Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

When we use the terms "Modine," "we," "us," the "Company," or "our" in this report, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all references to quarters refer to our fiscal quarters. The quarter ended December 31, 2025 was the third quarter of fiscal 2026.

Recent announcement

In January 2026, we announced that we entered into definitive agreements with Gentherm Incorporated ("Gentherm"), whereby we will spin-off and simultaneously combine our Performance Technologies segment businesses with Gentherm in a Reverse Morris Trust transaction. Gentherm, a Michigan-based corporation, is a global leader of innovative thermal management and pneumatic comfort technologies. The transaction is intended to establish Gentherm as a scaled leader in thermal management. We will retain our Climate Solutions segment businesses, creating a pure-play climate solutions company focused on the data center and commercial HVAC and refrigeration markets.

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Under the terms of the agreement, at the time of the spin-off of our Performance Technologies segment businesses, our shareholders will receive newly-issued Gentherm stock, representing ownership of approximately 40 percent of the combined company. In addition, immediately prior to transaction closing, we will receive cash proceeds of $210.0 million, subject to adjustment. In total, the transaction value is approximately $1.0 billion. We anticipate this transaction will close by the end of calendar 2026, subject to approval by Gentherm's shareholders and other closing conditions, including regulatory approvals. Under the Reverse Morris Trust structure, the transaction is intended to be generally tax-free for U.S. federal income tax purposes for the Company and our shareholders. To facilitate this transaction, we expect to incur significant fees for transaction advisory, legal, accounting, tax and other professional services. While we are in the early phases of the process, we currently estimate that these fees and other costs directly related to the transaction will total approximately $30.0 million to $40.0 million.

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Fiscal 2026 acquisitions

During the first and second quarter of fiscal 2026, we acquired three businesses within our Climate Solutions segment, each supporting our growth strategy by expanding our product portfolio and broadening our customer base.

On April 1, 2025, we acquired substantially all of the net operating assets of AbsolutAire, Inc. ("AbsolutAire") for $11.3 million. AbsolutAire is a Michigan-based manufacturer of direct-fired heating, ventilation, and make-up air systems and has annual sales of approximately $25.0 million.

On May 31, 2025, we acquired LBW Holding Corp. ("L.B. White") for $110.5 million. Headquartered in Wisconsin, with additional manufacturing and distribution operations in Georgia, L.B. White has annual sales of approximately $75.0 million and is a leading provider of specialty heating solutions, including direct-fired forced air, radiant, indirect-fired, and electric heating solutions, for the agriculture, construction, and special event industries.

On July 1, 2025, we acquired Climate by Design International ("Climate by Design") for $64.4 million. Based in Minnesota, Climate by Design specializes in desiccant dehumidification technology and critical process air handlers and has annual sales of approximately $45.0 million.

See Note 2 of the Notes to Condensed Consolidated Financial Statements for further information.

Third quarter highlights

Net sales in the third quarter of fiscal 2026 increased $188.2 million, or 31 percent, from the third quarter of fiscal 2025, primarily due to higher sales in our Climate Solutions segment. Cost of sales increased $151.7 million, or 32 percent. Gross profit increased $36.5 million. Gross margin declined 120 basis points to 23.1 percent, primarily due to lower gross margin in the Climate Solutions segment, largely driven by temporary operating inefficiencies associated with our rapid expansion of data center manufacturing capacity. Selling, general and administrative ("SG&A") expenses increased $7.3 million. Operating income of $89.3 million during the third quarter of fiscal 2026 increased $30.0 million from the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses. During the third quarter of fiscal 2026, we recorded a $116.1 million non-cash pension termination charge in connection with the termination of our primary U.S. pension plan.

Year-to-date highlights

Net sales in the first nine months of fiscal 2026 increased $290.4 million, or 15 percent, from the same period last year, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. Cost of sales increased $251.8 million, or 17 percent, from the same period last year. Gross profit increased $38.6 million, yet gross margin declined 150 basis points to 23.2 percent. SG&A expenses increased $7.8 million. We recorded a $4.1 million impairment charge in our Performance Technologies segment during the second quarter of fiscal 2026 related to the pending sale of our technical service center and administrative support facility in Germany, which we expect to close during the fourth quarter of fiscal 2026 or the first quarter of fiscal 2027. Operating income of $238.5 million during the first nine months of fiscal 2026 increased $29.5 million from the prior year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses and the impairment charge recorded during the second quarter. During the third quarter of fiscal 2026, we recorded a $116.1 million non-cash pension termination charge in connection with the termination of our primary U.S. pension plan.

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents our consolidated financial results on a comparative basis for the three and nine months ended December 31, 2025 and 2024:

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Comparison of the three months ended December 31, 2025 and 2024

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Third quarter net sales of $805.0 million were $188.2 million, or 31 percent, higher than the third quarter of the prior year, primarily due to $183.8 million of higher sales in our Climate Solutions segment, driven by sales growth to hyperscale and colocation data center customers in North America and Europe and $42.8 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses. Foreign currency exchange rates favorably impacted sales by $16.3 million.

Third quarter cost of sales increased $151.7 million, or 32 percent, primarily due to higher sales volume in the Climate Solutions segment and a $12.9 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was unfavorably impacted by temporary operating inefficiencies in the Climate Solutions segment, largely due to the rapid expansion of manufacturing capacity for data center products. As a percentage of sales, cost of sales increased 120 basis points to 76.9 percent, primarily due to the temporary operating inefficiencies.

As a result of higher sales and higher cost of sales as a percentage of sales, third quarter gross profit increased $36.5 million and gross margin declined 120 basis points to 23.1 percent.

Third quarter SG&A expenses increased $7.3 million, or 9 percent. As a percentage of sales, SG&A expenses decreased by 220 basis points. The increase in SG&A expenses was driven by higher compensation-related expenses in the Climate Solutions segment, supporting the segment's growth and including incremental expenses from the acquired businesses, partially offset by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions. Other costs directly associated with acquisition and disposition activities increased $2.3 million, primarily driven by costs for legal and other professional services in connection with the proposed Reverse Morris Trust transaction with Gentherm.

Restructuring expenses decreased $0.8 million compared with the third quarter of fiscal 2025, primarily due to lower severance expenses in the Performance Technologies segment and at Corporate. These decreases were partially offset by higher costs related to transferring production for certain product lines in the Performance Technologies segment and higher severance expenses in the Climate Solutions segment.

Operating income of $89.3 million in the third quarter of fiscal 2026 increased $30.0 million compared with the third quarter of fiscal 2025, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Interest expense during the third quarter of fiscal 2026 increased $2.7 million compared with the third quarter of fiscal 2025, primarily due to higher average outstanding borrowings on our revolving credit facility, partially offset by favorable changes in interest rates.

During the third quarter of fiscal 2026 and in connection with the previously-announced plan termination, we recorded a $116.1 million non-cash pension termination charge to recognize actuarial losses that were included within accumulated other comprehensive loss on our consolidated balance sheet.

Other net expense of $2.8 million during the third quarter of fiscal 2026 represents a $3.9 million decline compared with other income of $1.1 million during the third quarter of fiscal 2025. The net expense in fiscal 2026 was primarily due to net foreign currency transaction losses of $2.4 million. In the third quarter of fiscal 2025, the net impact of foreign currency transactions was a gain of $1.8 million.

The provision for income taxes of $8.3 million decreased $4.7 million from the third quarter of fiscal 2025. The impact of higher operating earnings in fiscal 2026, which caused an increase in the income tax provision, was more than offset by a $13.1 million net income tax benefit related to the $116.1 million pension termination charge recorded in the third quarter of fiscal 2026. The $13.1 million net income tax benefit from the pension termination charge included a $16.8 million income tax detriment resulting from disproportionate income tax effects in accumulated other comprehensive loss. In addition, impacts associated with provisions of the One Big Beautiful Bill Act ("OBBBA") on state deferred taxes and the utilization of foreign tax credits increased the income tax provision during the third quarter of fiscal 2026 by $0.6 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.

Comparison of the nine months ended December 31, 2025 and 2024

Fiscal 2026 year-to-date net sales of $2,226.7 million were $290.4 million, or 15 percent, higher than the same period last year, primarily due to $311.9 million of higher sales in our Climate Solutions segment, including organic sales growth to hyperscale and colocation data center customers in North America and Europe and $80.9 million of incremental sales from the acquired businesses. The higher sales in the Climate Solutions segment were partially offset by $30.9 million of lower sales in our Performance Technologies segment, largely due to market weakness. Foreign currency exchange rates favorably impacted sales by $33.8 million.

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Fiscal 2026 year-to-date cost of sales of $1,710.3 million increased $251.8 million, or 17 percent, primarily due to higher sales volume in the Climate Solutions segment and a $27.2 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was unfavorably impacted by temporary operating inefficiencies in the Climate Solutions segment, largely due to the rapid expansion of manufacturing capacity for data center products, and higher raw material costs, which increased approximately $9.0 million. These drivers, which increased cost of sales, were partially offset by lower sales volume and improved operating efficiencies in the Performance Technologies segment. As a percentage of sales, cost of sales increased 150 basis points to 76.8 percent, primarily due to temporary operating inefficiencies, higher material costs, and the absence of commercial pricing settlements and sales tax credits, which favorably impacted the prior year.

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As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $38.6 million and gross margin declined 150 basis points to 23.2 percent.

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Fiscal 2026 year-to-date SG&A expenses increased $7.8 million. As a percentage of sales, SG&A expenses decreased by 130 basis points. The increase in SG&A expenses includes higher compensation-related expenses in the Climate Solutions segment, supporting the segment's growth and including incremental expenses from the acquired businesses. Other costs directly associated with acquisition and disposition activities increased $6.0 million. These drivers, which increased SG&A expenses, were partially offset by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions, and lower incentive compensation expense.

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Restructuring expenses during the first nine months of fiscal 2026 decreased $2.8 million compared with the same period last year, primarily due to lower severance expenses in the Performance Technologies segment and at Corporate, partially offset by higher severance expenses in the Climate Solutions segment and higher costs related to transferring production for certain product lines in the Performance Technologies segment.

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During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge in the Performance Technologies segment related to a technical service center and administrative support facility in Germany, the sale of which is pending.

Operating income of $238.5 million in the first nine months of fiscal 2026 increased $29.5 million compared with the same period last year, primarily due to higher gross profit and lower restructuring expenses, partially offset by higher SG&A expenses and the $4.1 million impairment charge.

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Interest expense during the first nine months of fiscal 2026 increased $1.9 million compared with the same period last year, primarily due to higher average outstanding borrowings on our revolving credit facility, partially offset by favorable changes in interest rates.

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During the third quarter of fiscal 2026 and in connection with the previously-announced plan termination, we recorded a $116.1 million non-cash pension termination charge to recognize actuarial losses that were included within accumulated other comprehensive loss on our consolidated balance sheet.

Other net expense during the first nine months of fiscal 2026 increased $7.8 million compared with the same period last year, primarily due to net foreign currency transaction losses of $6.6 million. In fiscal 2025, the net impact of foreign currency transactions was a gain of $0.8 million.

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The provision for income taxes of $41.2 million decreased $10.6 million from the first nine months of fiscal 2025. The impact of higher operating earnings during the current year, which caused an increase in the income tax provision, was more than offset by a $13.1 million net income tax benefit related to the $116.1 million pension termination charge recorded in the third quarter of fiscal 2026. The $13.1 million net income tax benefit from the pension termination charge included a $16.8 million income tax detriment resulting from disproportionate income tax effects in accumulated other comprehensive loss. In addition, impacts associated with provisions of the OBBBA on state deferred taxes and the utilization of foreign tax credits increased the income tax provision during the first nine months of fiscal 2026 by $3.7 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.

SEGMENT RESULTS OF OPERATIONS

The following is a discussion of our segment results of operations for the three and nine months ended December 31, 2025 and 2024:

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Climate Solutions

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Comparison of the three months ended December 31, 2025 and 2024

Climate Solutions net sales increased $183.8 million, or 51 percent, from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to higher sales volume. In addition, foreign currency exchange rates favorably impacted sales by $9.3 million. Compared with the third quarter of the prior year, sales of data center, HVAC technologies, and heat transfer solution products increased $130.0 million, $34.6 million, and $16.7 million, respectively. The higher data center product sales included sales growth to hyperscale and colocation customers in North America and Europe. The higher HVAC technologies product sales were primarily driven by $42.8 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses, partially offset by lower sales of other indoor air quality products.

Climate Solutions cost of sales increased $151.8 million, or 59 percent, from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to higher sales volume and, to a lesser extent, temporary operating inefficiencies, largely due to the rapid expansion of manufacturing capacity in the U.S. for data center products, and higher raw material costs, which increased approximately $3.0 million. In addition, cost of sales was negatively impacted by $7.0 million from foreign currency exchange rates. As a percentage of sales, cost of sales increased 380 basis points to 75.2 percent, primarily due to the temporary operating inefficiencies and higher material costs.

As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $32.0 million and gross margin declined 380 basis points to 24.8 percent.

Climate Solutions SG&A expenses increased $10.4 million, or 26 percent, compared with the third quarter of the prior year. As a percentage of sales, SG&A expenses decreased by 180 basis points. The increase in SG&A expenses was primarily driven by higher compensation-related expenses and increases across other general and administrative expenses, including costs to support strategic growth initiatives. The higher compensation-related expenses, which increased approximately $8.0 million, also included expenses from the acquired businesses. These increases were partially offset by lower amortization expense, which decreased $1.7 million. The lower amortization expense was primarily driven by an order backlog intangible asset, which we recorded in connection with our acquisition of Scott Springfield Mfg. Inc. and finished amortizing during the first quarter of fiscal 2026.

Restructuring expenses increased $0.8 million compared with the third quarter of fiscal 2025, primarily due to higher severance expenses.

Operating income of $83.2 million increased $20.8 million from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to higher gross profit, partially offset by higher SG&A expenses.

Comparison of the nine months ended December 31, 2025 and 2024

Climate Solutions year-to-date net sales increased $311.9 million, or 29 percent, from the same period last year, primarily due to higher sales volume. In addition, foreign currency exchange rates favorably impacted sales by $20.5 million. Compared with the same period in the prior year, sales of data center, HVAC technologies, and heat transfer solutions products increased $221.7 million, $68.9 million, and $18.5 million respectively. The higher data center product sales include sales growth to hyperscale and colocation customers in North America and Europe. The higher HVAC technologies product sales are primarily driven by $80.9 million of incremental sales from the acquired businesses, partially offset by lower sales of other indoor air quality products. The increase in sales of heat transfer products, driven by higher sales of heat transfer coils for commercial and residential applications, was partially offset by the absence of commercial pricing settlements with heat pump customers in Europe, which had a favorable impact during the prior year.

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Climate Solutions year-to-date cost of sales increased $262.1 million, or 34 percent, from the same period last year, primarily due to higher sales volume and, to a lesser extent, temporary operating inefficiencies, largely due to the rapid expansion of manufacturing capacity in the U.S. for data center products, and higher raw material costs, which increased approximately $7.0 million. In addition, cost of sales was negatively impacted by $15.8 million from foreign currency exchange rates. As a percentage of sales, cost of sales increased 280 basis points to 74.2 percent, primarily due to the temporary operating inefficiencies, higher material costs, and the absence of the commercial pricing settlements in the prior year.

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As a result of the higher sales and higher cost of sales as a percentage of sales, gross profit increased $49.8 million and gross margin declined 280 basis points to 25.8 percent.

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Climate Solutions year-to-date SG&A expenses increased $21.6 million, or 18 percent, yet decreased 90 basis points as a percentage of sales. The increase in SG&A expenses was primarily driven by higher compensation-related expenses and increases across other general and administrative expenses. The higher compensation-related expenses, which increased approximately $19.0 million, includes expenses from the acquired businesses. This increase was partially offset by lower amortization expense, which decreased $5.0 million.

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Restructuring expenses during the first nine months of fiscal 2026 increased $2.8 million compared with the same period last year, primarily due to higher severance expenses.

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Operating income of $212.3 million during the first nine months of fiscal 2026 increased $25.4 million from the same period last year, primarily due to higher gross profit, partially offset by higher SG&A expenses.

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Performance Technologies

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Comparison of the three months ended December 31, 2025 and 2024

Performance Technologies net sales increased $3.8 million, or 1 percent, from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to a $7.0 million favorable impact of foreign currency exchange rates and higher average selling prices, partially offset by lower sales volume in North America, largely due to market weakness, and our strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives. Compared with the third quarter of the prior year, sales of on-highway application products increased $10.0 million and sales of heavy-duty equipment products decreased $3.1 million.

Performance Technologies cost of sales increased $0.4 million from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to a $5.9 million unfavorable impact of foreign currency exchange rates, partially offset by lower sales volume and improved operating efficiencies. In addition, raw material costs decreased approximately $1.0 million. As a percentage of sales, cost of sales decreased 110 basis points to 81.1 percent, primarily due to higher average selling prices and improved operating efficiencies, partially offset by the unfavorable impact of lower sales volume.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $3.4 million and gross margin improved 110 basis points to 18.9 percent.

Performance Technologies SG&A expenses decreased $6.7 million, or 26 percent, compared with the third quarter of the prior year. As a percentage of sales, SG&A expenses decreased 260 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $8.0 million and included the benefits of previous restructuring actions.

Restructuring expenses increased $0.1 million compared with the third quarter of the prior year, primarily due to higher costs related to transferring production for certain product lines, partially offset by lower severance expenses.

Operating income of $25.8 million increased $10.0 million from the third quarter of fiscal 2025 to the third quarter of fiscal 2026, primarily due to lower SG&A expenses and higher gross profit.

Comparison of the nine months ended December 31, 2025 and 2024

Performance Technologies year-to-date net sales decreased $30.9 million, or 4 percent, from the same period last year, primarily due to lower sales volume in North America, largely due to market weakness and our strategic exit from lower-margin business, and, to a lesser extent, the absence of sales tax credits recognized in Brazil during the prior year. These decreases were partially offset by a $13.3 million favorable impact of foreign currency exchanges rates and higher average selling prices. Compared with the same period in the prior year, sales of on-highway applications and heavy-duty equipment products decreased $11.1 million and $7.6 million, respectively.

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Performance Technologies year-to-date cost of sales decreased $16.7 million, or 2 percent, from the same period last year, primarily due to lower sales volume and, to a lesser extent, improved operating efficiencies. These drivers, which decreased cost of sales, were partially offset by higher raw material costs, which increased approximately $2.0 million, and an $11.4 million unfavorable impact of foreign currency exchange rates. As a percentage of sales, cost of sales increased 100 basis points to 81.4 percent, primarily due to the unfavorable impact of lower sales, partially offset by improved operating efficiencies and higher average selling prices.

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As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $14.2 million and gross margin declined 100 basis points to 18.6 percent.

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Performance Technologies year-to-date SG&A expenses decreased $18.2 million, or 23 percent, compared with the same period last year. As a percentage of sales, year-to-date SG&A expenses decreased 180 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $21.0 million and included the benefits of previous restructuring actions.

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Restructuring expenses during the first nine months of fiscal 2026 decreased $4.0 million compared with the same period last year, primarily due to lower severance expenses, partially offset by higher costs related to transferring production for certain product lines.

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During the second quarter of fiscal 2026, we recorded a $4.1 million non-cash impairment charge to reduce the carrying value of a technical service center and administrative support facility in Germany to estimated fair value, less costs to sell.

Operating income of $82.0 million during the first nine months of fiscal 2026 increased $3.9 million from the same period last year, primarily due to lower SG&A and restructuring expenses, partially offset by lower gross profit and the impairment charge recorded in the current year.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of December 31, 2025 of $98.7 million, and available borrowing capacity of $216.8 million under our revolving credit facility. Given our extensive international operations, approximately $80.0 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.

Net cash provided by operating activities

Net cash provided by operating activities for the nine months ended December 31, 2025 was $53.8 million, which represents a $104.7 million decrease compared with the same period in the prior year. This decrease was primarily due to an increase in working capital. The Climate Solutions segment's Data Center business is growing rapidly, and we have increased inventory levels to support the growing customer demand. In addition, higher sales have resulted in increased accounts receivable. The increases in inventory and accounts receivable were partially offset by increases in accounts payable, largely resulting from the higher inventory levels. The impact of the working capital growth, which decreased operating cash flow, was partially offset by the favorable impact of higher operating earnings.

Capital expenditures

Capital expenditures of $101.2 million during the first nine months of fiscal 2026 increased $44.9 million compared with the same period in the prior year, primarily driven by investments in the Climate Solutions segment to support the growth of our Data Center business. During the second quarter of fiscal 2026, we announced a plan to invest an incremental $100.0 million over the next twelve months to expand our manufacturing capacity in the U.S. for data center products.

Business acquisitions

We are focused on acquiring businesses that we expect will accelerate our strategic growth. During the first nine months of fiscal 2026, we made cash payments totaling $182.4 million to acquire L.B. White, Climate by Design, and AbsolutAire. See Note 2 of the Notes to Condensed Consolidated Financial Statements for additional information regarding these acquisitions.

Debt

During the first nine months of fiscal 2026, borrowings on our credit facilities, net of repayments, totaled $258.3 million. We borrowed on our credit facilities to support our strategic growth initiatives, including our acquisitions of L.B. White and Climate by Design and the rapid expansion of our Data Center business.

In July 2025, we executed an amended and restated credit agreement with a syndicate of banks for a multi-currency $400.0 million revolving credit facility and a $200.0 million term loan facility maturing in July 2030. This credit agreement modified our then-existing revolving credit and term loan facilities, which would have matured in October 2027. We also amended the agreement governing our Senior Notes, to conform the applicable terms to those of the aforementioned amended and restated credit agreement. In December 2025, we further amended the credit agreement primarily to increase the borrowing capacity under the revolving credit facility by $150.0 million to $550.0 million.

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, excluding real estate. 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.

As amended, 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-half 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 December 31, 2025, we were in compliance with our debt covenants. We expect to remain in compliance with our debt covenants during the remainder of fiscal 2026 and beyond.

U.S. pension plan termination

During the third quarter of fiscal 2026 and in connection with the previously-announced plan termination, we contributed $14.9 million to fully fund our primary U.S. pension plan and settled all future obligations under the pension plan through a combination of lump-sum payments to participants and the purchase of irrevocable annuity contracts. As a result, we recorded a non-cash pension termination charge of $116.1 million during the third quarter of fiscal 2026.

Share repurchase program

We did not purchase shares under our share repurchase program during the first nine months of fiscal 2026. As of December 31, 2025, we had $81.6 million of share repurchase authorization remaining under the repurchase program, which does not expire. Our decision whether and to what extent to repurchase additional shares under the program will depend on a number of factors, including business conditions, other cash priorities, and stock price.

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Forward-looking statements

This report, including, but not limited to, the discussion under Item 2. 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 the Company's Annual Report on Form 10-K for the year ended March 31, 2025. Other risks and uncertainties include, but are not limited to, the following:

Market risks:

Operational risks:

Strategic risks:

Financial risks:

Risks related to the proposed Reverse Morris Trust transaction with Gentherm:

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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.