UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 26, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

MODINE MANUFACTURING COMPANY

(Exact name of registrant as specified in its charter)

WISCONSIN		39-0482000
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1500 DeKoven Avenue, Racine, Wisconsin		53403
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (262) 636-1200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ     Accelerated Filer o     Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock, $0.625 par value, was 32,674,841 at February 1, 2008.

 

 

MODINE MANUFACTURING COMPANY
INDEX

PART I. FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			47
PART II. OTHER INFORMATION			48
Item 1. Legal Proceedings			48
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 6. Exhibits			51
SIGNATURE			52
Certification
Certification
Certification
Certification

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and nine months ended December 26, 2007 and 2006
(In thousands, except per share amounts)
(Unaudited)

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Net sales		$	495,301			$	458,106			$	1,370,868			$	1,307,607
Cost of sales			418,290				380,259				1,160,171				1,083,694
Gross profit			77,011				77,847				210,697				223,913
Selling, general and administrative expenses			60,579				59,111				171,091				171,370
Restructuring (income) charges			(3	)			932				(322	)			2,397
Impairment of goodwill and long-lived assets			31,455				—				31,455				—
(Loss) income from operations			(15,020	)			17,804				8,473				50,146
Interest expense			3,440				2,784				9,194				7,211
Other income – net			(2,785	)			(4,043	)			(7,061	)			(6,993	)
(Loss) earnings from continuing operations before income taxes			(15,675	)			19,063				6,340				49,928
Provision for income taxes			31,824				2,706				31,513				6,876
(Loss) earnings from continuing operations			(47,499	)			16,357				(25,173	)			43,052
Earnings (loss) from discontinued operations (net of income taxes)			149				(11	)			535				1,960
Cumulative effect of accounting change (net of income taxes)			—				—				—				70
Net (loss) earnings		$	(47,350	)		$	16,346			$	(24,638	)		$	45,082
Net (loss) earnings per share of common stock – basic:
Continuing operations		$	(1.49	)		$	0.51			$	(0.79	)		$	1.34
Earnings (loss) from discontinued operations			0.01				—				0.02				0.06
Cumulative effect of accounting change			—				—				—				—
Net (loss) earnings – basic		$	(1.48	)		$	0.51			$	(0.77	)		$	1.40
Net (loss) earnings per share of common stock – diluted:
Continuing operations		$	(1.49	)		$	0.51			$	(0.79	)		$	1.34
Earnings (loss) from discontinued operations			0.01				—				0.02				0.06
Cumulative effect of accounting change			—				—				—				—
Net (loss) earnings – diluted		$	(1.48	)		$	0.51			$	(0.77	)		$	1.40
Dividends per share		$	0.175			$	0.175			$	0.525			$	0.525

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
December 26, 2007 and March 31, 2007
(In thousands, except per share amounts)
(Unaudited)

		December 26, 2007				March 31, 2007
ASSETS
Current assets:
Cash and cash equivalents		$	55,726			$	21,227
Short term investments			3,080				3,001
Trade receivables, less allowance for doubtful accounts of $2,068 and $1,512			283,391				248,493
Inventories			130,129				108,217
Assets held for sale			9,290				9,256
Deferred income taxes and other current assets			91,768				66,663
Total current assets			573,384				456,857
Noncurrent assets:
Property, plant, and equipment – net			536,001				514,949
Investments in affiliates			21,996				18,794
Goodwill			44,405				64,284
Intangible assets – net			11,004				11,137
Assets held for sale			6,295				9,281
Other noncurrent assets			30,722				26,271
Total noncurrent assets			650,423				644,716
Total assets		$	1,223,807			$	1,101,573
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt		$	8,480			$	344
Long-term debt – current portion			3,168				3,149
Accounts payable			208,993				194,734
Accrued compensation and employee benefits			65,827				58,977
Income taxes			16,801				14,358
Liabilities of business held for sale			3,867				3,478
Accrued expenses and other current liabilities			57,501				32,913
Total current liabilities			364,637				307,953
Noncurrent liabilities:
Long-term debt			232,825				175,856
Deferred income taxes			21,832				18,291
Pensions			34,186				48,847
Postretirement benefits			28,050				27,960
Liabilities of business held for sale			95				94
Other noncurrent liabilities			33,873				29,305
Total noncurrent liabilities			350,861				300,353
Total liabilities			715,498				608,306
Commitments and contingencies (See Note 20)
Shareholders’ equity:
Preferred stock, $0.025 par value, authorized 16,000 shares, issued — none			—				—
Common stock, $0.625 par value, authorized 80,000 shares, issued 32,675 and 32,872 shares			20,422				20,545
Additional paid-in capital			66,569				61,240
Retained earnings			389,099				439,318
Accumulated other comprehensive income (loss)			45,709				(14,779	)
Treasury stock at cost: 474 and 453 shares			(12,990	)			(12,468	)
Deferred compensation trust			(500	)			(589	)
Total shareholders’ equity			508,309				493,267
Total liabilities and shareholders’ equity		$	1,223,807			$	1,101,573

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

MODINE MANUFACTURING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 26, 2007 and 2006
(In thousands)
(Unaudited)

		Nine months ended December 26
		2007				2006
Cash flows from operating activities:
Net (loss) earnings		$	(24,638	)		$	45,082
Adjustments to reconcile net (loss) earnings with net cash provided by operating activities:
Depreciation and amortization			58,445				52,388
Impairment of goodwill and long-lived assets			31,455				—
Deferred income taxes			19,754				(15,890	)
Other – net			(9,322	)			6,006
Net changes in operating assets and liabilities, excluding acquisitions and dispositions			(29,896	)			(20,074	)
Net cash provided by operating activities			45,798				67,512
Cash flows from investing activities:
Expenditures for property, plant and equipment			(58,112	)			(60,412	)
Acquisitions, net of cash acquired			—				(11,096	)
Proceeds from purchase price settlement			—				2,900
Proceeds from dispositions of assets			8,734				24
Settlement of derivative contracts			(1,286	)			(1,887	)
Other – net			63				(884	)
Net cash used for investing activities			(50,601	)			(71,355	)
Cash flows from financing activities:
Short-term debt – net			7,951				(3,424	)
Borrowings of long-term debt			98,884				191,600
Repayments of long-term debt			(41,672	)			(163,906	)
Book overdrafts			(5,283	)			(2,124	)
Proceeds from exercise of stock options			686				1,670
Repurchase of common stock, treasury and retirement			(7,396	)			(13,811	)
Cash dividends paid			(16,972	)			(17,010	)
Excess tax benefits from stock-based compensation			—				242
Net cash provided by (used for) financing activities			36,198				(6,763	)
Effect of exchange rate changes on cash			3,104				(1,054	)
Net increase (decrease) in cash and cash equivalents			34,499				(11,660	)
Cash and cash equivalents at beginning of period			21,227				30,798
Cash and cash equivalents at end of period		$	55,726			$	19,138

The notes to unaudited condensed consolidated financial statements are an integral part of these statements.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Note 1: Overview

The accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles (GAAP) in the United States and such principles were applied on a basis consistent with the preparation of the consolidated financial statements in Modine Manufacturing Company’s (Modine or the Company) Annual Report on Form 10-K for the year ended March 31, 2007 filed with the Securities and Exchange Commission. The financial information furnished includes all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods. Results for the first nine months of fiscal 2008 are not necessarily indicative of the results to be expected for the full fiscal year.

The March 31, 2007 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP in the United States. In addition, certain notes and other information have been condensed or omitted from these interim financial statements. Therefore, such statements should be read in conjunction with the consolidated financial statements and related notes contained in Modine’s Annual Report on Form 10-K for the year ended March 31, 2007.

Significant charges contributing to loss from continuing operations: During the three and nine months ended December 26, 2007, the Company reported a loss from continuing operations of $47,499 and $25,173, respectively. These amounts represent a significant reduction from the earnings from continuing operations of $16,357 and $43,052 reported for the three and nine months ended December 26, 2006, respectively. During the third quarter of fiscal 2008, the Company recorded asset impairment charges of $31,455 and a deferred tax valuation allowance of $40,435. These charges were the primary factors contributing to the loss from continuing operations for the three and nine months ended December 26, 2007.

The majority of these charges related to the Company’s Original Equipment – North America segment, which has reported a significant decline in its current fiscal year results as compared to the prior year. Original Equipment – North America’s net sales decreased $38,213, or 22.2 percent from the three months ended December 26, 2006 to the three months ended December 26, 2007, and its net sales decreased $142,142, or 27.2 percent from the nine months ended December 26, 2006 to the nine months ended December 26, 2007. In addition, Original Equipment – North America reported a loss from operations of $31,070 and $34,224 for the three and nine months ended December 26, 2007, respectively, as compared to earnings from operations of $9,515 and $41,553 reported for the three and nine months ended December 26, 2006. The decline in net sales was primarily driven by an ongoing downturn in the North American truck market as a result of pre-buy activity in advance of the January 1, 2007 emission requirement changes in North America and a slowdown in the North American economy. This decline in net sales has been more severe and is extending for a longer period of time than originally anticipated by the Company. This significant decline in sales volumes has contributed to a declining gross profit and an underabsorption of fixed overhead costs as excess capacity exists in many of the Original Equipment – North America facilities during fiscal 2008. Manufacturing inefficiencies incurred during fiscal 2008 in the Original Equipment – North America production facilities also contributed to the declining performance within this business. These inefficiencies were primarily related to new program launches and product line transfers in conjunction with our previously announced global competitiveness program.

In addition to the current fiscal year reduction in performance in the Original Equipment – North America segment, the Company reduced its outlook for this business in the third quarter of fiscal 2008. The future growth prospects within this business were reduced based on, among other factors, trends experienced with the January 1, 2007 emissions law change and a shift by customers in future vehicular programs to

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

countries outside of North America. The reduced outlook also included a reduction in expected future gross margins based on the near-term impact of plant inefficiencies related to new program launches and product transfers. The reduced outlook for future gross margins was also based on continued industry-wide cost and customer pricing pressures.

As a result of the decrease in the fiscal 2008 net sales and profitability in the Original Equipment – North America segment, combined with the reduced future outlook for this business, the Company recognized a goodwill impairment charge of $23,769 during the third quarter of fiscal 2008. This represented an impairment of the full amount of goodwill recorded within the Original Equipment – North America segment. In addition, the Company performed an impairment review of the Original Equipment – North America long-lived assets during the third quarter of fiscal 2008, which resulted in an impairment charge of $3,011 for a program which was not able to support its asset base. If future capital expenditures are required for this program, additional impairment charges may be required.

The current year losses generated within the Original Equipment – North America segment and the reduced future outlook for this business significantly contributed to a projection of future losses in the United States. Based on this projection, the Company made a determination during the third quarter of fiscal 2008 that it was more likely than not that the U.S. deferred tax assets will not be realized. Accordingly, a valuation allowance of $40,435 was recorded against the net U.S. deferred tax assets during the three months ended December 26, 2007.

In response to the current year losses generated within the Original Equipment – North America segment and the reduced future outlook for this business, the Company is implementing a number of cost and operational efficiency measures that will be designed to improve the Company’s longer term competitiveness. On January 29, 2008, the Board of Directors approved additional restructuring actions, including the anticipated closure of three manufacturing plants in North America and the intended closure of the Tübingen, Germany manufacturing plant in Europe. These closures are expected to result in pre-tax charges in the range of $40,000 to $45,000 over the closure period, consisting of approximately $11,000 of employee-related costs and a range of $29,000 to $34,000 of other related costs. The closures should be completed by the end of fiscal 2010, and will result in cash expenditures in the range of $30,000 to $35,000. Approximately $10,000 of accruable costs related to the restructuring actions are anticipated to be recorded during the fourth quarter of fiscal 2008.

In addition to the restructuring actions, the Company recently introduced an enhanced capital allocation process which is designed to better allocate capital spending to the segments and programs that will provide the highest return on investment. The Company reduced its capital spending estimates for the next two fiscal years, and anticipate this spending to be at or below current depreciation levels. The Company will also be identifying additional actions around selling, general and administrative cost containment and product line rationalization. These additional actions are currently under development, and will be defined within the near future. Collectively, management anticipates the actions described will provide increased discipline around gross margins, working capital levels and asset utilization.

Liquidity: During the nine months ended December 26, 2007 and 2006, the Company reported net cash provided by operating activities of $45,798 and $67,512, respectively, which represents a decrease of $21,714. The fiscal 2008 decline in Original Equipment – North America’s results was a significant factor contributing to this decrease in net cash provided by operating activities. In addition, the Company’s outstanding debt increased from $179,349 at March 31, 2007 to $244,473 at December 26, 2007. The reduced cash flows from operating activities were not sufficient to fully finance capital expenditures and working capital needs of the business during fiscal 2008, therefore requiring additional borrowings on the Company’s revolving credit facility during the current year.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The Company’s debt agreements require it to comply with certain limitations and to maintain specified financial ratios. The Company would have been in violation of a financial ratio as of December 26, 2007 had the agreements not been amended due to the goodwill impairment charge recorded during the three months ended December 26, 2007. On February, 1, 2008, the Company amended these debt agreements to allow the add-back of the asset impairment charges. At December 26, 2007, the Company was in compliance with the amended agreements. In addition, certain amendments were made to the covenants on a prospective basis to allow the add-back of certain anticipated cash and non-cash charges and to reduce the ratio of earnings before interest and taxes to interest expense (interest coverage ratio) to allow the Company to remain in compliance with this financial ratio on a prospective basis. The Company anticipates remaining in compliance on a prospective basis with the limitations and financial ratios based on its current business projections. In addition, the Company believes that its internally generated operating cash flow and existing cash balances, together with access to available external borrowings, will be sufficient to satisfy future operating, capital expenditure and strategic business opportunity costs. If the Company is unable to meet the financial covenants and reach suitable resolution of such defaults with the lenders, it could have a material adverse effect on the future results of operations, financial position and liquidity of the Company. See Note 14 for further discussion.

Note 2: Significant Accounting Policies

Discontinued operations and assets held for sale: The Company considers businesses to be held for sale when management approves and commits to a formal plan to actively market a business for sale. Upon designation as held for sale, the carrying value of the assets of the business are recorded at the lower of their carrying value or their estimated fair value, less costs to sell. The Company ceases to record depreciation expense at the time of designation as held for sale. Results of operations of a business classified as held for sale are reported as discontinued operations when (a) the operations and cash flows of the business will be eliminated from ongoing operations as a result of the sale and (b) the Company will not have any significant continuing involvement in the operations of the business after the sale. The Company currently classifies the Electronics Cooling business as held for sale and as a discontinued operation. See Note 12 for further discussion.

Goodwill and intangible assets: The Company accounts for purchased goodwill and intangible assets in accordance with Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, purchased goodwill and other intangible assets with indefinite lives, primarily tradenames, are not amortized; rather they are tested for impairment annually unless conditions exist which would require a more frequent evaluation. An assessment of the fair value of the Company’s reporting units for its goodwill valuation, and its other intangible assets with indefinite lives is required and is based upon, among other things, the present value of the expected future cash flows. An impairment loss is recognized when the book value of goodwill exceeds the fair value. A goodwill impairment charge of $23,769 was recorded during the third quarter of fiscal 2008. See Note 13 for further discussion.

Impairment of long-lived assets: Long-lived assets, including property, plant and equipment and intangible assets with finite lives, are reviewed for impairment and written down to fair value when facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable through estimated future undiscounted cash flows. If impairment has occurred, a write-down to estimated fair value is made and the impairment loss is recognized as a charge against current operations. An asset impairment charge of $7,686 was recorded during the third quarter of fiscal 2008. See Note 10 for further discussion.

Income taxes: Deferred tax assets and liabilities are determined based on the difference between the amounts reported in the financial statements and tax bases of assets and liabilities, using enacted tax rates

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

in effect in the years in which the differences are expected to reverse. A valuation allowance is established if it is more likely than not that some portion or all of a deferred tax asset will not be realized. A valuation allowance of $40,435 was recorded during the third quarter of fiscal 2008 against net deferred tax assets in the United States. See Note 6 for further discussion.

Accounting standards changes and new accounting pronouncements: In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurement,” which addresses how companies should measure fair value when required to use a fair value measure for recognition or disclosure purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. The Company is required to adopt SFAS No. 157 in the first quarter of fiscal 2009, and is currently assessing the impact of adopting this pronouncement.

In September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans,” an amendment of FASB Statement Nos. 87, 88, 106 and 132(R). The Company adopted the recognition and disclosure requirements of SFAS No. 158 as of March 31, 2007. SFAS No. 158 also requires that employers measure plan assets and the Company’s obligations as of the date of their year-end financial statements beginning with the Company’s fiscal year ending March 31, 2009. The Company adopted the year-end measurement date for its pension and postretirement plans in fiscal 2008 using the prospective method, which resulted in an increase in accumulated other comprehensive income (loss) and a reduction in retained earnings of $839.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an Amendment of SFAS No. 115” (SFAS No. 159), which permits an entity to measure many financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with a few exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair value option to available-for-sale and held-to-maturity securities. The Statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. SFAS No. 159 is effective as of the beginning of the first quarter of fiscal 2009. Management is currently assessing the potential impact of this standard on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No. 141(R) which replaces SFAS No. 141, “Business Combination”. SFAS No. 141(R) retained the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. For all business combinations, the entity that acquires the business will record 100 percent of all assets and liabilities of the acquired business, including goodwill, generally at their fair values. Certain contingent assets and liabilities acquired will be recognized at their fair values on the acquisition date and changes in fair value of certain arrangements will be recognized in earnings until settled. Acquisition-related transactions and restructuring costs will be expensed rather than treated as an acquisition cost and included in the amount recorded for assets acquired. SFAS No. 141(R) is effective for the Company on a prospective basis for all business combinations for which the acquisition date is on or after April 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109, “Accounting for Income Taxes,” such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that close prior to the effective date of SFAS No. 141(R) would also apply the provisions of SFAS No. 141(R). Early adoption is not allowed. Management is currently assessing the potential impact of this standard on the

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Company’s consolidated financial statements; however, the Company does not anticipate the adoption to have a material impact on previous acquisitions.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB 51.” SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to establish new standards that will govern the accounting for and reporting of (1) non-controlling interest in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. The Company’s consolidated subsidiaries are wholly-owned and as such no minority interests are currently reported in its consolidated financial statements. Other current ownership interests are reported under the equity method of accounting under investments in affiliates. SFAS No. 160 is effective for the Company on a prospective basis on or after April 1, 2009 except for the presentation and disclosure requirements, which will be applied retrospectively. Early adoption is not allowed. Based upon the Company’s current portfolio of investments in affiliates, the Company does not anticipate that adoption of this standard will have a material impact on the consolidated financial statements.

Note 3: Employee Benefit Plans

Modine’s contributions to the defined contribution employee benefit plans for the three months ended December 26, 2007 and 2006 were $1,904 and $1,919, respectively. Modine’s contributions to the defined contribution employee benefit plans for the nine months ended December 26, 2007 and 2006 were $5,635 and $6,131, respectively.

In September 2007, the Company announced that effective January 1, 2008, the Modine Manufacturing Company Pension Plan for Non-Union Hourly-Paid Factory and Salaried Employees (Salaried Employee Component) and the Modine Manufacturing Company Supplemental Executive Retirement Plan are being modified so that no increases in annual earnings after December 31, 2007 will be included in calculating the average annual earnings portion under the pension plan formula. The Company recorded a pension curtailment gain of $4,214 during the second quarter of fiscal 2008 to reflect this modification.

In July 2006, the Company announced the closure of its facility in Clinton, Tennessee. The Company recorded a pension curtailment charge of $650 during the nine months ended December 26, 2006 to reflect the impact of this closure of the Clinton Hourly-Paid Employees Retirement Plan.

In May 2006, the Company offered a voluntary enhanced early retirement program to certain U.S. employees. This program included an enhanced pension benefit of five years of credited service for those employees who accepted the early retirement program. The Company recorded a charge of $964 during the nine months ended December 26, 2006 to reflect this enhanced pension benefit.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Costs for Modine’s pension and postretirement benefit plans for the three and nine months ended December 26, 2007 and 2006 include the following components:

						Three months ended																Nine months ended
		December 26																December 26
		Pension								Postretirement								Pension								Postretirement
		2007				2006				2007				2006				2007				2006				2007				2006
Service cost		$	713			$	1,076			$	41			$	77			$	2,184			$	3,291			$	207			$	271
Interest cost			3,426				3,741				460				386				10,582				11,318				1,355				1,349
Expected return on plan assets			(4,574	)			(4,692	)			—				—				(13,675	)			(14,220	)			—				—
Amortization of:
Unrecognized net loss			446				1,415				139				2				2,335				4,271				383				259
Unrecognized prior service cost			123				11				—				—				203				11				—				—
Unrecognized net asset			(4	)			(6	)			—				—				(16	)			(20	)			—				—
Adjustment for curtailment			—				(50	)			—				—				(4,214	)			650				—				—
Enhanced pension benefit			—				24				—				—				—				964				—				—
Net periodic benefit cost (income)		$	130			$	1,519			$	640			$	465			$	(2,601	)		$	6,265			$	1,945			$	1,879

Note 4: Stock-Based Compensation

Modine adopted SFAS No. 123(R), “Share-Based Payment,” effective April 1, 2006. SFAS No. 123(R) requires that the cost of stock-based compensation be recognized in the financial statements based on the grant date fair value of the award. Stock-based compensation consists of stock options and restricted and unrestricted stock granted for retention and performance. Upon adoption, management made an estimate (based upon historical rates) of expected forfeitures and recognized compensation costs for those restricted shares expected to vest. A cumulative adjustment (net of income taxes) of $70 was recorded in the first quarter of fiscal 2007, reducing the compensation expense recognized on non-vested restricted shares. Modine recognized stock-based compensation cost of $1,541 and $1,238 for the three months ended December 26, 2007 and 2006, respectively. Modine recognized stock-based compensation cost of $5,215 and $3,691 for the nine months ended December 26, 2007 and 2006, respectively. Compensation expense recognized in the three and nine months ended December 26, 2007 included $285 and $856, respectively, related to the earnings per share component of the fiscal 2007-08 performance grant based upon probable attainment of the targeted three-year compound growth rate.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The following tables present, by type, the fair market value of stock-based compensation awards granted during the three and nine months ended December 26, 2007 and 2006:

		Three months ended December 26,
		2007								2006
						Fair Value								Fair Value
Type of award		Shares				Per Award				Shares				Per Award
Common stock options			—			$	—				—			$	—
Unrestricted common stock — performance			6.6			$	27.69				5.1			$	24.16
Unrestricted common stock — retention			—			$	—				1.2			$	24.77
Restricted common stock — performance based upon total shareholder return compared to the S&P 500			—			$	—				—			$	—
Restricted common stock — performance based upon earnings per share growth			—			$	—				—			$	—

		Nine months ended December 26,
		2007								2006
						Fair Value								Fair Value
Type of award		Shares				Per Award				Shares				Per Award
Common stock options			0.3			$	5.30				—			$	—
Unrestricted common stock — performance			6.6			$	27.69				5.1			$	24.16
Unrestricted common stock — retention			11.2			$	28.50				9.7			$	23.16
Restricted common stock — performance based upon total shareholder return compared to the S&P 500			79.9			$	23.60				66.7			$	29.75
Restricted common stock — performance based upon earnings per share growth			149.6			$	23.25				—			$	—

The table below sets forth the pricing assumptions used in determining the fair value for the common stock options using the Black Scholes model and the total shareholder return portion of the performance awards using the Monte Carlo model:

		Three and nine months ended December 26,
		2007								2006
						Performance				Performance
		Options				Awards				Awards
Expected life of awards in years			5				3				3
Risk-free interest rate			4.58	%			4.57	%			4.96	%
Expected volatility of the Company’s stock			28.51	%			29.60	%			31.40	%
Expected dividend yield on the Company’s stock			3.32	%			2.88	%			2.19	%
Expected forfeiture rate			1.50	%			1.50	%			1.50	%

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

As of December 26, 2007, the total remaining unrecognized compensation cost related to the non-vested stock-based compensation awards which will be amortized over the weighted average remaining service periods is as follows:

		Unrecognized				Weighted Average
		Compenstion				Remaining Service
Type of award		Costs				Period in Years
Restricted common stock — retention		$	4,350				2.3
Restricted common stock — performance (including both total shareholder return and earnings per share components)			4,841				2.0
Total		$	9,191				2.1

Note 5: Other Income – Net

Other income – net was comprised of the following:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Equity earnings of non-consolidated affiliates		$	1,294			$	302			$	2,564			$	1,718
Interest income			633				365				1,225				838
Foreign currency transactions			687				(54	)			2,939				727
Purchase price settlement			—				2,900				—				2,900
Other non-operating income — net			171				530				333				810
Total other income — net		$	2,785			$	4,043			$	7,061			$	6,993

Foreign currency transactions for the three and nine months ended December 26, 2007 were primarily comprised of foreign currency transaction gains (losses) on inter-company loans denominated in a foreign currency in Brazil. The purchase price settlement of $2,900 during the three and nine months ended December 26, 2006 related to the Final Settlement Agreement between Modine and WiniaMando, Inc. effective November 30, 2006.

Note 6: Income Taxes

SFAS No. 109 requires an assessment of whether a valuation allowance should be established against deferred tax assets based on the consideration of all available evidence and considering whether it is more likely than not that the deferred tax assets will not be realized. Given the current market conditions for the Original Equipment – North America segment as well as other factors arising during the third quarter of fiscal 2008 which may impact future operating results, the Company considered both positive and negative evidence in evaluating the need for a valuation allowance relating to the U.S. deferred tax assets. Based on projected losses in the U.S., the Company determined that it was more likely than not that the U.S. deferred tax assets will not be realized, and a valuation allowance of $40,435 was recorded against the net U.S. deferred tax assets during the third quarter of fiscal 2008.

Accounting Principles Board Opinion No. 28, “Interim Financial Reporting,” requires the Company to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. Under this effective tax rate methodology, the Company applies an estimated annual income tax rate to its year-to-date ordinary earnings to derive its income tax provision each quarter. The tax impact of certain significant, unusual or infrequently occurring items must be recorded in the interim period in which they occur. Circumstances may arise which make it difficult for the Company to determine a reasonable estimate of its annual effective tax rate for the fiscal year. This is particularly true when small variations in the projected earnings or losses could result in a significant fluctuation in the estimated annual effective

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

tax rate. In accordance with FASB Interpretation No. 18, “Accounting for Income Taxes in Interim Periods,” the Company has determined that a reliable estimate of its annual income tax rate cannot be made, and that the tax impact of the Company’s operations in the U.S. should be removed from the effective tax rate methodology and recorded discretely in the third quarter of fiscal 2008 based upon year-to-date results. The quarterly income taxes for the Company’s operations outside the U.S. continue to be estimated under the effective tax rate methodology.

The following is a reconciliation of the provision for income taxes and effective tax rates for the three and nine months ended December 26, 2007:

		Three months ended December 26, 2007
		Domestic				Foreign				Total				%
(Loss) earnings from continuing operations before income taxes		$	(47,072	)		$	31,397			$	(15,675	)
(Benefit from) provision for income taxes at federal statutory rate		$	(16,475	)		$	10,989			$	(5,486	)			35.0	%
Differential in foreign tax rates and state taxes			(1,636	)			(2,309	)			(3,945	)			25.2
Valuation allowance			40,435				274				40,709				(259.7	)
Other, net			546				—				546				(3.5	)
Provision for income taxes		$	22,870			$	8,954			$	31,824				(203.0	%)

		Nine months ended December 26, 2007
		Domestic				Foreign				Total				%
(Loss) earnings from continuing operations before income taxes		$	(71,170	)		$	77,510			$	6,340
(Benefit from) provision for income taxes at federal statutory rate		$	(24,909	)		$	27,128			$	2,219				35.0	%
Foreign tax law change			—				(2,735	)			(2,735	)			(43.1	)
Differential in foreign tax rates and state taxes			(2,393	)			(5,968	)			(8,361	)			(131.9	)
Valuation allowance			40,435				336				40,771				643.1
Other, net			(381	)			—				(381	)			(6.0	)
Provision for income taxes		$	12,752			$	18,761			$	31,513				497.1	%

For the three months ended December 26, 2007, the Company reported a loss from continuing operations before income taxes of $15,675, which resulted in an overall tax provision of $31,824 and an effective tax rate of -203.0 percent. For the nine months ended December 26, 2007, the Company reported earnings from continuing operations before income taxes of $6,340, which resulted in an overall tax provision of $31,513 and an effective tax rate of 497.1 percent. The differences between the effective tax rate and the federal statutory tax rate for the three and nine months ended December 26, 2007 was primarily related to the $40,435 valuation allowance recorded during the third quarter against the net deferred tax assets in the U.S. tax jurisdiction. The Company will continue to provide a valuation allowance against its net U.S. deferred tax assets in the fourth quarter of fiscal 2008 and going forward until the need for the valuation

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

allowance is eliminated. The need for the valuation allowance will be eliminated when the Company determines it is more likely than not that the deferred tax assets will be realized. Accordingly, income taxes are impacted, and will continue to be impacted, by providing a valuation allowance on U.S. operating losses.

For the three months ended December 26, 2006, the Company reported earnings from continuing operations before income taxes of $19,063, which resulted in an overall tax provision of $2,706 and an effective tax rate of 14.2 percent. For the nine months ended December 26, 2006, the Company reported earnings from continuing operations before income taxes of $49,928, which resulted in an overall tax provision of $6,876 and an effective tax rate of 13.8 percent. The difference between the effective tax rate and the federal statutory tax rate for the three months ended December 26, 2006 primarily related to legislation that was passed extending the research and development tax credit retroactively to January 1, 2006. The difference between the effective tax rate and the federal statutory tax rate for the nine months ended December 26, 2006 included the research and development legislation change, as well the recognition of a tax benefit related to net operating losses in Brazil that were previously unavailable.

After adoption of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” on April 1, 2007, the Company’s total gross liability for unrecognized tax benefits was $8,587, including $541 of accrued penalties and $770 of accrued interest. During the three months ended December 26, 2007, the Company reduced its total gross liability for unrecognized tax benefits by $1,455 related to certain adjustments in connection with an ongoing U.S. Internal Revenue Service examination. During the nine months ended December 26, 2007, the Company recorded interest and penalties of $169. During the nine months ended December 26, 2007, other individually insignificant adjustments have been made to the gross liability related to various tax positions resulting in a total gross liability for unrecognized tax benefits of $8,183 at December 26, 2007. The Company does not expect any further significant increase or decrease in the total amount of unrecognized tax benefits during the remainder of fiscal 2008.

The amount of unrecognized tax benefits on April 1, 2007 that, if recognized, would affect the effective tax rate was $5,757. This amount has been reduced to $4,155 as of December 26, 2007 as $1,602 of the unrecognized tax benefits are offset by a corresponding increase to the valuation allowance and therefore would have no effect on the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign taxing jurisdictions. The following tax years remain subject to examination by the respective major tax jurisdictions:

Austria		Fiscal 2000 – 2007
Brazil		Fiscal 2002 – 2006
Germany		Fiscal 2000 – 2007
Korea		Fiscal 2004 – 2007
United States		Fiscal 2004 – 2007

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Note 7: Earnings Per Share

The computational components of basic and diluted earnings per share are summarized as follows:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Numerator:
(Loss) earnings from continuing operations		$	(47,499	)		$	16,357			$	(25,173	)		$	43,052
Earnings (loss) from discontinued operations			149				(11	)			535				1,960
Cumulative effect of accounting change			—				—				—				70
Net (loss) earnings		$	(47,350	)		$	16,346			$	(24,638	)		$	45,082
Denominator:
Weighted average shares outstanding — basic			31,936				32,074				32,049				32,153
Effect of dilutive securities			—				84				—				92
Weighted average shares outstanding — diluted			31,936				32,158				32,049				32,245
Net (loss) earnings per share of common stock — basic:
Continuing operations		$	(1.49	)		$	0.51			$	(0.79	)		$	1.34
Earnings (loss) from discontinued operations			0.01				—				0.02				0.06
Cumulative effect of accounting change			—				—				—				—
Net (loss) earnings — basic		$	(1.48	)		$	0.51			$	(0.77	)		$	1.40
Net (loss) earnings per share of common stock - diluted:
Continuing operations		$	(1.49	)		$	0.51			$	(0.79	)		$	1.34
Earnings (loss) from discontinued operations			0.01				—				0.02				0.06
Cumulative effect of accounting change			—				—				—				—
Net (loss) earnings — diluted		$	(1.48	)		$	0.51			$	(0.77	)		$	1.40

For the three and nine months ended December 26, 2007, the calculation of diluted earnings per share excludes all potentially dilutive shares, which includes 2,385 stock options, 243 restricted stock awards and 150 performance awards as these shares were anti-dilutive. For the three and nine months ended December 26, 2006, the calculation of diluted earnings per share excluded 1,645 stock options and 194 restricted stock as these shares were anti-dilutive.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Note 8: Comprehensive (Loss) Income

Comprehensive (loss) income, which represents net (loss) earnings adjusted by the change in accumulated other comprehensive income was as follows:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Net (loss) earnings		$	(47,350	)		$	16,346			$	(24,638	)		$	45,082
Foreign currency translation			26,175				12,625				35,910				25,019
Cash flow hedges			862				1,246				(1,365	)			(24	)
Change in SFAS No. 158 benefit plan adjustment			396				—				20,317				—
Net investment hedge adjustment			5,626				—				5,626				—
Total comprehensive (loss) income		$	(14,291	)		$	30,217			$	35,850			$	70,077

From time to time, the Company has managed its currency exposure related to the net assets of Modine’s European subsidiaries through euro-denominated borrowings entered into by the parent. During the third quarter of fiscal 2008, the Company recorded an adjustment to accumulated other comprehensive income of $5,626 to properly reflect the income tax ramifications of net losses related to the foreign-currency-denominated debt recorded in the cumulative translation adjustment over the past several fiscal years. This adjustment was made in the third quarter of fiscal 2008 as it was deemed immaterial to the Company’s financial position for the current period and all previously reported periods. This adjustment had no impact on the Company’s net (loss) earnings for the current period or any period previously reported.

Note 9: Inventories

The amounts of raw materials, work in process and finished goods cannot be determined exactly except by physical inventories. Based on partial interim physical inventories and percentage relationships at the time of complete physical inventories, management believes the amounts shown below are reasonable estimates of raw materials, work in process and finished goods.

		December 26, 2007				March 31, 2007
Raw materials and work in process		$	100,167			$	79,904
Finished goods			29,962				28,313
Total inventories		$	130,129			$	108,217

Note 10: Property, Plant and Equipment

Property, plant and equipment consisted of the following:

		December 26, 2007				March 31, 2007
Gross property, plant and equipment		$	1,135,010			$	1,043,698
Less accumulated depreciation			(599,009	)			(528,749	)
Net property, plant and equipment		$	536,001			$	514,949

Due to the existence of impairment indicators, the Company conducted an assessment for the impairment of certain property, plant and equipment within the Original Equipment – North America and the Original Equipment – Europe segments in the third quarter of fiscal 2008 in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” During this assessment, certain long-lived assets were deemed to be impaired and a write-down to fair value was considered necessary. As a result, an impairment charge of $7,686 was recorded during the three months ended December 26, 2007.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The impairment charge included $3,011 related to assets in the Original Equipment – North America segment for a program which was not able to support its asset base. If future capital expenditures are required for this program, additional impairment charges may be required. Also included in the impairment charge was $4,675 related to assets in the Tübingen, Germany manufacturing facility within the Original Equipment – Europe segment based on the Company’s intention to close this facility.

Note 11: Restructuring, Plant Closures and Other Related Costs

In fiscal 2007, Modine announced a global competitiveness program intended to reduce costs, accelerate technology development, and accelerate market and geographic expansion – all intended to stimulate growth and profits. The Company initiated the following plans: relocated its Harrodsburg, Kentucky-based research and development activities to its technology center in Racine, Wisconsin; offered a voluntary enhanced early retirement program in the U.S.; implemented a reduction in force in the U.S.; and announced four facility closings within North America.

The Company has incurred $3,296 of termination charges, $663 of pension curtailment charges and $8,824 of other closure costs to date related to these plans. Total additional costs which are anticipated to be incurred through fiscal 2009 are approximately $2,400; consisting of $500 of employee-related costs and $1,900 of other costs such as equipment moving costs and miscellaneous facility closing costs. Total additional cash expenditures of approximately $4,600 are anticipated to be incurred related to these plans.

The accrued restructuring liability for the three and nine months ended December 26, 2007 and 2006 were comprised of the following related to the above-described restructuring activities:

		Three months ended December 26
		2007				2006
Termination Benefits:
Balance, September 27		$	1,785			$	1,331
Additions			33				1,003
Adjustments			(36	)			(71	)
Payments			(137	)			(1,092	)
Balance, December 26		$	1,645			$	1,171

		Nine months ended December 26
		2007				2006
Termination Benefits:
Balance, April 1		$	2,313			$	—
Additions			323				2,468
Adjustments			(645	)			(71	)
Payments			(346	)			(1,226	)
Balance, December 26		$	1,645			$	1,171

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The following is the summary of restructuring and other repositioning costs recorded related to the announced plans during the three and nine months ended December 26, 2007 and 2006:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Restructuring (income) charges:
Employee severance and related benefits		$	(3	)		$	932			$	(322	)		$	2,397
Other repositioning costs:
Special termination benefits — early retirement			—				66				—				1,971
Pension curtailment charge			—				(50	)			—				650
Miscellaneous other closure costs			1,249				2,276				2,421				2,627
Total other repositioning costs			1,249				2,292				2,421				5,248
Total restructuring and other repositioning costs		$	1,246			$	3,224			$	2,099			$	7,645

The total restructuring and other repositioning costs of $1,246 and $2,099 were recorded in the consolidated statement of operations for the three and nine months ended December 26, 2007, respectively, as follows: $1,249 and $2,421 were recorded as a component of cost of sales and $3 and $322 were recorded as restructuring income. The Company accrues severance in accordance with its written plans and procedures when payment of the amounts becomes probable. Restructuring income relates to reversals of severance liabilities due to employee terminations prior to completion of required retention periods. The total restructuring and other repositioning costs of $3,224 and $7,645 were recorded in the consolidated statement of operations for the three and nine months ended December 26, 2006, respectively, as follows: $1,249 and $2,370 were recorded as a component of cost of sales, $1,043 and $2,878 were recorded as a component of selling, general and administrative expenses and $932 and $2,397 were recorded as restructuring charges.

Note 12: Discontinued Operations and Assets Held for Sale

On May 1, 2007, Modine announced it would explore strategic alternatives for its Electronics Cooling business. The Company is in negotiations with a potential purchaser of this business. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” it was determined that the Electronics Cooling business should be presented as held for sale and as a discontinued operation in the consolidated financial statements. The Electronics Cooling business was formerly presented as part of the Other segment. See Note 19 for further discussion on segments. The balance sheet amounts of the Electronics Cooling business have been reclassified to assets and liabilities of business held for sale on the consolidated balance sheet, and the operating results have been separately presented as a discontinued operation in the consolidated statement of earnings for all periods presented.

At March 31, 2007, the Richland, South Carolina assets totaled $3,315 and consisted of land, building and associated improvements. These assets, which were recorded in the Original Equipment – North America segment, were classified as assets held for sale in the consolidated balance sheet at March 31, 2007. These assets were sold during the first quarter of fiscal 2008.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The major classes of assets and liabilities held for sale at December 26, 2007 and March 31, 2007 included in the consolidated balance sheets were as follows:

		December 26, 2007				March 31, 2007
Assets held for sale:
Receivables — net		$	4,682			$	3,866
Inventories			2,974				3,695
Other current assets			1,634				1,695
Total current assets held for sale			9,290				9,256
Property, plant and equipment — net			2,720				5,715
Goodwill			2,771				2,745
Other noncurrent assets			804				821
Total nonccurent assets held for sale			6,295				9,281
Total assets held for sale		$	15,585			$	18,537
Liabilities of business held for sale:
Accounts payable		$	2,114			$	1,596
Accrued expenses and other current liabilities			1,753				1,882
Total current liabilities of business held for sale			3,867				3,478
Other noncurrent liabilities			95				94
Total liabilities of business held for sale		$	3,962			$	3,572

In addition, the Electronics Cooling business had cash of $1,696 and $1,239 at December 26, 2007 and March 31, 2007, respectively, that was included in cash and cash equivalents on the consolidated balance sheets.

The following results of the Electronics Cooling business have been presented as earnings from discontinued operations in the consolidated statement of earnings:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Net sales		$	6,916			$	9,821			$	21,302			$	28,225
Cost of sales and other expenses			6,631				9,708				20,464				34,202
Earnings (loss) before income taxes			285				113				838				(5,977	)
Provision for (benefit from) income taxes			136				124				303				(7,937	)
Earnings (loss) from discontinued operations		$	149			$	(11	)		$	535			$	1,960

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Note 13: Goodwill and Intangible Assets

Changes in the carrying amount of goodwill during the first nine months of fiscal 2008, by segment and in the aggregate, are summarized in the following table:

		OE-				OE-				OE-North				South				Commercial
		Asia				Europe				America				America				Products				Total
Balance, March 31, 2007		$	523			$	8,817			$	23,769			$	11,634			$	19,541			$	64,284
Changes in foreign currency			—				930				—				2,126				834				3,890
SFAS No. 142 goodwill impairment			—				—				(23,769	)			—				—				(23,769	)
Balance, December 26, 2007		$	523			$	9,747			$	—			$	13,760			$	20,375			$	44,405

The Company conducted its annual assessment for goodwill impairment in the third quarter of fiscal 2008 by applying a fair value based test in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” and determined that the Original Equipment – North America segment goodwill was fully impaired, necessitating a charge of $23,769. The impairment was due to a recent declining outlook for the Original Equipment – North America segment as a result of weak North America sales volumes and lower gross margins related to plant closures, new product launches and continued pricing pressures impacting the vehicular industry. The fair value of the Company’s remaining reporting units exceeded their respective book values.

Intangible assets are comprised of the following:

		December 26, 2007												March 31, 2007
		Gross								Net				Gross								Net
		Carrying				Accumulated				Intangible				Carrying				Accumulated				Intangible
		Value				Amortization				Assets				Value				Amortization				Assets
Amortized intangible assets:
Patents and product technology		$	3,951			$	(3,632	)		$	319			$	3,951			$	(3,437	)		$	514
Trademarks			10,893				(1,891	)			9,002				10,523				(1,301	)			9,222
Other intangibles			463				(158	)			305				423				(157	)			266
Total amortized intangible assets			15,307				(5,681	)			9,626				14,897				(4,895	)			10,002
Unamortized intangible assets:
Tradename			1,378				—				1,378				1,135				—				1,135
Total intangible assets		$	16,685			$	(5,681	)		$	11,004			$	16,032			$	(4,895	)		$	11,137

The Company conducted its annual impairment assessment of intangible assets with indefinite lives in the third quarter of fiscal 2008 in accordance with SFAS No. 142 and determined that no impairment charge was necessary.

Amortization expense was $269 and $295 for the three months ended December 26, 2007 and 2006, respectively, and $706 and $833 for the nine months ended December 26, 2007 and 2006, respectively.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

Total estimated annual amortization expense expected for the remainder of fiscal year 2008 through 2013 and beyond is as follows:

		Estimated
Fiscal		Amortization
Year		Expense
Remainder of 2008		$270
2009		1,082
2010		826
2011		826
2012		743
2013 & Beyond		5,879

Note 14: Indebtedness

The Company has $75,000, 4.91 percent Senior notes obtained through a private placement, maturing on September 29, 2015, and $50,000, 5.68 percent Series A Senior notes and $25,000, 5.68 percent Series B Senior notes obtained through a second private placement, maturing on December 7, 2017 and December 7, 2018, respectively. The Company also has an amended and restated $200,000 revolving credit agreement, which matures in October 2009. At December 26, 2007 and 2006, $80,000 and $14,000 was outstanding under the revolving credit facility, respectively.

Provisions contained in the Company’s revolving credit facility and Senior note agreements require the Company to maintain specified financial ratios and place certain limitations on dividend payments and the acquisition of Modine common stock. The most restrictive limitations were debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) below a 3.0 to 1.0 ratio and earnings before interest and taxes (EBIT) to interest expense (interest coverage ratio) greater than a 3.0 to 1.0 ratio. The Company would have been in violation of its interest coverage ratio as of December 26, 2007 in one or more of its agreements, had the agreements not been amended, primarily due to the goodwill impairment charge recorded within the Original Equipment – North America segment.

On February 1, 2008, the Company amended its credit facility and Senior note agreements to revise certain financial covenants to allow the add-back of certain non-cash and cash charges in connection with the calculations effective December 26, 2007. The most restrictive interest coverage ratio was reduced from its current level of 3.0 to 1.0 to varying ratios for interim quarters with the lowest being 1.75 to 1.0 and returning to 2.5 to 1.0 for the quarter ending June 30, 2009 and beyond. The Company was in compliance with all covenants, as amended, at December 26, 2007. Accordingly, the debt obligations associated with these amended agreements continue to be classified as long-term debt on the consolidated balance sheet at December 26, 2007. In connection with these amendments, interest costs increased 35 basis points for the notes, for the period beginning on April 1, 2008 and ending on June 30, 2009. In connection with the amendments, the Company incurred $388 of amendment fees to its creditors, which will be recorded in the fourth quarter of fiscal 2008.

Note 15: Financial Instruments

Concentrations of Credit Risk: The Company invests excess cash in investment quality short-term liquid debt instruments. Such investments are made only in instruments issued by high quality institutions. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable. The Company sells a broad range of products that provide thermal solutions to a diverse group of customers operating throughout the world. At December 26, 2007 and March 31, 2007, approximately 47 percent and 53 percent, respectively, of the Company’s trade

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

accounts receivables were from the Company’s top ten individual customers. These customers operate primarily in the automotive, truck and heavy equipment markets and are all influenced by many of the same market and general economic factors. To reduce credit risk, the Company performs periodic customer credit evaluations and actively monitors their financial condition and developing business news. The Company does not generally require collateral or advanced payments from its customers, but does so in those cases where a substantial credit risk is identified. Credit losses to customers operating in the markets served by the Company have not been material. Total bad debt write-offs have been well below one percent of outstanding trade receivable balances for the presented periods.

Inter-Company Loans Denominated in Foreign Currencies: The Company has certain foreign-denominated long-term inter-company loans that are sensitive to foreign exchange rates. At December 26, 2007, the Company had a 24,095 billion won ($25,663 U.S. equivalent), 8-yr loan to its wholly owned subsidiary, Modine Korea, LLC, which matures on August 31, 2012. On April 6, 2005, the Company entered into a zero cost collar to hedge the foreign exchange exposure on the entire amount of the loan. This collar was settled on August 29, 2006 for a loss of $1,139. On August 29, 2006, the Company entered into a new zero cost collar that expires on February 29, 2008 to hedge the foreign exchange exposure on the entire amount of the loan.

At December 26, 2007, the Company had inter-company loans totaling $20,541 to its wholly owned subsidiary, Modine do Brasil Sistemas Termicos, Ltda. (Modine Brazil), with various maturity dates through February 2009. On June 21, 2007, the Company entered into a zero cost collar to hedge the foreign exchange exposure on the principal amount of the loan. This collar has an expiration date of March 31, 2008.

Note 16: Foreign Exchange Contracts/Derivatives/Hedges

Modine uses derivative financial instruments in a limited way as a tool to manage certain financial risks. Their use is restricted primarily to hedging assets and obligations already held by Modine, and they are used to protect cash flows rather than generate income or engage in speculative activity. Leveraged derivatives are prohibited by Company policy.

Commodity derivatives: The Company enters into futures contracts related to certain of the Company’s forecasted purchases of aluminum and natural gas. The Company’s strategy in entering into these contracts is to reduce its exposure to changing prices for future purchases of these commodities. These contracts have been designated as cash flow hedges by the Company. Accordingly, unrealized gains and losses on these contracts are deferred as a component of other comprehensive income, and recognized as a component of earnings at the same time that the underlying purchases of aluminum and natural gas impact earnings. During the three months ended December 26, 2007 and 2006, $1,480 of expense and $53 of income, respectively, was recorded in the consolidated statements of operations related to the settlement of certain futures contracts. During the nine months ended December 26, 2007 and 2006, $1,286 and $75 of expense, respectively, was recorded in the consolidated statements of operations related to the settlement of certain futures contracts. At December 26, 2007, $1,388 of unrealized losses remain deferred in accumulated other comprehensive income (loss), and will be realized as a component of cost of sales over the next twelve months.

During the nine months ended December 26, 2007, the Company entered into futures contracts related to certain of the Company’s forecasted purchases of copper and nickel. The Company’s strategy in entering into these contracts is to reduce its exposure to changing purchase prices for future purchases of these commodities. The Company has not designated these contracts as hedges, therefore gains and losses on these contracts are recorded directly in the consolidated statements of operations. During the three and

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

nine months ended December 26, 2007, $1,365 and $891 of expense, respectively, was recorded in cost of sales related to these futures contracts.

Interest rate derivatives: On August 5, 2005, the Company entered into a one-month forward ten-year treasury interest rate lock in anticipation of a private placement borrowing which occurred on December 29, 2005. The contract was settled on December 1, 2005 with a loss of $1,794. On October 25, 2006, the Company entered into two forward starting swaps in anticipation of the aggregate $75,000 private placement debt offerings that occurred on December 7, 2006. On November 14, 2006, the fixed interest rate on the private placement borrowing was locked and, accordingly, the Company terminated and settled the forward starting swaps at a loss of $1,812. These interest rate derivatives were treated as cash flow hedges of forecasted transactions. Accordingly, the losses are reflected as a component of accumulated other comprehensive income (loss) and are being amortized to interest expense over the respective lives of the borrowings.

During the three months ended December 26, 2007 and 2006, $85 and $36 of expense, respectively, was recorded in the consolidated statements of operations related to the amortization of the interest rate derivative losses. During the nine months ended December 26, 2007 and 2006, $259 and $91 of expense, respectively, was recorded in the consolidated statements of operations related to the amortization of the interest rate derivative losses. At December 26, 2007, $1,816 of net unrealized losses remains deferred in accumulated other comprehensive income (loss).

Note 17: Product Warranties and Other Commitments

Product warranties: Modine provides product warranties for its assorted product lines with warranty periods generally ranging from one to ten years, with the majority falling within a two to four year time period. The Company accrues for estimated future warranty costs in the period in which the sale is recorded, and warranty expense estimates are forecasted based on the best information available using analytical and statistical analysis of both historical and current claim data. These expenses are adjusted when it becomes probable that expected claims will differ from initial estimates recorded at the time of the sale.

Changes in the warranty liability were as follows:

		Three months ended December 26
		2007				2006
Balance, September 26		$	12,571			$	10,233
Accruals for warranties issued in current period			1,611				1,688
Accruals (reversals) related to pre-existing warranties			345				(106	)
Settlements made			(1,663	)			(2,232	)
Effect of exchange rate changes			601				207
Balance, December 26		$	13,465			$	9,790

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

		Nine months ended December 26
		2007				2006
Balance, March 31		$	13,843			$	10,893
Acquisitions			—				527
Accruals for warranties issued in current period			4,434				5,761
Accruals (reversals) related to pre-existing warranties			607				(118	)
Settlements made			(6,322	)			(7,644	)
Effect of exchange rate changes			903				371
Balance, December 26		$	13,465			$	9,790

Commitments: At December 26, 2007, the Company had capital expenditure commitments of $49,843. Significant capital expenditure commitments include tooling and equipment expenditures for new and renewal platforms with new and current customers in Europe, Asia and North America, along with the expansion in Asia. The Company utilizes consignment inventory arrangements with certain vendors in the normal course of business, whereby the suppliers maintain certain inventory stock at the Company’s facilities or at other outside facilities. In these cases, the Company has arrangements with the vendor to use the material within a specific period of time.

Note 18: Share Repurchase Programs

During fiscal 2006, the Company announced two common share repurchase programs approved by the Board of Directors. The first program, announced on May 18, 2005, was a dual purpose program authorizing the repurchase of up to five percent of the Company’s outstanding common stock, as well as the indefinite buy-back of additional shares to offset dilution from Modine’s incentive stock plans. The five percent portion of this program was completed in fiscal 2006, while the anti-dilution portion of this program continues to be available to the Company. During the three months ended December 26, 2007, 50 shares were purchased under the anti-dilution portion of this program at an average cost of $27.63 per share, or a total of $1,382. During the nine months ended December 26, 2007, 250 shares were purchased under the anti-dilution portion of this program at an average cost of $27.48 per share, or a total of $6,870. No shares were repurchased under the anti-dilution portion of this program during the three and nine months ended December 26, 2006. On January 26, 2006, the Company announced a second share repurchase program, which authorized the repurchase of up to ten percent of the Company’s outstanding shares over an 18-month period of time, which expired on July 26, 2007. No share repurchases were made under this program during fiscal 2008. During the three months ended December 26, 2006, 49 shares were purchased under this program at an average cost of $24.37 per share, or a total of $1,192. During the nine months ended December 26, 2006, 503 shares were purchased under this program at an average cost of $26.38 per share, or a total of $13,259. The repurchases were made from time to time at current prices through solicited and unsolicited transactions in the open market or in privately negotiated or other transactions. The Company is retiring shares acquired pursuant to the programs, and the retired shares are being returned to the status of authorized but un-issued shares.

Note 19: Segment Information

Modine’s product lines consist of heat-transfer components and systems. Modine serves the vehicular; industrial; building heating, ventilating and air conditioning; and fuel cell original-equipment markets. During the first quarter of fiscal 2008, the Company implemented certain management reporting changes which resulted in the following changes in Modine’s reportable segments:

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

•

The Brazilian operation was reported in the newly established South America segment;

•

The Original Equipment — Americas segment was renamed Original Equipment — North America;

•

Certain support departments previously included within Corporate and administrative were realigned into the Original Equipment — North America segment;

•

The Commercial HVAC&R segment name was changed to Commercial Products; and

•

The Electronics Cooling business, previously reported in the Other segment, was presented as a discontinued operation. Therefore, the only remaining operation within the Other segment is the Fuel Cell business, which is now reported as a separate segment.

In conjunction with the above changes, the previously reported segment results have been restated for comparative purposes. Based on the above changes, the Company has six reportable segments, as follows:

Original Equipment — Asia
Comprised of vehicular and industrial original equipment products in Asia.

Original Equipment — Europe
Comprised of vehicular and industrial original equipment products in Europe.

Original Equipment — North America
Comprised of vehicular and industrial original equipment products in North America.

South America
Comprised of vehicular and industrial original equipment products and aftermarket products in South America.

Commercial Products
Comprised of building heating, ventilating and air conditioning products throughout the world.

Fuel Cell
Comprised of global fuel cell products.

Each Modine segment is managed at the regional vice-president or managing director level and has separate financial results reviewed by the Company’s chief operating decision makers. These results are used by management in evaluating the performance of each business segment, and in making decisions on the allocation of resources among the Company’s various businesses. The segment results include certain allocations of Corporate selling, general and administrative expenses, and the significant accounting policies of the segments are the same as those of Modine as a whole. In addition, the segment data is presented on a continuing operations basis, except where noted.

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

The following is a summary of net sales, earnings (loss) from continuing operations and total assets by segment:

		Three months ended								Nine months ended
		December 26								December 26
		2007				2006				2007				2006
Sales :
Original Equipment — Asia		$	70,904			$	62,307			$	204,986			$	160,258
Original Equipment — Europe			206,099				154,442				551,919				437,297
Original Equipment — North America			133,248				171,461				381,142				523,284
South America			35,430				23,323				97,602				52,851
Commercial Products			56,252				50,412				151,423				139,724
Fuel Cell			923				1,910				2,230				3,320
Segment sales			502,856				463,855				1,389,302				1,316,734
Corporate and administrative			321				1,302				2,461				3,698
Eliminations			(7,876	)			(7,051	)			(20,895	)			(12,825	)
Sales from continuing operations		$	495,301			$	458,106			$	1,370,868			$	1,307,607
Operating earnings (loss):
Original Equipment — Asia		$	984			$	2,330			$	1,148			$	(396	)
Original Equipment — Europe			27,800				17,989				68,774				51,671
Original Equipment — North America *			(31,070	)			9,515				(34,224	)			41,553
South America			2,841				1,821				9,065				3,051
Commercial Products			5,253				4,317				11,028				8,199
Fuel Cell			(395	)			403				(1,247	)			(321	)
Segment earnings			5,413				36,375				54,544				103,757
Corporate and administrative			(20,440	)			(18,579	)			(46,134	)			(53,590	)
Eliminations			7				8				63				(21	)
Other items not allocated to segments			(655	)			1,259				(2,133	)			(218	)
(Loss) earnings from continuing operations before income taxes		$	(15,675	)		$	19,063			$	6,340			$	49,928

MODINE MANUFACTURING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(unaudited)

		December 26, 2007				March 31, 2007
Assets:
Original Equipment — Asia		$	191,625			$	163,836
Original Equipment — Europe			457,968				369,374
Original Equipment — North America			210,443				244,942
South America			100,960				76,367
Commercial Products			109,217				97,619
Fuel Cell			1,043				1,007
Corporate and administrative			153,636				148,425
Assets held for sale			15,585				18,537
Eliminations			(16,670	)			(18,534	)
Total assets		$	1,223,807			$	1,101,573