily due to higher sales in our Climate Solutions segment, partially offset with lower sales in our Performance Technologies segment. Cost of sales increased $58 million, or 3 percent. Gross profit increased $118 million and gross margin improved 310 basis points to 24.9 percent. SG&A expenses increased $58 million and included higher compensation-related expenses and higher expenses from Scott Springfield Manufacturing, including amortization expense for acquired intangible assets. Operating income of $283 million during fiscal 2025 increased $42 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A and restructuring expenses and the absence of a $4 million gain on the sale of three automotive businesses in Germany in fiscal 2024.

Fiscal 2025 net sales of $2,583 million were $175 million, or 7 percent, higher than the prior year, primarily due to $333 million of higher sales in our Climate Solution segment, partially offset by $158 million of lower sales in our Performance Technologies segment. The Climate Solutions sales increase includesincluded $240 million of higher sales from the Scott Springfield Manufacturing and Napps businesses, which we acquired in fiscal 2024, and organic sales growth to hyperscale and colocation data center customers. The lower sales in our Performance Technologies segment includesincluded a $54 million impact from the disposition of three automotive businesses in Germany during the third quarter of fiscal 2024. Fiscal 2025 sales were negatively impacted by $18 million from foreign currency exchange rates.

Fiscal 2025 cost of sales of $1,940 million increased $58 million, or 3 percent, primarily due to higher sales volume and, to a lesser extent, higher labor and inflationary costs. These increases were partially offset by improved operating efficiencies and a $13 million favorable impact of foreign currency exchange rates. As a percentage of sales, cost of sales decreased 310 basis points to 75.1 percent, primarily due to the favorable sales mix, higher average selling prices, and improved operating efficiencies.

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

Fiscal 2025 SG&A expenses increased $58 million, or 21 percent. As a percentage of sales, SG&A expenses increased by 150 basis points. The increase in SG&A expenses includesincluded higher compensation-related expenses, which increased $45 million and included higher expenses from the acquired businesses and increased incentive compensation resulting from improved financial results. In addition, SG&A expenses included $17 million of higher amortization expense for acquired intangible assets. These increases were partially offset by lower environmental charges related to a previously-closed manufacturing facility in the U.S. and lower costs directly associated with the acquisition and integration of Scott Springfield Manufacturing. The environmental charges and acquisition-related costs were recorded at Corporate and both decreased $2 million compared with the prior year.

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended DecemberJune 31,30, 20252026 was the thirdfirst quarter of fiscal 2026.2027.

InWe January 2026, we announced that wehave entered into definitive agreements with Gentherm Incorporated (“Gentherm”), whereby we will spin-off and simultaneously combine our Performance Technologies segment businesses with Gentherm in a Reverse Morris Trust transaction. Gentherm,We aanticipate Michigan-basedthis corporation,transaction iswill aclose globalby leaderthe end of innovativecalendar thermal2026, managementsubject to approval by Gentherm’s shareholders and pneumaticother comfortcustomary technologies.closing conditions. The transaction is intended to establish Gentherm as a scaled leader in thermal management. We will retain our ClimateData SolutionsCenters and Commercial HVAC segment businesses, creating a pure-play climate solutions company focused on the data center and commercial HVAC and refrigeration markets.company.

Under the terms of the agreement,agreements, at the time of the spin-off of our Performance Technologies segment businesses, our shareholders will receive newly-issued Gentherm stock, representing ownership of approximately 40 percent of the combined company. In addition, immediately prior to transaction closing, we will receive cash proceeds of $210.0 million, subject to adjustment.adjustment, Inwhich total,we will use to pay down our long-term debt obligations. Based upon the Gentherm stock price, the transaction valuewas isvalued at approximately $1.0 billion.billion Wewhen anticipatewe thisentered transaction will close byinto the endagreements ofin calendarJanuary 2026,2026. subject to approval by Gentherm’s shareholders and other closing conditions, including regulatory approvals. Under theThe Reverse Morris Trust structure, the transaction is intendedstructured to be generally tax-free for U.S. federal income tax purposes for the Company and our shareholders. To facilitate this transaction, we expecthave incurred expenses to incurseparate significantthe Performance Technologies business, including fees for transaction advisory, legal, accounting, taxtax, and other professional services. WhileThrough June 30, 2026, we arehave inincurred thedisposition-related earlycosts phasestotaling of$22.1 themillion. process, we currentlyWe estimate that thesewe feeswill andincur other$25.0 million to $35.0 million of additional costs directly related to the transaction willduring totalthe approximatelyremainder $30.0of millionfiscal to $40.0 million.2027.

ThirdFirst quarter highlights

Net sales in the thirdfirst quarter of fiscal 20262027 increased $188.2$191.3 million, or 3128 percent, from the thirdfirst quarter of fiscal 2025,2026, primarily due to higher sales in our ClimateData SolutionsCenters segment. Cost of sales increased $151.7$174.7 million, or 3234 percent. Gross profit increased $36.5$16.6 million. Gross margin declined 120340 basis points to 23.120.8 percent, primarily due to lower gross margin in the ClimateData SolutionsCenters segment, largely driven by temporaryhigher material costs and operating inefficiencies associated with our rapid expansion of manufacturing capacity for data center manufacturingcooling capacity.solutions and supplier capacity constraints. Selling, general and administrative (“SG&A”) expenses increased $7.3$18.4 million.million, primarily due to higher compensation-related expenses and disposition-related costs. Operating income of $89.3$74.8 million during the thirdfirst quarter of fiscal 20262027 increaseddecreased $30.0$0.9 million from the prior year, primarily due to higher grossSG&A profit,expenses, partially offset by higher SG&Agross expenses. During the third quarter of fiscal 2026, we recorded a $116.1 million non-cash pension termination charge in connection with the termination of our primary U.S. pension plan.profit.

The following table presents our consolidated financial results on a comparative basis for the three and nine months ended DecemberJune 31,30, 20252026 and 20242025:

FiscalFirst 2026 year-to-datequarter net sales of $2,226.7$874.1 million were $290.4$191.3 million, or 1528 percent, higher than the samefirst periodquarter lastof the prior year, primarily due to $311.9$164.9 million of higher sales in our ClimateData SolutionsCenters segment, includingprimarily organicdriven by sales growth to hyperscale and colocation data center customers in North AmericaAmerica. andIn Europeaddition, andsales $80.9in our Commercial HVAC segment increased $47.4 million, driven by higher sales volume, including $19.7 million of incremental sales from the acquired L.B. White and Climate by Design businesses. The higher sales in the ClimateData SolutionsCenters segmentand Commercial HVAC segments were partially offset by $30.9 million of lower sales in our Performance Technologies segment, largelywhich duedecreased to$7.7 market weakness.million. Foreign currency exchange rates favorably impacted sales by $33.8$6.1 million.

FiscalFirst 2026 year-to-datequarter cost of sales of $1,710.3 million increased $251.8$174.7 million, or 1734 percent, primarily due to higher sales volumevolume, inapproximately the$21.0 Climatemillion Solutionsof segmenthigher material costs, including higher component and raw material costs and tariffs. In addition, cost of sales was negatively impacted by operating inefficiencies and a $27.2$4.8 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was unfavorably impacted by temporaryThe operating inefficiencies were primarily in theour ClimateData SolutionsCenters segment, largelywhere duewe incurred higher costs related to the rapid expansion of manufacturing capacity for data center products,cooling solutions and highersupplier rawcapacity materialconstraints costs,that whichtemporarily increaseddisrupted approximatelyour $9.0production million. These drivers, which increased cost of sales, were partially offset by lower sales volume and improved operating efficiencies in the Performance Technologies segment.schedules. As a percentage of sales, cost of sales increased 150340 basis points to 76.879.2 percent, primarily due to temporary operating inefficiencies,the higher material costs,costs and the absenceoperating of commercial pricing settlements and sales tax credits, which favorably impacted the prior year.inefficiencies.

As a result of higher sales and higher cost of sales as a percentage of sales, first quarter gross profit increased $38.6$16.6 millionmillion, or 10 percent, and gross margin declined 150340 basis points to 23.220.8 percent.

FiscalFirst 2026 year-to-datequarter SG&A expenses increased $7.8$18.4 million.million, or 22 percent. As a percentage of sales, SG&A expenses decreased by 13060 basis points. The increase in SG&A expenses includeswas driven by higher compensation-related expenses, which increased approximately $10.0 million, and $7.1 million of costs incurred related to the pending Reverse Morris Trust transaction with Gentherm. The higher compensation-related expenses include increases in the ClimateData SolutionsCenters segment, supporting the segment’s growth and includinggrowth, incremental expenses from acquired businesses in the acquiredCommercial businesses.HVAC Other costs directly associated with acquisitionsegment, and dispositionhigher activitiesincentive increasedcompensation $6.0 million.expenses. These drivers, which increased SG&A expenses,increases were partially offset by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions,actions. andIn loweraddition, incentivecosts compensationassociated expense.with acquisition activities decreased $1.7 million.

Restructuring expenses during the first nine months of fiscal 2026 decreased $2.8$0.9 million compared with the samefirst periodquarter lastof year,fiscal 2026, primarily due to lower severance expenses in the Performance Technologies segmentsegment. andThis atdecrease Corporate,was partially offset by higher severance expenses in the Climate Solutions segment and higher costs related to transferring production for certain product lines in the Performance Technologies segment.lines.

Operating income of $238.5$74.8 million in the first nine monthsquarter of fiscal 20262027 increaseddecreased $29.5$0.9 millionmillion, or 1 percent, compared with the samefirst periodquarter lastof year,fiscal 2026, primarily due to higher gross profit and lower restructuringSG&A expenses, partially offset by higher SG&Agross expenses and the $4.1 million impairment charge.profit.

Interest expense during the first nine monthsquarter of fiscal 20262027 increased $1.9$0.6 million compared with the samefirst periodquarter lastof year,fiscal 2026, primarily due to higher average outstanding borrowings on our revolving credit facility, partially offset by favorable changes in interest rates.

The following is a discussion of our segment results of operations for the three and nine months ended DecemberJune 31,30, 20252026 and 20242025:

RestructuringData expensesCenters net sales increased $0.8$164.9 millionmillion, comparedor with90 percent, from the thirdfirst quarter of fiscal 2025,2026 to the first quarter of fiscal 2027, primarily due to higher severancesales expenses.volume in North America, driven by sales growth to hyperscale customers.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $49.8$15.6 millionmillion, or 29 percent, and gross margin declined 280960 basis points to 25.820.2 percent.