Note 1: General

The accompanying unaudited condensed consolidated financial statements of Modine Manufacturing Company (“Modine” or the “Company”) were prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations and cash flows required by GAAP for complete financial statements.  The financial statements include all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods.  Results for the first nine months of fiscal 2023 are not necessarily indicative of the results to be expected for the full year.  These financial statements should be read in conjunction with the consolidated financial statements and related notes in Modine’s Annual Report on Form 10-K for the year ended March 31, 2022.

On April 30, 2021, the Company sold its air-cooled automotive business in Austria to Schmid Metall GmbH.  As a result of this transaction, the Company recorded a loss of $6.6 million during the first quarter of fiscal 2022, which included the write-off of $1.7 million of net actuarial losses related to its pension plan.  The Company reported this loss within the loss on sale of assets line on the consolidated statement of operations.  Upon transaction closing, $5.9 million of cash within the business transferred to the buyer. During the third quarter of fiscal 2022, a purchase price adjustment for net working capital and certain other items was finalized and the Company paid the buyer $2.4 million.

In connection with the sale of this business, the Company provided the buyer with a 5-year, €4.0 million loan facility.  The buyer began borrowing under this facility during the second quarter of fiscal 2022. At both December 31, 2022 and March 31, 2022, the Company recorded a €4.0 million loan receivable within other noncurrent assets on its consolidated balance sheet because the Company expects to receive the principal repayment more than twelve months from the balance sheet date. Borrowings under the loan facility currently bear interest at 4.6 percent.

The Company previously agreed to sell its liquid-cooled automotive business.  During the first quarter of fiscal 2022, the Company and the prospective buyer modified the transaction perimeter to remove certain manufacturing operations.  U.S. GAAP requires companies to measure asset groups that revert back to held and used classification at the lower of their (i) carrying value, as if held for sale classification had not been met; or (ii) fair value at the date of the decision not to sell.  As a result, the Company evaluated the long-lived assets of these businesses that no longer met the requirements to be classified as held for sale and reversed $7.4 million of previously-recorded impairment charges during the first quarter of fiscal 2022 to adjust the long-lived assets to their estimated fair value.

During the third quarter of fiscal 2022, the Company and the prospective buyer terminated the sale agreement and the liquid-cooled automotive business reverted back to held and used classification.  As a result, the Company remeasured the long-lived assets within the liquid-cooled automotive business and reversed $57.2 million of previously-recorded held for sale impairment charges during the third quarter of fiscal 2022.

On a year-to-date basis, the $64.6 million of impairment reversals described above were partially offset by $8.6 million of impairment charges related to the automotive assets while they were classified as held for sale during fiscal 2022, resulting in a net impairment reversal of $56.0 million.  The Company reported all impairment charges and reversals during fiscal 2022 within the impairment charges (reversals) line on the consolidated statements of operations.

During the first quarter of fiscal 2022, the Company signed a definitive agreement to sell a previously-closed manufacturing facility in the U.S.  As a result, the Company recorded an impairment charge of $0.3 million within the Climate Solutions segment to write down the property to fair value less costs to sell.  During July 2021, the sale was completed and the Company received net cash proceeds of $0.7 million.

In September 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance that will require companies that use supplier finance programs to disclose information about the programs, including key terms, outstanding obligations under such programs and where outstanding amounts are presented within their financial statements.  In addition, a roll forward of obligations under supplier finance programs will be required annually.  The new guidance is effective for the Company’s fiscal 2024 financial statements, with the exception of the roll forward disclosure requirement, which will become effective one year later.  The Company is currently evaluating the new disclosures, but does not expect the guidance will have a material impact on its consolidated financial statements.