MODINE MANUFACTURING CO (MOD) FY 2024 MD&A

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.

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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.

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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.

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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.

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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.

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

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.

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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.

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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.

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.

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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.

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.

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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.

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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.

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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.

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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.

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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.

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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

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Operational Risks

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Strategic Risks

Financial Risks

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