MODINE MANUFACTURING CO (MOD) FY 2022 MD&A

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

Overview

Founded in 1916, Modine Manufacturing Company is a global leader in thermal management systems and components, bringing heating and
cooling technology and solutions to diversified global markets.  Our product systems and solutions support our purpose of engineering a cleaner, healthier world.  We operate in four continents, in 15 countries, and
employ approximately 11,100 persons worldwide.

Our primary product groups include i) heating, ventilation and air conditioning; ii) coils, coolers, and coatings; and iii) powertrain cooling and engine cooling.  We provide our thermal management technology and solutions to a wide array of
commercial, industrial, and building heating, ventilating, air conditioning, refrigeration, and data center markets.  In addition, our products are used in on- and off-highway original-equipment vehicular
applications.

Company Strategy

Fiscal 2022 was a year of significant change for Modine — a year of significant progress.  We onboarded seasoned leaders with the requisite experience to drive transformative change, including two new segment presidents as well as general
managers focused on market-based verticals within our business.  Effective April 1, 2022, we began managing our company under two operating segments, Climate Solutions and Performance Technologies.  The Climate Solutions segment includes the
BHVAC and CIS segment businesses with the exception of CIS Coatings.  The Performance Technologies segment includes the HDE and Automotive segment businesses and the CIS Coatings business.  Our new structure aligns businesses serving similar or
complimentary end markets, products and technologies under common segment management.

Our new leadership teams are driving change by applying 80/20 principles to our business.  We are analyzing our business to better focus resources on
products and markets with the highest growth opportunities and best return profiles.  The results of our data analytics are changing how we serve our customers and are allowing us to significantly reduce the complexity of our business, including
reducing the number of SKUs, eliminating unprofitable product lines, and changing how we operate on the factory floor.  The data has also highlighted opportunities for us to improve our pricing practices and develop strategies to target new
customers.

With our teams in place, we are focused on growing the areas of our business with the strongest market drivers and best returns, including HVAC&R,
data centers, and electric vehicles.  We are also focused on addressing and simplifying the underperforming areas of our business.  We are utilizing an 80/20 mindset to reduce complexity in our product offerings, improve our pricing discipline,
and increase our operational efficiency in both our manufacturing processes and in our supply chain.  In addition, we are executing restructuring actions that were approved in the fourth quarter of fiscal 2022, which we expect to reduce
administrative and overhead costs, primarily in the Performance Technologies segment.

Our ultimate objective is to accelerate growth, allowing us to complete our transformation.  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

Our ability to develop new products and technologies based upon our building block methodology for new and emerging markets is one of our competitive strengths.  Under this methodology, we focus on creating core
technologies that form the basis for multiple products and product lines.  Each of our business segments has a strong heritage of new product development and our technology team benefits from mutual strengths.  We own four global,
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, Pocenia, Italy and Bonlanden, Germany.  Our reputation for providing
high quality products and technologies has been a strength valued by our customers.

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We continue to benefit from relationships with customers that recognize the value of having us participate directly in product design, development and validation processes.  This has resulted, and we expect it to
continue to result, in strong, long-term customer relationships with companies that value partnerships with their suppliers.

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.  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 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 towards commercial excellence.  Through closely analyzing our customer and product data with our 80/20 mindset, we have gained a valuable
understanding of what drives our profitability and have also identified areas requiring improvement.  Beginning in fiscal 2023, we began managing our company under two operating segments, Climate Solutions and Performance Technologies.
These segment teams, led by segment presidents and general managers focused on the underlying market verticals, are driving transformative change with our 80/20 mindset.  Each general manager has developed a strategic plan designed to meet the
objective of his or her market- based vertical - venture, grow, or improve.  We expect these strategies to fuel earnings and cash flow improvements.

While executing on our strategic initiatives, we have faced obstacles including supply chain challenges associated with the COVID-19
pandemic and other market and economic dynamics and cost inflation.  We have and will continue to address these challenges head-on.  We’ve implemented selling price
increases for our products in response to raw material and other price increases and are engaged with suppliers to ensure availability of purchased commodities and components.

Our executive management incentive compensation (annual cash incentive) plan for fiscal 2022 was based upon two performance goals:
growth in consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”); and a cash flow
margin metric.  These performance goals drive alignment of management and shareholders’ interests in both our earnings growth and cash flow targets.  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 plan is comprised of stock awards, stock options, and performance-based
stock or cash awards.  The performance-based awards for the fiscal 2022 through 2024 performance period are based upon a target three-year average growth in Adjusted EBITDA and a target three-year average
consolidated cash flow return on invested capital.

Segment Information – Strategy, Market Conditions and Trends

Each of our operating segments is managed by a vice president and has separate strategic and financial plans, and financial results, all of 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 July 1, 2021, we aligned the data center businesses previously managed by and reported within the CIS segment under the BHVAC segment.  The BHVAC segment assumed management of our business in Guadalajara, Spain and a portion of our
business in Grenada, Mississippi.  Through this segment change, we aligned our data center businesses under the BHVAC leadership team in order to accelerate commercial excellence, operational improvements, and organizational efficiencies.

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Effective April 1, 2022, we began managing our company under two operating segments, Climate Solutions and Performance Technologies.  The Climate
Solutions segment includes the BHVAC and CIS segment businesses with the exception of CIS Coatings.  The Performance Technologies segment includes the HDE and Automotive segment businesses and the CIS Coatings business.  Our new structure
aligns businesses serving similar or complimentary end markets, products and technologies under common segment management.  We expect this simplified segment structure will allow us to better focus our resources on targeted growth opportunities
and more efficiently apply the 80/20 principles across all product lines to optimize profit margins and cash flow.

Building HVAC Systems (16
percent of fiscal 2022 net sales)

Our BHVAC segment manufactures and sells a variety of heating, ventilating, and
air conditioning products, primarily for commercial buildings and data centers in North America and Europe, as well as in the Middle East.  We sell and distribute our heating, ventilation and cooling products
through wholesalers, distributors, consulting engineers, contractors and data center operators for applications such as data centers, schools, greenhouses, hotels, restaurants, hospitals, warehouses, residential garages, and manufacturing
facilities.  Our heating products include gas (natural and propane), electric, oil and hydronic unit heaters, low- and high-intensity infrared and duct furnace units.  Our indoor air quality products include roof-mounted direct- and
indirect-fired makeup air units, single-packaged vertical units and unit ventilators used in school room applications, and ceiling cassettes.  Our data center products include IT cooling solutions including precision air conditioning units,
CRAC and CRAH units, fan walls, chillers, and condensers and condensing units.  We also provide other cooling products including precision air conditioning units and air- and water-cooled chillers used in a variety of commercial building
applications.  In addition, we provide control solutions for existing plant equipment and new building management controls and systems.

Economic conditions, such as demand for new commercial construction, building renovations, including HVAC replacement, growth in data centers and school renovations, and higher efficiency requirements, are growth
drivers for our HVAC products.  During fiscal 2022, our sales increased in both North America and Europe, primarily driven by increased sales of heating, ventilation, and data center products.

We expect growth in each of the HVAC and data center markets we serve during fiscal 2023.  These markets are heavily impacted by construction activity, building regulations, owner/occupant comfort requirements, and
the ever-increasing reliance on digital technologies.  Growth rates in these markets have shown increasing strength as the need for digital infrastructure expands and manufacturing, housing, and business investments increase.  In addition, we
expect sales growth in the indoor air quality markets in North America during fiscal 2023 to be driven by available federal and local funding for ventilation improvements by school and healthcare systems in connection with the COVID-19 pandemic.

Commercial and Industrial Solutions (30 percent of fiscal 2022 net sales)

Our CIS segment provides a broad offering of thermal management products to the HVAC&R markets in North America, EMEA, and China, including solutions tailored to indoor, outdoor, and mobile climates, food storage and
transport-refrigeration, and industrial processes.  Our primary product groups in the CIS segment include coils, coolers, and coatings.  Our coils products include microchannel, heat recovery, and round tube plate fin coils for a variety of
commercial and industrial applications.  Our coolers include commercial refrigeration units, which are used across the food supply chain, carbon dioxide and ammonia unit coolers, remote condensers, transformer oil coolers, and brine coolers.  In
addition, we offer proprietary coating solutions for corrosion protection, prolonging the life of heat-transfer equipment.

During fiscal 2022, CIS segment sales increased driven by both increased sales volume, as the primary HVAC&R and industrial cooling markets were negatively impacted in the prior year from the COVID-19 pandemic, and favorable product
pricing adjustments in response to raw material price increases.  In addition, we also implemented targeted headcount reductions to reduce operational and SG&A cost structures.

Looking ahead, we anticipate continued market growth in the HVAC&R markets.  We are utilizing an 80/20 mindset to simplify our product offerings for
coils and improve our pricing discipline to ensure our pricing is reflective of the service and support that we proudly offer with our products.  We are also focused on growing our cooler 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.  In addition, we are targeting sales growth for coatings, both in coatings applied by us and expanding our market share in aftermarket
coating solutions, which allow customers to apply protective coating solutions themselves.

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Heavy Duty Equipment (39 percent of fiscal 2022 net sales)

Our HDE segment provides powertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, EGR coolers, fuel coolers, electronics cooling packages, and battery thermal management
systems to OEMs in the commercial vehicle, off-highway, and automotive and light vehicle markets in North America, South America, Europe, and Asia.  In addition, our HDE segment serves Brazil’s commercial vehicle and automotive aftermarkets.

Sales in the HDE segment increased during fiscal 2022, primarily due to higher sales volume to commercial vehicle and off-highway customers and favorable product pricing adjustments in response to raw material price increases.  The key markets
served by our HDE segment, particularly in the Americas and in Europe, were negatively impacted in the prior year by the COVID-19 pandemic.

In fiscal 2023, we expect to benefit from anticipated market growth in the commercial vehicle and off-highway markets, particularly in the Americas and in Europe, partially offset by market weakness expected in China.  In addition, we recently
announced availability of our suite of EVantage™ Thermal Management Systems for commercial electric vehicle chassis.  These complete battery thermal management systems regulate battery, traction motor, and power electronics temperatures.  We are
producing these systems for several customers, with additional programs launching in fiscal 2023.  We are also engaged in development with prospective customers for solutions related to electric trucks and buses.  Finally, we are applying our
80/20 mindset across our business portfolio to reduce complexity, improve our pricing discipline, and improve the HDE segment’s profitability and cash flow generation.

Automotive (15 percent of fiscal 2022 net sales)

Our Automotive segment provides powertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, and EGR coolers, to OEMs primarily in the automotive and light vehicle markets in
North America, Europe, and Asia.

We completed the sale of our air-cooled automotive business in Austria during the first quarter of fiscal 2022.  Sales in fiscal 2022 decreased, primarily due to lower sales from the air-cooled automotive business and lower sales volume.  Our
fiscal 2022 sales were negatively impacted by the global semiconductor chip shortage and its impact on the global automotive market.  During fiscal 2022, we recorded $20 million of restructuring expenses within the Automotive segment, primarily
related to targeted headcount reductions in Europe to reduce administrative and overhead costs.

We expect that the semiconductor chip shortages will begin to ease in fiscal 2023, which we anticipate will drive sales volume growth particularly in North America and in China.  We are monitoring the automotive and light vehicle markets in
Europe in light of potential impacts from the military conflict between Russia and Ukraine, which may further aggravate supply chain challenges and increase energy and fuel prices.  We expect such impacts could negatively impact automotive
production levels in Europe.  We are focused on targeted growth opportunities with electric vehicle customers, as the demand and investment in electric vehicles continues to grow in light of increasingly stringent global emissions and energy
efficiency requirements.

Consolidated Results of Operations

COVID-19 Pandemic and Supply Chain Disruptions

During fiscal 2022, the effects on our company from the COVID-19 pandemic lessened, particularly compared with the significant impacts during the first half of fiscal 2021.

The COVID-19 pandemic and other market and economic dynamics have contributed to global supply chain challenges and inflationary market conditions.  Since the fourth quarter of fiscal 2022, the military conflict between Russia and Ukraine and
the related sanctions imposed by governments in the U.S. and abroad have further aggravated these market conditions, particularly driving higher oil and gas prices.  We, like many companies, have experienced labor shortages and negative impacts
from supply chain challenges, including rising prices for raw materials and logistics, as well as delays and shortages in certain commodities and components we purchase from suppliers.  We are focused on mitigating the negative impacts of these
supply chain challenges.  We have implemented selling price increases for our products in response to raw material and other price increases and are engaged with suppliers to ensure availability of key raw materials.  In addition, our Automotive
segment has been impacted by lower order volume associated with semiconductor shortages, which have caused lower global automotive production.

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Since February 2022, COVID-19 cases have increased in many areas in China.  As a result of government-required lock-downs, we suspended production at manufacturing facilities in China for portions of March and April 2022.  While these plants
have since reopened, they are currently manufacturing at reduced levels and customer demand has been negatively impacted by the lock-downs and supply chain challenges, including component shortages.  We are actively working to address the supply
chain challenges and expect to increase production levels at our plants in China in the second quarter of fiscal 2023.  All of our other manufacturing locations are open and operating, although production has been negatively affected at times by
employee absences due to COVID-19.

We expect temporary disruptions due to illness-related employee absences and the pressures associated with supply chain challenges will continue, at least in the near term.  We cannot reasonably estimate the full impact that the COVID-19
pandemic or the ongoing supply chain challenges will have on our business, results of operations, or cash flows in the future.

Liquid-cooled Automotive Business

On October 25, 2021, we announced that we agreed with Dana Incorporated (“Dana”) to terminate an agreement for the sale of our liquid-cooled automotive business.  In connection with the termination of the sale agreement, we determined that the
liquid-cooled automotive business no longer met the requirements to be classified as held for sale during the third quarter of fiscal 2022.  While held for sale, we had fully impaired the long-lived assets within the liquid-cooled automotive
business, which primarily consisted of property, plant and equipment assets.  Upon reverting back to held and used classification, we adjusted the long-lived assets to the lower of their (i) carrying value, as if held for sale classification had
not been met; or (ii) fair value.  As a result, we reversed $57 million of previous impairment charges during the third quarter of fiscal 2022 within the Automotive segment.  In addition, we resumed depreciating the property, plant and equipment
assets based upon the remeasured asset values.

In total, we recorded $56 million of net impairment reversals during fiscal 2022 within the Automotive segment related to assets that are no longer held for sale, primarily driven by the $57 million impairment reversal in the third quarter
discussed above.  See Note 2 of the Notes to Consolidated Financial Statements for additional information.

Air-cooled Automotive Business

On April 30, 2021, we sold our air-cooled automotive business to Schmid Metall GmbH.  As a result of this transaction, we recorded a loss of $7 million during the first quarter of fiscal 2022.

Fiscal 2022 Highlights

Fiscal 2022 net sales increased $242 million, or 13 percent, from the prior year, primarily due to higher sales in our HDE, CIS, and BHVAC segments, partially offset by lower sales in our Automotive segment.  Cost of sales increased $226
million, or 15 percent, from the prior year primarily due to higher raw material prices and higher sales volume.  Gross profit increased $16 million and gross margin declined 110 basis points to 15.1 percent.  SG&A expenses increased $4
million, primarily due to higher compensation-related expenses, as the prior-year benefitted from cost-saving actions implemented in response to COVID-19.  We withdrew most of these cost-savings actions in the third quarter of fiscal 2021 as
production returned to more normal levels.  Operating income of $119 million during fiscal 2022 represents a $217 million improvement from the prior-year operating loss of $98 million.  The operating income and operating loss during fiscal 2022
and 2021 include $56 million of impairment reversals and $167 million of impairment charges, respectively, primarily related to the automotive businesses that were held for sale.

Fiscal 2021 Highlights

Fiscal 2021 net sales decreased $167 million, or 8 percent, from the prior year, primarily due to lower sales across our business segments, largely driven by the negative impacts of the COVID-19 pandemic.  Foreign currency exchange rate
changes favorably impacted sales in fiscal 2021 by $28 million.  Cost of sales decreased $153 million, or 9 percent, from the prior year, primarily due to lower sales volume.  Gross profit decreased $14 million and gross margin improved 60 basis
points to 16.2 percent.  SG&A expenses decreased $39 million, primarily due to lower costs associated with our review of strategic alternatives for our Automotive segment businesses.  In addition, SG&A expenses decreased due to
cost-reduction initiatives implemented early in the fiscal year in response to the negative impacts of COVID-19.  The operating loss of $98 million during fiscal 2021 represents a $136 million decline from the prior-year operating income of $38
million and was primarily due to the $167 million of impairment charges recorded, partially offset by lower SG&A expenses.

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The following table presents our consolidated financial results on a comparative basis for fiscal years 2022, 2021 and 2020.

Year Ended March 31, 2022 Compared with Year Ended March 31, 2021

Fiscal 2022 net sales of $2,050 million were $242 million, or 13 percent, higher than the prior year, primarily due to higher sales volume and favorable pricing adjustments in response to raw material price increases in our HDE, CIS, and BHVAC
segments.  Sales in these segments increased $142 million, $115 million, and $74 million, respectively.  Automotive segment sales decreased $85 million.

Fiscal 2022 cost of sales of $1,741 million increased $226 million, or 15 percent, primarily due to higher raw material prices, which increased $148 million, and higher sales volume.  In addition, cost of sales in fiscal 2021 was favorably
impacted by cost-saving actions taken in response to the COVID-19 pandemic.  These factors, which caused an increase in cost of sales compared with the prior year, were partially offset by lower depreciation expense in the Automotive segment and
improved operating efficiencies.  As a percentage of sales, cost of sales increased 110 basis points to 84.9 percent.

As a result of higher sales and higher cost of sales as a percentage of sales, fiscal 2022 gross profit increased $16 million and gross margin declined 110 basis points to 15.1 percent.

Fiscal 2022 SG&A expenses increased $4 million.  The increase in SG&A expenses was primarily due to higher compensation-related expenses, as the prior year was favorably impacted by cost-saving actions implemented to mitigate the
negative impacts of COVID-19.  In addition, environmental charges related to a previously-owned manufacturing facility in the U.S. increased $3 million.  These increases were partially offset by lower costs related to our review of strategic
alternatives for the Automotive segment businesses and lower strategic reorganization costs, which decreased $4 million and $3 million, respectively.  The lower strategic reorganization costs primarily resulted from lower severance expenses for
executive management positions.

Restructuring expenses of $24 million in fiscal 2022 increased $11 million compared with last year, primarily due to higher severance-related expenses in the Automotive segment, partially offset by lower severance-related expenses in the CIS
and HDE segments.  We are targeting approximately $20 million of annual cost savings on a consolidated basis from the restructuring actions approved in fiscal 2022.

The net impairment reversals of $56 million during fiscal 2022 primarily related to assets that were held for sale in the Automotive segment.  In fiscal 2021, we recorded $167 million of impairment charges to write down the long-lived assets
in the liquid- and air-cooled automotive businesses when they were classified as held for sale.  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.

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We sold our 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 $119 million during fiscal 2022 represents an improvement of $217 million from the prior-year operating loss of $98 million.  The operating income and operating loss during fiscal 2022 and 2021 included the significant
impairment reversal and impairment charges within the Automotive segment.  In addition, as compared with the prior year, the fiscal 2022 operating income was favorably impacted by higher gross profit.  Operating income was negatively impacted by
higher restructuring expenses, the loss on sale of the air-cooled automotive business, and higher SG&A expenses.

The provision for income taxes was $15 million and $90 million in fiscal 2022 and 2021, respectively.  The $75 million decrease was primarily due to the absence of $117 million of income tax charges recorded in fiscal 2021 to increase the
valuation allowances on deferred tax assets in the U.S. and in certain foreign jurisdictions and a net $11 million income tax benefit recorded in fiscal 2022 related to valuation allowances on deferred tax assets in foreign jurisdictions.  These
drivers, which decreased the provision for income taxes, were partially offset by the absence of income tax benefits totaling $47 million recorded in the prior year, including $38 million related to the Automotive segment impairment charges and
$9 million resulting from the allocation of the income tax provision between net earnings and other comprehensive income.  See Note 8 of the Notes to Consolidated Financial Statements for additional information.

Year Ended March 31, 2021 Compared with Year Ended March 31, 2020

Fiscal 2021 net sales of $1,808 million were $167 million, or 8 percent, lower than the prior year, primarily due to lower sales volume across our business segments, partially offset by a $28 million favorable impact of foreign currency
exchange rate changes.  Sales in the HDE, Automotive, BHVAC, and CIS segments decreased $64 million, $47 million, $44 million, and $29 million, respectively.  Fiscal 2021 sales were significantly impacted by market-driven volume declines and
temporary plant closures early in fiscal 2021 due to the COVID-19 pandemic.

Fiscal 2021 cost of sales of $1,515 million decreased $153 million, or 9 percent, primarily due to lower sales volume.  Fiscal 2021 cost of sales was negatively impacted by $24 million from foreign currency exchange rate changes.  As a
percentage of sales, cost of sales decreased 60 basis points to 83.8 percent.  The unfavorable impacts of lower sales volume and, to a lesser extent, higher material costs, which negatively impacted cost of sales as a percentage of sales by
approximately 50 basis points, were more than offset by benefits from procurement and other cost-reduction initiatives and an $8 million decrease in depreciation expense in the Automotive segment.  We ceased depreciating the long-lived assets
within the liquid- and air-cooled automotive businesses once they were classified as held for sale during fiscal 2021.  In addition, program and equipment transfer costs to prepare the liquid-cooled automotive business for sale decreased $3
million compared with the prior year.

As a result of lower sales and lower cost of sales as a percentage of sales, fiscal 2021 gross profit decreased $14 million and gross margin improved 60 basis points to 16.2 percent.

Fiscal 2021 SG&A expenses decreased $39 million.  The decrease in SG&A expenses was primarily due to lower costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment businesses, which
decreased $30 million, and lower compensation-related expenses, which decreased $13 million, largely resulting from cost-saving actions taken in response to COVID-19.  These favorable drivers were partially offset by $7 million of CEO transition
costs recorded at Corporate and a $3 million unfavorable impact of foreign currency exchange rate changes.

Restructuring expenses totaled $13 million during fiscal 2021 and increased $1 million compared with the prior year, primarily due to higher severance expenses.  The fiscal 2021 restructuring expenses primarily consisted of severance expenses
related to headcount reductions within the CIS, Automotive and HDE segments.

During fiscal 2021, we recorded impairment charges totaling $167 million within the Automotive segment, an increase of $158 million compared with the prior year.  The impairment charges during fiscal 2021 primarily related to writing down the
long-lived assets in the liquid- and air-cooled automotive businesses when they were classified as held for sale.  The $9 million of impairment charges recorded in fiscal 2020 primarily related to two manufacturing facilities in the Automotive
segment.

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The operating loss of $98 million during fiscal 2021 represents a $136 million decline from the prior-year operating income of $38 million.  The decline was primarily due to higher impairment charges, which increased $158 million, and lower
earnings in our BHVAC segment, which decreased $13 million.  These negative drivers were partially offset by lower costs associated with our review of strategic alternatives for the Automotive segment businesses, which decreased $33 million.

The provision for income taxes was $90 million and $12 million in fiscal 2021 and 2020, respectively.  The $78 million increase was primarily due to an increase in income tax charges related to valuation allowances, partially offset by income
tax benefits totaling $38 million related to the impairment charges recorded during fiscal 2021.  In fiscal 2021, we recorded income tax charges totaling $117 million to increase the valuation allowances on deferred tax assets in the U.S. and in
certain foreign jurisdictions, compared with $7 million of income tax charges for valuation allowances in fiscal 2020.

Segment Results of Operations

Effective July 1, 2021, we aligned the data center businesses previously managed by and reported within the CIS segment under the BHVAC segment.  The BHVAC segment assumed management of our business in Guadalajara, Spain and a portion of our
business in Grenada, Mississippi.  Through this segment change, we aligned our data center businesses under the same leadership team to accelerate commercial excellence, operational improvements, and organizational efficiencies.  As a result, we
revised our reporting segments and are reporting the financial results of the transferred businesses within the BHVAC segment.  The segment realignment had no impact on the HDE and Automotive segments or on our consolidated financial position,
results of operations, and cash flows.  We have recast the segment financial information for fiscal 2021 and 2020 to conform to the fiscal 2022 presentation.

Effective April 1, 2022, we began managing our company under two operating segments, Climate Solutions and Performance Technologies.  The Climate Solutions segment includes the BHVAC and CIS segment businesses with the exception of CIS
Coatings.  The Performance Technologies segment includes the HDE and Automotive segment businesses and the CIS Coatings business.  Beginning for fiscal 2023, we will report the financial results under the new segment structure.

BHVAC

Year Ended March 31, 2022 Compared with Year Ended March 31, 2021

BHVAC net sales increased $74 million, or 28 percent, in fiscal 2022 compared with the prior year, primarily due to higher sales volume and, to a lesser extent, favorable pricing adjustments in response to raw material price increases.  Sales
to commercial HVAC customers increased $41 million, primarily due to higher sales of heating and ventilation products in North America.  In addition, sales to data center customers increased $32 million.

BHVAC cost of sales increased $65 million, or 37 percent, in fiscal 2022, primarily due to higher sales volume and higher raw material prices, which increased by $16 million.  As a percentage of sales, cost of sales increased 460 basis points
to 72.2 percent, primarily due to the higher material costs.

As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $9 million and gross margin declined 460 basis points to 27.8 percent.

BHVAC SG&A expenses increased $8 million compared with the prior year, yet decreased 110 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to higher compensation-related expenses, which increased
$6 million and included higher commission expenses.

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Operating income in fiscal 2022 of $46 million increased $1 million, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Year Ended March 31, 2021 Compared with Year Ended March 31, 2020

BHVAC net sales decreased $44 million, or 14 percent, in fiscal 2021 compared with the prior year, primarily due to lower sales to a significant data center customer.  Sales to data center customers decreased $42 million compared with the
prior year.  Sales to commercial HVAC customers were consistent with the prior year, as higher sales of ventilation and heating products in the U.S. were largely offset by lower sales in Europe.

BHVAC cost of sales decreased $28 million, or 14 percent, in fiscal 2021, primarily due to lower sales volume.  As a percentage of sales, cost of sales increased 30 basis points to 67.6 percent and was negatively impacted by unfavorable sales
mix.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $15 million and gross margin declined 30 basis points to 32.4 percent.

BHVAC SG&A expenses decreased $2 million from the prior year.  The decrease in SG&A expenses was primarily due to lower compensation-related expenses.

Operating income in fiscal 2021 of $45 million decreased $13 million, primarily due to lower gross profit.

CIS

Year Ended March 31, 2022 Compared with Year Ended March 31, 2021

CIS net sales increased $115 million, or 22 percent, in fiscal 2022 compared with the prior year, primarily due to higher sales volume and favorable product pricing adjustments in response to raw material price increases.  CIS sales in fiscal
2021 were negatively impacted by the COVID-19 pandemic, primarily in the first half of the fiscal year.  Sales to commercial HVAC&R customers increased $117 million.

CIS cost of sales increased $91 million, or 20 percent, primarily due to higher sales volume and higher raw material prices, which increased by $51 million.  As a percentage of sales, cost of sales decreased 160 basis points to 85.9 percent,
primarily due to the favorable impacts of the higher sales volume and improved operating efficiencies, partially offset by higher material costs.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $24 million and gross margin improved 160 basis points to 14.1 percent.

CIS SG&A expenses increased $2 million compared with the prior year, yet decreased 140 basis points as a percentage of sales.  The increase in SG&A expenses was primarily due to higher compensation-related expenses.

Restructuring expenses during fiscal 2022 decreased $3 million, primarily due to lower severance expenses.  The fiscal 2022 severance expenses primarily related to targeted headcount reductions in Europe and China.  The fiscal 2021 severance
expenses primarily related to plant consolidation activities in China and targeted headcount reductions in North America.

Operating income in fiscal 2022 increased $25 million to $35 million, primarily due to higher gross profit.

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Year Ended March 31, 2021 Compared with Year Ended March 31, 2020

CIS net sales decreased $29 million, or 5 percent, in fiscal 2021 compared with the prior year, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic, partially offset by a $12 million favorable impact of
foreign currency exchange rate changes.  Sales to commercial HVAC&R customers decreased $33 million and were partially offset by higher industrial cooling sales, which increased $5 million.

CIS cost of sales decreased $29 million, or 6 percent, primarily due to lower sales volume, partially offset by an $11 million unfavorable impact of foreign currency exchange rate changes.  As a percentage of sales, cost of sales decreased 60
basis points to 87.5 percent, as the favorable impact of cost-reduction and procurement initiatives more than offset the impact of the lower sales volume.

As a result of both the lower sales and lower cost of sales as a percentage of sales, gross profit remained consistent at $64 million and gross margin improved 60 basis points to 12.5 percent.

CIS SG&A expenses decreased $2 million compared with the prior year.  The decrease in SG&A expenses was primarily due to lower compensation-related expenses.

Restructuring expenses during fiscal 2021 increased $3 million, primarily due to higher severance expenses.  The fiscal 2021 restructuring expenses primarily consisted of severance expenses and equipment transfer costs related to plant
consolidation activities in China and targeted headcount reductions in North America.

Operating income in fiscal 2021 decreased $1 million to $10 million, primarily due to higher restructuring expenses, partially offset by lower SG&A expenses.

HDE

Year Ended March 31, 2022 Compared with Year Ended March 31, 2021

HDE net sales increased $142 million, or 21 percent, in fiscal 2022 compared with the prior year, primarily due to higher sales volume and, to a lesser extent, favorable product pricing adjustments in response to raw material price increases.
HDE sales in fiscal 2021 were negatively impacted by the COVID-19 pandemic.  Sales to off-highway and commercial vehicle customers increased $71 million and $69 million, respectively.

HDE cost of sales increased $143 million, or 24 percent, primarily due to higher sales volume and higher raw material prices, which increased approximately $67 million.  As a percentage of sales, cost of sales increased 240 basis points to
89.4 percent, primarily due to the higher material prices.

As a result of higher sales and higher cost of sales as a percentage of sales, gross profit decreased $1 million and gross margin declined 240 basis points to 10.6 percent.

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HDE SG&A expenses increased $2 million compared with the prior year, yet decreased 90 basis points as a percentage of sales.  The increase in SG&A expenses was primarily related to higher compensation-related expenses, which increased
$6 million, partially offset by lower development and other administrative costs.

Restructuring expenses during fiscal 2022 decreased $2 million, primarily due to lower severance expenses.

Operating income in fiscal 2022 decreased $2 million to $35 million, primarily due to lower gross profit and higher SG&A expenses, partially offset by lower restructuring expenses.

Year Ended March 31, 2021 Compared with Year Ended March 31, 2020

HDE net sales decreased $64 million, or 9 percent, in fiscal 2021 compared with the prior year, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic, which were most severe in the Americas and Europe during
the first half of the fiscal year.  Sales to off-highway customers increased $20 million and were offset by lower sales to commercial vehicle and automotive and light vehicle customers, which decreased $52 million and $11 million, respectively.

HDE cost of sales decreased $55 million, or 8 percent, primarily due to lower sales volume.  As a percentage of sales, cost of sales was consistent at 87.0 percent.  Beyond the unfavorable impacts of the lower sales volume, higher material
costs impacted cost of sales as a percentage of sales by approximately 100 basis points.  The unfavorable materials costs primarily resulted from higher commodity pricing and tariffs on imported materials.  These negative impacts were largely
offset by favorable impacts from improved operating efficiencies and cost savings from procurement and other cost-reduction initiatives.

As a result of the lower sales, gross profit decreased $9 million.  Gross margin of 13.0 percent was consistent with the prior year.

HDE SG&A expenses decreased $7 million compared with the prior year.  The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased $6 million, and cost-reduction initiatives, including lower
travel expenses.

Restructuring expenses during fiscal 2021 totaled $3 million, consistent with the prior year.  Fiscal 2021 restructuring expenses primarily consisted of severance expenses resulting from targeted headcount reductions in North America.

Operating income in fiscal 2021 decreased $1 million to $37 million, primarily due to lower gross profit, partially offset by lower SG&A expenses.

AUTOMOTIVE

Year Ended March 31, 2022 Compared with Year Ended March 31, 2021

Automotive net sales decreased $85 million, or 21 percent, in fiscal 2022 compared with the prior year, primarily due to $58 million of lower sales from the air-cooled automotive business, which we sold in the first quarter of fiscal 2022, and
lower sales volume, largely associated with the negative impacts of the global semiconductor chip shortage on the global automotive market.  These drivers, which decreased sales, were partially offset by favorable product pricing adjustments in
response to raw material price increases.  Sales in Europe, North America, and Asia decreased $62 million, $13 million, and $11 million, respectively.

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Automotive cost of sales decreased $68 million, or 20 percent, compared with the prior year, primarily due to lower sales volume and lower depreciation expenses, which decreased $9 million.  We ceased depreciating the property, plant and
equipment assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale during the second half of fiscal 2021.  Upon reverting back to held and used classification during the third quarter of fiscal
2022, we resumed depreciating the property, plant and equipment assets in the liquid-cooled automotive business.  These decreases were partially offset by higher raw material prices, which increased $14 million.  As a percentage of sales, cost of
sales increased 160 basis points to 87.5 percent.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $17 million and gross margin declined 160 basis points to 12.5 percent.

Automotive SG&A expenses increased $4 million compared with the prior year.  The increase in SG&A expenses was primarily related to higher compensation-related expenses and, to a lesser extent, higher development and administrative
expenses.

Restructuring expenses during fiscal 2022 totaled $20 million, an increase of $16 million compared with the prior year.  The increase was primarily driven by higher severance expenses in Europe related to targeted headcount reductions.

The fiscal 2022 net impairment reversal of $56 million primarily related to assets in our liquid-cooled automotive business.  We remeasured the previously impaired long-lived assets within the liquid-cooled automotive business to the lower of
their carrying or fair value once they were no longer held for sale.  The fiscal 2021 impairment charges totaling $167 million related to assets in the liquid- and air-cooled automotive businesses, which were first classified as held for sale in
fiscal 2021.

Operating income of $35 million during fiscal 2022 represents a $186 million improvement from the prior-year operating loss of $151 million.  The operating income and operating loss during fiscal 2022 and 2021 were driven by the significant
net impairment reversal and impairment charges, respectively.  In addition, as compared with the prior year, operating income was unfavorably impacted by lower gross profit and higher restructuring expenses.

Year Ended March 31, 2021 Compared with Year Ended March 31, 2020

Automotive net sales decreased $47 million, or 11 percent, in fiscal 2021 compared with the prior year, primarily due to lower sales volume largely resulting from the impacts of the COVID-19 pandemic, partially offset by an $18 million
favorable impact of foreign currency exchange rate changes.  Sales in Europe and North America decreased $39 million and $19 million, respectively.  Sales in Asia increased $12 million.

Automotive cost of sales decreased $54 million, or 14 percent, compared with the prior year, primarily due to lower sales volume, partially offset by a $15 million unfavorable impact of foreign currency exchange rate changes.  As a percentage
of sales, cost of sales decreased 320 basis points to 85.9 percent and was favorably impacted by lower depreciation expenses of $8 million, cost savings from procurement initiatives and improved operating efficiencies, partially offset by the
unfavorable impact of lower sales volume.  We ceased depreciating the long-lived assets within the liquid- and air-cooled automotive businesses when they were classified as held for sale in November 2020 and February 2021, respectively.

As a result of the lower sales and lower cost of sales as a percentage of sales, gross profit increased $8 million and gross margin improved 320 basis points to 14.1 percent.

Automotive SG&A expenses decreased $9 million compared with the prior year.  The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased $8 million.

Restructuring expenses during fiscal 2021 totaled $4 million, a decrease of $2 million compared with the prior year.  The decrease was primarily driven by lower severance expenses in Europe resulting from fewer targeted headcount reductions.

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Impairment charges during fiscal 2021 totaled $167 million and primarily related to assets in the liquid- and air-cooled automotive businesses.  Upon classifying these businesses as held for sale, we recorded impairment charges to write down
the long-lived assets of these businesses based upon the selling prices in the agreements.  During fiscal 2020, we recorded asset impairment charges totaling $8 million, primarily related to manufacturing facilities in Austria and Germany.

The Automotive operating loss in fiscal 2021 of $151 million, as compared with an operating loss of $10 million in the prior year, was significantly impacted by the large impairment charges, which were partially offset by higher gross profit
and lower SG&A and 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, 2022 of $45 million, and an available borrowing capacity of $173 million under our revolving credit facility.  Given our
extensive international operations, approximately $42 million of our cash and cash equivalents are held by our non-U.S. subsidiaries.  Amounts held by non-U.S. subsidiaries are available for general corporate use; however, these funds may be
subject to foreign withholding taxes if repatriated.  We believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and long-term basis.

Our primary contractual obligations include pension obligations, debt and related interest payments, lease obligations, and obligations for capital expenditures.  Our pension liabilities totaled $49 million as of March 31, 2022.  As a result
of funding relief provisions within the American Rescue Plan Act of 2021, we do not expect to make cash contributions to our U.S. plans during fiscal 2023.

Net Cash Provided by Operating Activities

Net cash provided by operating activities in fiscal 2022 was $12 million, a decrease of $138 million from $150 million in the prior year.  This decrease in operating cash flow was primarily due to unfavorable net changes in working capital,
including higher inventory and accounts receivable levels and higher payments for incentive compensation and employee benefits as compared with the same period in the prior year.  Inventory, including amounts that were held for sale, increased
$61 million from March 31, 2021 to March 31, 2022.  The higher inventory levels in fiscal 2022 have largely resulted from both increased raw material prices and strategic safety stock builds in connection with global supply chain constraints and
challenges.

Net cash provided by operating activities in fiscal 2021 was $150 million, an increase of $92 million from $58 million in the prior year.  This increase in operating cash flow was primarily due to favorable net changes in working capital,
including impacts from the timing of payments to vendors and receipts from customers, as compared with the prior year.  The favorable changes in working capital also included lower payments for incentive compensation, employee benefits, and
payroll taxes.  During fiscal 2021, we deferred payments of U.S. payroll taxes totaling $7 million, as permitted by the Coronavirus Aid, Relief, and Economic Security Act.  We resumed payment of these payroll taxes during the fourth quarter of
fiscal 2021.  We paid half of the deferred amount in fiscal 2022 and expect to pay the other half in fiscal 2023.  Also during fiscal 2021, payments for separation and project costs associated with our review of strategic alternatives for the
Automotive segment businesses and restructuring activities decreased $31 million and $5 million, respectively, compared with fiscal 2020.

Capital Expenditures

Capital expenditures of $40 million during fiscal 2022 increased $8 million compared with fiscal 2021.  Our capital spending in fiscal 2022 primarily occurred in the HDE and Automotive segments, which totaled $15 million and $13 million,
respectively, and included tooling and equipment purchases in conjunction with new and renewal programs with customers.  In fiscal 2021, we delayed certain projects and the purchase of certain program-related equipment and tooling to preserve our
available liquidity during the first year of the COVID-19 pandemic.

Debt

Our total debt outstanding increased $38 million to $378 million at March 31, 2022 compared with the prior year, primarily due to borrowings during fiscal 2022.  As of March 31, 2021, $5 million of debt was classified within liabilities held
for sale on our consolidated balance sheet.

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Our credit agreements require us to maintain compliance with various covenants, including a leverage ratio covenant and an interest expense coverage ratio covenant discussed further below.  Also, as specified in the credit agreement, the term
loans require prepayments in the event of certain asset sales.  In addition, at the time of each incremental borrowing under the revolving credit facility, we must represent to the lenders that there has been no material adverse effect, as
defined in the credit agreement, on our business, property, or results of operations.

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, 2022, our leverage ratio and interest coverage ratio were 2.3 and 11.4, respectively.  We expect to remain in compliance with our debt covenants during fiscal 2023 and beyond.

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

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 statement 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 towards 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 $315 million and $90 million, respectively, at March 31, 2022.  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 which
are related to our CIS and BHVAC segments.  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 net impairment reversals of $56 million, primarily related to assets that were held for sale in the Automotive segment.  In fiscal 2021, we recorded $167 million of impairment charges to write down the
long-lived assets in the liquid- and air-cooled automotive businesses when they were classified as held for sale.  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 significant 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 the continued
general economic uncertainties and impacts associated with the COVID-19 pandemic and the military conflict in Ukraine.  We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value
of goodwill.

At March 31, 2022, our goodwill totaled $168 million related to our CIS and BHVAC segments.  Each of these segments is comprised of two reporting units.  We conducted annual goodwill impairment tests as of March 31, 2022 by applying a fair
value-based test and determined the fair value of each of our reporting units exceeded the respective book value.  A 10 percent decrease in the estimated fair value of our reporting units 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.

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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, 2022, our pension liabilities totaled $49 million.  The most significant assumptions include the discount rate, long-term
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 benefit cost.  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.

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 large majority of our pension
plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of
returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both
fiscal 2022 and 2021 was 7.5 percent.  For fiscal 2023, we have assumed a rate of 7.0 percent.  A change of 25 basis points in the expected rate of return on assets would impact our fiscal 2023 pension expense by less than $1 million.

The discount rate reflects rates available on long-term, high-quality fixed-income corporate bonds on the measurement date of March 31.  For fiscal 2022 and 2021, for purposes of determining pension expense, we used a discount rate of 3.2 and
3.4 percent, respectively.  We determined these rates based upon a yield curve that was created following an analysis of the projected cash flows from 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 2023 pension expense by less than $1 million.

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
jurisdiction-by-jurisdiction 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:

Operational Risks:

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Strategic Risks:

Financial Risks:

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