MODINE MANUFACTURING CO

Previous wording

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 September 30, 2025 was the second quarter of fiscal 2026.

Current wording

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.

Previous wording

We recently acquired three businesses within our Climate Solutions segment, each supporting our growth strategy by expanding our product portfolio and broadening our customer base.

Current wording

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.

Previous wording

Net sales in the second quarter of fiscal 2026 increased $80.9 million, or 12 percent, from the second quarter of fiscal 2025, primarily due to higher sales in our Climate Solutions segment, partially offset by lower sales in our Performance Technologies segment. Cost of sales increased $81.6 million, or 17 percent. Gross profit decreased $0.7 million. Gross margin declined 290 basis points to 22.3 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 decreased $1.6 million. We recorded a $4.1 million impairment charge in our Performance Technology segment related to a technical service center and administrative support facility in Germany, which we expect to sell during the second half of fiscal 2026. Operating income of $73.5 million during the second quarter of fiscal 2026 decreased $1.8 million from the prior year, primarily due to the impairment charge, partially offset by lower SG&A and restructuring expenses.

Current wording

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.

Previous wording

Net sales in the first six months of fiscal 2026 increased $102.2 million, or 8 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 $100.1 million, or 10 percent, from the same period last year. Gross profit increased $2.1 million, yet gross margin declined 170 basis points to 23.2 percent. SG&A expenses increased $0.5 million. Operating income of $149.2 million during the first six months of fiscal 2026 decreased $0.5 million from the prior year, primarily due to the impairment charge recorded during the second quarter, partially offset by higher gross profit and lower restructuring expenses.

Current wording

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.

Previous wording

The following table presents our consolidated financial results on a comparative basis for the three and six months ended September 30, 2025 and 2024:

Current wording

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

Previous wording

Second quarter net sales of $738.9 million were $80.9 million, or 12 percent, higher than the second quarter of the prior year, primarily due to $88.0 million of higher sales in our Climate Solutions segment, driven by sales growth to hyperscale and colocation data center customers in North America and $28.1 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses. The higher sales in the Climate Solutions segment were partially offset by lower sales in our Performance Technologies segment, which decreased $11.2 million, largely due to market weakness. Foreign currency exchange rates favorably impacted sales by $9.4 million.

Current wording

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.

Previous wording

Second quarter cost of sales increased $81.6 million, or 17 percent, primarily due to higher sales volume in the Climate Solutions segment and a $7.8 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 $5.0 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 290 basis points to 77.7 percent, primarily due to the absence of commercial pricing settlements and the recognition of sales tax credits in Brazil, both of which favorably impacted the prior year, higher material costs, and temporary operating inefficiencies.

Current wording

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.

Previous wording

As a result of higher sales and higher cost of sales as a percentage of sales, second quarter gross profit decreased $0.7 million and gross margin declined 290 basis points to 22.3 percent.

Current wording

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.

Previous wording

Second quarter SG&A expenses decreased $1.6 million, or 2 percent. As a percentage of sales, SG&A expenses decreased by 160 basis points. The decrease in SG&A expenses was driven by lower compensation-related expenses in the Performance Technologies segment, which included the benefits of previous restructuring actions, and lower incentive compensation expense. These drivers, which decreased SG&A, were partially offset by 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 integration activities increased $2.3 million.

Current wording

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.

Previous wording

Interest expense during the second quarter of fiscal 2026 increased $0.9 million compared with the second quarter of fiscal 2025, primarily due to higher average outstanding borrowings on our revolving credit facility, partially offset by favorable changes in interest rates.

Current wording

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.

Previous wording

The provision for income taxes was $18.9 million and $20.0 million in the second quarter of fiscal 2026 and 2025, respectively. The $1.1 million decrease included favorable changes in the mix and amount of foreign and U.S. earnings, as compared with the same period in the prior year. The decrease in the provision for income taxes for fiscal 2026 was partially offset by impacts associated with provisions of the One Big Beautiful Bill Act (“OBBBA”) on state deferred taxes and the utilization of foreign tax credits, which increased the income tax provision during the second quarter of fiscal 2026 by $3.1 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.

Current wording

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.

Previous wording

Fiscal 2026 year-to-date net sales of $1,421.7 million were $102.2 million, or 8 percent, higher than the same period last year, primarily due to $128.1 million of higher sales in our Climate Solutions segment, including $38.1 million of incremental sales from the acquired businesses and organic sales growth to hyperscale and colocation data center customers. The higher sales in the Climate Solutions segment were partially offset by $34.7 million of lower sales in our Performance Technologies segment, largely due to market weakness. Foreign currency exchange rates favorably impacted sales by $17.5 million.

Current wording

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.

Previous wording

Fiscal 2026 year-to-date cost of sales of $1,091.4 million increased $100.1 million, or 10 percent, primarily due to higher sales volume in the Climate Solutions segment and a $14.3 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 $7.0 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 170 basis points to 76.8 percent, primarily due to higher material and labor costs and the absence of commercial pricing settlements and sales tax credits, which favorably impacted the prior year.

Current wording

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.

Previous wording

As a result of higher sales and higher cost of sales as a percentage of sales, gross profit increased $2.1 million and gross margin declined 170 basis points to 23.2 percent.

Current wording

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.

Previous wording

Fiscal 2026 year-to-date SG&A expenses increased $0.5 million. As a percentage of sales, SG&A expenses decreased by 90 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 integration activities increased $3.7 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.

Current wording

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.

Previous wording

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, which we expect to sell during the second half of fiscal 2026.

Current wording

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.

Previous wording

Operating income of $149.2 million in the first six months of fiscal 2026 decreased $0.5 million compared with the same period last year, primarily due to the $4.1 million impairment charge, partially offset by higher gross profit and lower restructuring expenses.

Current wording

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.

Previous wording

Interest expense during the first six months of fiscal 2026 decreased $0.8 million compared with the same period last year, primarily due to favorable changes in interest rates, partially offset by higher average outstanding borrowings on our revolving credit facility.

Current wording

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.

Previous wording

Other net expenses during the first six months of fiscal 2026 increased $3.9 million compared with the same period last year, primarily due to an increase in net foreign currency transaction losses.

Current wording

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.

Previous wording

The provision for income taxes was $32.9 million and $38.8 million during the first six months of fiscal 2026 and 2025, respectively. The $5.9 million decrease included favorable changes in the mix and amount of foreign and U.S. earnings, as compared with the same period in the prior year. The decrease in the provision for income taxes for fiscal 2026 was partially offset by impacts associated with provisions of the OBBBA on state deferred taxes and the utilization of foreign tax credits, which increased the income tax provision during the second quarter of fiscal 2026 by $3.1 million. The Company is continuing to assess provisions of the OBBBA that are expected to impact future periods.

Current wording

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.

Previous wording

The following is a discussion of our segment results of operations for the three and six months ended September 30, 2025 and 2024:

Current wording

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

Previous wording

Climate Solutions net sales increased $88.0 million, or 24 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to higher sales volume and a $5.1 million favorable impact of foreign currency exchange rates. Compared with the second quarter of the prior year, sales of data center, HVAC technologies, and heat transfer solution products increased $67.4 million, $17.1 million, and $3.2 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$28.1 million of incremental sales from the acquired L.B. White, Climate by Design, and AbsolutAire businesses, partially offset by lower sales of other heating and indoor air quality products. The increase in sales of heat transfer products 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.

Current wording

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.

Previous wording

Climate Solutions cost of sales increased $82.3 million, or 32 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to higher sales volume, 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 $4.0 million. In addition, cost of sales was negatively impacted by $4.1 million from foreign currency exchange rates. As a percentage of sales, cost of sales increased 440 basis points to 75.4 percent, primarily due to the temporary operating inefficiencies, the absence of the commercial pricing settlements in the prior year, and higher material costs.

Current wording

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.

Previous wording

Climate Solutions SG&A expenses increased $7.3 million compared with the second quarter of the prior year. As apercentage of sales, SG&A expenses decreased by 60 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 $6.0 million, also included expenses from the acquired businesses. These increases were partially offset by lower amortization expense, which decreased $2.2 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.

Current wording

Climate Solutions SG&A expenses increased $10.4 million, or 26 percent, compared with the third quarter of the prior year. As apercentage 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.

Previous wording

Restructuring expenses increased $0.9 million compared with the second quarter of fiscal 2025, primarily due to higher severance expenses, partially offset by lower equipment transfer costs.

Current wording

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

Previous wording

Climate Solutions year-to-date net sales increased $128.1 million, or 18 percent, from the same period last year, primarily due to higher sales volume, and an $11.2 million favorable impact of foreign currency exchange rates. Compared with the same period in the prior year, sales of data center, HVAC technologies, and heat transfer solutions products increased $91.7 million, $34.3 million, and $1.8 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$38.1 million of incremental sales from the acquired businesses. The increase in sales of heat transfer products 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.

Current wording

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.

Previous wording

Climate Solutions year-to-date cost of sales increased $110.3 million, or 21 percent, from the same period last year, primarily due to higher sales volume and an $8.8 million unfavorable impact of foreign currency exchange rates. In addition, cost of sales was negatively impacted by 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 $4.0 million. As a percentage of sales, cost of sales increased 220 basis points to 73.6 percent, primarily due to the temporary operating inefficiencies, the absence of the commercial pricing settlements in the prior year, and higher material costs.

Current wording

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.

Previous wording

Climate Solutions year-to-date SG&A expenses increased $11.2 million, yet decreased 40 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 $12.0 million, includes expenses from the acquired businesses. This increase was partially offset by lower amortization expense, which decreased $3.3 million.

Current wording

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.

Previous wording

Performance Technologies net sales decreased $11.2 million, or 4 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, primarily due to lower sales volume in North America, largely due to market weakness, our strategic exit from lower-margin business in connection with 80/20 product rationalization initiatives, and, to a lesser extent, the absence of sales tax credits recognized in Brazil during the prior year. These decreases were partially offset by higher average selling prices, and a $4.3 million favorable impact of foreign currency exchange rates. Compared with the second quarter of the prior year, sales of on-highway application and heavy-duty equipment products decreased $6.5 million and $0.3 million, respectively.

Current wording

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.

Previous wording

Performance Technologies cost of sales decreased $5.2 million, or 2 percent, from the second quarter of fiscal 2025 to the second quarter of fiscal 2026, 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 a $3.7 million unfavorable impact of foreign currency exchange rates and higher raw material costs, which increased approximately $1.0 million. As a percentage of sales, cost of sales increased 130 basis points to 81.1 percent, primarily due to the unfavorable impact of lower sales and higher material costs, partially offset by improved operating efficiencies.

Current wording

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.

Previous wording

Performance Technologies SG&A expenses decreased $6.6 million compared with the second quarter of the prior year. As apercentage of sales, SG&A expenses decreased by 190 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.

Current wording

Performance Technologies SG&A expenses decreased $6.7 million, or 26 percent, compared with the third quarter of the prior year. As apercentage 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.

Previous wording

Performance Technologies year-to-date net sales decreased $34.7 million, or 6 percent, from the same period last year, primarily due tolower sales volume, largely due to market weakness, 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 $6.3 million favorable impact of foreign currency exchanges rates. Compared with the same period in the prior year, sales of on-highway applications and heavy-duty equipment products decreased $21.1 million and $4.5 million, respectively.

Current wording

Performance Technologies year-to-date net sales decreased $30.9 million, or 4 percent, from the same period last year, primarily due tolower 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.

Previous wording

Performance Technologies year-to-date cost of sales decreased $17.1 million, or 4 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 $3.0 million, and a $5.5 million unfavorable impact of foreign currency exchange rates. As a percentage of sales, cost of sales increased 190 basis points to 81.5 percent, primarily due to the unfavorable impact of lower sales and higher material costs, partially offset by improved operating efficiencies.

Current wording

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.

Previous wording

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $6.0 million and gross margin declined 130 basis points to 18.9 percent.

Current wording

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.

Previous wording

Performance Technologies year-to-date SG&A expenses decreased $11.5 million, or 22 percent, compared with the same period last year. As a percentage of sales, year-to-date SG&A expenses decreased by 140 basis points. The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $14.0 million and included the benefits of previous restructuring actions.

Current wording

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.

Previous wording

Operating income of $56.2 million during the first six months of fiscal 2026 decreased $6.1 million from the same period last year, primarily due to lower gross profitand the impair ment charge recorded in the current year, partially offset by lower SG&A and restructuring expenses.

Current wording

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 profitand the impair ment charge recorded in the current year.

Previous wording

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents as of September 30,2025 of $83.8 million, and available borrowing capacity of $128.8 million under our revolving credit facility. Given our extensive international operations, approximately $53.0 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.

Current wording

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.

Previous wording

Net cash provided by operating activities for the six months ended September 30, 2025 was $29.1 million, which represents a $68.7 million decrease compared with the same period in the prior year. This decrease in operating cash flow was primarily due to unfavorable net changes in working capital, as compared with the same period in the prior year. The unfavorable changes in working capital include the impact of higher inventory levels and higher payments for incentive compensation. Our Climate Solutions segment has increased inventory levels in fiscal 2026, primarily to support growing customer demand for data center products in the U.S. These drivers were partially offset by the favorable impact of increases in accounts payable, which largely results from the higher inventory levels.

Current wording

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.

Previous wording

Capital expenditures of $59.4 million during the first six months of fiscal 2026 increased $19.1 million compared with the same period in the prior year. During the second quarter of fiscal 2026, we announced a new 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.

Current wording

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.

Previous wording

We are focused on acquiring businesses that we expect will accelerate our strategic growth. During the first half of fiscal 2026, we made cash payments totaling $182.1 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.

Current wording

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.